1

TAX CASES
1. RP vs CAGUIOA G.R. No. 168584 October 15, 2007

2. CIR vs SM PRIME HOLDINGS G.R. 183505 February 26, 2010

3. CIR vs ACOSTA G.R. 154068 August 03, 2007

4. CITY GOVT OF SAN PABLO vs. REYES G.R. 127708 March 25, 1999

5. TOLENTION vs. SEC OF FINANCE G.R. 115455 August 05, 1994

6. ABAKADA vs. ERMITA G.R. September 1, 2005

7. DIAZ vs. SEC OF FINANCE G.R. 193007 July 19, 2011

8. CIR vs. BANK OF COMMERCE G.R. 149636 June 8, 2005

9. CITY OF MANILA vs. COCA-COLA G.R. 181845 August 4, 2009

10. CIR vs. SOLID BANK CORP G.R. 177219 October 13, 2010

11. CIR vs. GONZALES G.R. 177219 October 13, 2010

12. WESTERN MINOLCO vs. CIR G.R. L-61632 August 16, 1983










Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 168584 October 15, 2007
REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY OF
FINANCE, THE HONORABLE COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE
HONORABLE COMMISSIONER OF CUSTOMS, and THE COLLECTOR OF CUSTOMS OF THE
PORT OF SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74, RTC, Third Judicial Region,
Olongapo City, INDIGO DISTRIBUTION CORP., herein represented by ARIEL G.
CONSOLACION, W STAR TRADING AND WAREHOUSING CORP., herein represented by
HIERYN R. ECLARINAL, FREEDOM BRANDS PHILS., CORP., herein represented by ANA
LISA RAMAT, BRANDED WAREHOUSE, INC., herein represented by MARY AILEEN S.
GOZUN, ALTASIA INC., herein represented by ALAN HARROW, TAINAN TRADE (TAIWAN),
INC., herein represented by ELENA RANULLO, SUBIC PARK N SHOP, herein represented
by NORMA MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL PHILS., herein
represented by MA. CHARINA FE C. RODOLFO, DUTY FREE SUPERSTORE (DFS), herein
represented by RAJESH R. SADHWANI, CHJIMES TRADING INC., herein represented by
ANGELO MARK M. PICARDAL, PREMIER FREEPORT, INC., herein represented by ROMMEL
P. GABALDON, FUTURE TRADE SUBIC FREEPORT, INC., herein represented by WILLIE S.
VERIDIANO, GRAND COMTRADE INTERNATIONAL CORP., herein represented by JULIUS
MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC., herein represented by ISIDRO
M. MUOZ, respondents.
D E C I S I O N
CARPIO MORALES, J.:
Petitioners seek via petition for certiorari and prohibition to annul (1) the May 4, 2005
Order
1
issued by public respondent Judge Ramon S. Caguioa of the Regional Trial Court
(RTC), Branch 74, Olongapo City, granting private respondents application for the
issuance of a writ of preliminary injunction and (2) the Writ of Preliminary Injunction
2
that
was issued pursuant to such Order, which stayed the implementation of Republic Act
(R.A.) No. 9334, AN ACT INCREASING THE EXCISE TAX RATES IMPOSED ON ALCOHOL
AND TOBACCO PRODUCTS, AMENDING FOR THE PURPOSE SECTIONS 131, 141, 142,
143, 144, 145 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS
AMENDED.
2

Petitioners likewise seek to enjoin, restrain and inhibit public respondent from enforcing
the impugned issuances and from further proceeding with the trial of Civil Case No. 102-
0-05.
The relevant facts are as follows:
In 1992, Congress enacted Republic Act (R.A) No. 7227
3
or the Bases Conversion and
Development Act of 1992 which, among other things, created the Subic Special Economic
and Freeport Zone (SBF
4
) and the Subic Bay Metropolitan Authority (SBMA).
R.A. No. 7227 envisioned the SBF to be developed into a "self-sustaining, industrial,
commercial, financial and investment center to generate employment opportunities in and
around the zone and to attract and promote productive foreign investments."
5
In line with
this vision, Section 12 of the law provided:
(b) 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 the Philippines;
(c) The provisions of existing laws, rules and regulations to the contrary
notwithstanding, no taxes, local and national, shall be imposed within the Subic
Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross
income earned by all businesses and enterprises within the Subic Special
Economic Zone shall be remitted to the National Government, one percent (1%)
each to the local government units affected by the declaration of the zone in
proportion to their population area, and other factors. In addition, there is
hereby established a development fund of one percent (1%) of the gross
income earned by all businesses and enterprises within the Subic Special
Economic Zone to be utilized for the development of municipalities outside the
City of Olongapo and the Municipality of Subic, and other municipalities
contiguous to be base areas.
In case of conflict between national and local laws with respect to tax
exemption privileges in the Subic Special Economic Zone, the same shall be
resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign
exchange, gold, securities and future shall be allowed and maintained in the
Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate
the operations of banks and other financial institutions within the Subic Special
Economic Zone;
(f) Banking and finance shall be liberalized with the establishment of foreign
currency depository units of local commercial banks and offshore banking units
of foreign banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing
investment shall not be less than Two hundred fifty thousand dollars
($250,000), his/her spouse and dependent children under twenty-one (21)
years of age, shall be granted permanent resident status within the Subic
Special Economic Zone. They shall have freedom of ingress and egress to and
from the Subic Special Economic Zone without any need of special authorization
from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue working visas
renewal every two (2) years to foreign executives and other aliens possessing
highly-technical skills which no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and Employment. The
names of aliens granted permanent residence status and working visas by the
Subic Bay Metropolitan Authority shall be reported to the Bureau of Immigration
and Deportation within thirty (30) days after issuance thereof;
x x x x. (Emphasis supplied)
Pursuant to the law, private respondents Indigo Distribution Corporation, W Star Trading
and Warehousing Corporation, Freedom Brands Philippines Corporation, Branded
Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park N Shop,
Incorporated, Trading Gateways International Philipines, Inc., Duty Free Superstore (DFS)
Inc., Chijmes Trading, Inc., Premier Freeport, Inc., Future Trade Subic Freeport, Inc.,
Grand Comtrade Intl., Corp., and First Platinum International, Inc., which are all domestic
corporations doing business at the SBF, applied for and were granted Certificates of
Registration and Tax Exemption
6
by the SBMA.
These certificates allowed them to engage in the business either of trading, retailing or
wholesaling, import and export, warehousing, distribution and/or transshipment of general
merchandise, including alcohol and tobacco products, and uniformly granted them tax
exemptions for such importations as contained in the following provision of their
respective Certificates:
ARTICLE IV. The Company shall be entitled to tax and duty-free importation of
raw materials, capital equipment, and household and personal items for use
solely within the Subic Bay Freeport Zone pursuant to Sections 12(b) and 12(c)
of the Act and Sections 43, 45, 46 and 49 of the Implementing Rules. All
importations by the Company are exempt from inspection by the Societe
Generale de Surveillance if such importations are delivered immediately to and
for use solely within the Subic Bay Freeport Zone. (Emphasis supplied)
3

Congress subsequently passed R.A. No. 9334, however, effective on January 1, 2005,
7

Section 6 of which provides:
Sec. 6. Section 131 of the National Internal Revenue Code of 1977, as
amended, is hereby amended to read as follows:
Sec. 131. Payment of Excise Taxes on Imported Articles.
(A) Persons Liable. Excise taxes on imported articles shall be paid by the
owner or importer to the Customs Officers, conformably with the regulations of
the Department of Finance and before the release of such articles from the
customshouse or by the person who is found in possession of articles which are
exempt from excise taxes other than those legally entitled to exemption.
In the case of tax-free articles brought or imported into the Philippines by
persons, entities or agencies exempt from tax which are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or entities,
the purchasers or recipients shall be considered the importers thereof, and shall
be liable for the duty and internal revenue tax due on such importation.
The provision of any special or general law to the contrary notwithstanding, the
importation of cigars and cigarettes, distilled spirits, fermented liquors and
wines into the Philippines, even if destined for tax and duty free shops, shall be
subject to all applicable taxes, duties, charges, including excise taxes due
thereon. This shall apply 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, created under Republic Act No. 7227; x x
x and such other freeports as may hereafter be established or created by law:
Provided, further, That importations of cigars and cigarettes, distilled spirits,
fermented liquors and wines made directly by a government-owned and
operated duty-free shop, like the Duty Free Philippines (DFP), shall be
exempted from all applicable duties only: x x x Provided, finally, That the
removal and transfer of tax and duty-free goods, products, machinery,
equipment and other similar articles other than cigars and cigarettes, distilled
spirits, fermented liquors and wines, from one Freeport to another Freeport,
shall not be deemed an introduction into the Philippine customs territory. x x x.
(Emphasis and underscoring supplied)
On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a
Memorandum
8
declaring that effective January 1, 2005, all importations of cigars,
cigarettes, distilled spirits, fermented liquors and wines into the SBF, including those
intended to be transshipped to other free ports in the Philippines, shall be treated as
ordinary importations subject to all applicable taxes, duties and charges, including excise
taxes.
Meanwhile, on February 3, 2005, former Bureau of Internal Revenue (BIR) Commissioner
Guillermo L. Parayno, Jr. requested then Customs Commissioner George M. Jereos to
immediately collect the excise tax due on imported alcohol and tobacco products brought
to the Duty Free Philippines (DFP) and Freeport zones.
9

Accordingly, the Collector of Customs of the port of Subic directed the SBMA Administrator
to require payment of all appropriate duties and taxes on all importations of cigars and
cigarettes, distilled spirits, fermented liquors and wines; and for all transactions involving
the said items to be covered from then on by a consumption entry and no longer by a
warehousing entry.
10

On February 7, 2005, SBMA issued a Memorandum
11
directing the departments concerned
to require locators/importers in the SBF to pay the corresponding duties and taxes on
their importations of cigars, cigarettes, liquors and wines before said items are cleared
and released from the freeport. However, certain SBF locators which were "exclusively
engaged in the transshipment of cigarette products for foreign destinations" were allowed
by the SBMA to process their import documents subject to their submission of an
Undertaking with the Bureau of Customs.
12

On February 15, 2005, private respondents wrote the offices of respondent Collector of
Customs and the SBMA Administrator requesting for a reconsideration of the directives on
the imposition of duties and taxes, particularly excise taxes, on their shipments of cigars,
cigarettes, wines and liquors.
13
Despite these letters, however, they were not allowed to
file any warehousing entry for their shipments.
Thus, private respondent enterprises, through their representatives, brought before the
RTC of Olongapo City a special civil action for declaratory relief
14
to have certain
provisions of R.A. No. 9334 declared as unconstitutional, which case was docketed as Civil
Case No. 102-0-05.
In the main, private respondents submitted that (1) R.A. No. 9334 should not be
interpreted as altering, modifying or amending the provisions of R.A. No. 7227 because
repeals by implication are not favored; (2) a general law like R.A. No. 9334 cannot amend
R.A. No. 7727, which is a special law; and (3) the assailed law violates the one bill-one
subject rule embodied in Section 26(1), Article VI
15
of the Constitution as well as the
constitutional proscription against the impairment of the obligation of contracts.
16

Alleging that great and irreparable loss and injury would befall them as a consequence of
the imposition of taxes on alcohol and tobacco products brought into the SBF, private
respondents prayed for the issuance of a writ of preliminary injunction and/or Temporary
Restraining Order (TRO) and preliminary mandatory injunction to enjoin the directives of
herein petitioners.
Petitioners duly opposed the private respondents prayer for the issuance of a writ of
preliminary injunction and/or TRO, arguing that (1) tax exemptions are not presumed and
even when granted, are strictly construed against the grantee; (2) an increase in business
expense is not the injury contemplated by law, it being a case of damnum absque injuria;
and (3) the drawback mechanism established in the law clearly negates the possibility of
the feared injury.
17

4

Petitioners moreover pointed out that courts are enjoined from issuing a writ of injunction
and/or TRO on the grounds of an alleged nullity of a law, ordinance or administrative
regulation or circular or in a manner that would effectively dispose of the main case.
Taxes, they stressed, are the lifeblood of the government and their prompt and certain
availability is an imperious need. They maintained that greater injury would be inflicted on
the public should the writ be granted.
On May 4, 2005, the court a quo granted private respondents application for the issuance
of a writ of preliminary injunction, after it found that the essential requisites for the
issuance of a preliminary injunction were present.
As investors duly licensed to operate inside the SBF, the trial court declared that private
respondents were entitled to enjoy the benefits of tax incentives under R.A. No. 7227,
particularly the exemption from local and national taxes under Section 12(c); the
aforecited provision of R.A. No. 7227, coupled with private respondents Certificates of
Registration and Tax Exemption from the SBMA, vested in them a clear and unmistakable
right or right in esse that would be violated should R.A. No. 9334 be implemented; and
the invasion of such right is substantial and material as private respondents would be
compelled to pay more than what they should by way of taxes to the national
government.
The trial court thereafter ruled that the prima facie presumption of validity of R.A. No.
9334 had been overcome by private respondents, it holding that as a partial amendment
of the National Internal Revenue Code (NIRC) of 1997,
18
as amended, R.A. No. 9334 is a
general law that could not prevail over a special statute like R.A. No. 7227
notwithstanding the fact that the assailed law is of later effectivity.
The trial court went on to hold that the repealing provision of Section 10 of R.A. No. 9334
does not expressly mention the repeal of R. A. No. 7227, hence, its repeal can only be an
implied repeal, which is not favored; and since R.A. No. 9334 imposes new tax burdens,
whatever doubts arising therefrom should be resolved against the taxing authority and in
favor of the taxpayer.
The trial court furthermore held that R.A. No. 9334 violates the terms and conditions of
private respondents subsisting contracts with SBMA, which are embodied in their
Certificates of Registration and Exemptions in contravention of the constitutional
guarantee against the impairment of contractual obligations; that greater damage would
be inflicted on private respondents if the writ of injunction is not issued as compared to
the injury that the government and the general public would suffer from its issuance; and
that the damage that private respondents are bound to suffer once the assailed statute is
implemented including the loss of confidence of their foreign principals, loss of business
opportunity and unrealized income, and the danger of closing down their businesses due
to uncertainty of continued viability cannot be measured accurately by any standard.
With regard to the rule that injunction is improper to restrain the collection of taxes under
Section 218
19
of the NIRC, the trial court held that what is sought to be enjoined is not
per se the collection of taxes, but the implementation of a statute that has been found
preliminarily to be unconstitutional.
Additionally, the trial court pointed out that private respondents taxes have not yet been
assessed, as they have not filed consumption entries on all their imported tobacco and
alcohol products, hence, their duty to pay the corresponding excise taxes and the
concomitant right of the government to collect the same have not yet materialized.
On May 11, 2005, the trial court issued a Writ of Preliminary Injunction directing
petitioners and the SBMA Administrator as well as all persons assisting or acting for and in
their behalf "1) to allow the operations of [private respondents] in accordance with R.A.
No. 7227; 2) to allow [them] to file warehousing entries instead of consumption entries as
regards their importation of tobacco and alcohol products; and 3) to cease and desist
from implementing the pertinent provisions of R.A. No. 9334 by not compelling [private
respondents] to immediately pay duties and taxes on said alcohol and tobacco products as
a condition to their removal from the port area for transfer to the warehouses of [private
respondents]."
20

The injunction bond was approved at One Million pesos (P1,000,000).
21

Without moving for reconsideration, petitioners have come directly to this Court to
question the May 4, 2005 Order and the Writ of Preliminary Injunction which, they submit,
were issued by public respondent with grave abuse of discretion amounting to lack or
excess of jurisdiction.
In particular, petitioners contend that public respondent peremptorily and unjustly issued
the injunctive writ despite the absence of the legal requisites for its issuance, resulting in
heavy government revenue losses.
22
They emphatically argue that since the tax
exemption previously enjoyed by private respondents has clearly been withdrawn by R.A.
No. 9334, private respondents do not have any right in esse nor can they invoke legal
injury to stymie the enforcement of R.A. No. 9334.
Furthermore, petitioners maintain that in issuing the injunctive writ, public respondent
showed manifest bias and prejudice and prejudged the merits of the case in utter
disregard of the caveat issued by this Court in Searth Commodities Corporation, et al. v.
Court of Appeals
23
and Vera v. Arca.
24

Regarding the P1 million injunction bond fixed by public respondent, petitioners argue that
the same is grossly disproportionate to the damages that have been and continue to be
sustained by the Republic.
In their Reply
25
to private respondents Comment, petitioners additionally plead public
respondents bias and partiality in allowing the motions for intervention of a number of
corporations
26
without notice to them and in disregard of their present pending petition for
certiorari and prohibition before this Court. The injunction bond filed by private
respondent Indigo Distribution Corporation, they stress, is not even sufficient to cover all
the original private respondents, much less, intervenor-corporations.
The petition is partly meritorious.
5

At the outset, it bears emphasis that only questions relating to the propriety of the
issuance of the May 4, 2005 Order and the Writ of Preliminary Injunction are properly
within the scope of the present petition and shall be so addressed in order to determine if
public respondent committed grave abuse of discretion. The arguments raised by private
respondents which pertain to the constitutionality of R.A. No. 9334 subject matter of the
case pending litigation before the trial court have no bearing in resolving the present
petition.
Section 3 of Rule 58 of the Revised Rules of Court provides:
SEC. 3. Grounds for issuance of preliminary injunction. A preliminary
injunction may be granted when it is established.
(a) That the applicant is entitled to the relief demanded, and the whole or part
of such relief consists in restraining the commission or continuance of the act or
acts complained of, or in requiring the performance of an act or acts, either for
a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the
applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject of the
action or proceeding, and tending to render the judgment ineffectual.
For a writ of preliminary injunction to issue, the plaintiff must be able to establish that (1)
there is a clear and unmistakable right to be protected, (2) the invasion of the right
sought to be protected is material and substantial, and (3) there is an urgent and
paramount necessity for the writ to prevent serious damage.
27

Conversely, failure to establish either the existence of a clear and positive right which
should be judicially protected through the writ of injunction, or of the acts or attempts to
commit any act which endangers or tends to endanger the existence of said right, or of
the urgent need to prevent serious damage, is a sufficient ground for denying the
preliminary injunction.
28

It is beyond cavil that R.A. No. 7227 granted private respondents exemption from local
and national taxes, including excise taxes, on their importations of general merchandise,
for which reason they enjoyed tax-exempt status until the effectivity of R.A. No. 9334.
By subsequently enacting R.A. No. 9334, however, Congress expressed its intention to
withdraw private respondents tax exemption privilege on their importations of cigars,
cigarettes, distilled spirits, fermented liquors and wines. Juxtaposed to show this intention
are the respective provisions of Section 131 of the NIRC before and after its amendment
by R.A. No. 9334:
x x x x.
Sec. 131 of NIRC before R.A. No.
9334
Sec. 131, as amended by R.A.
No. 9334
Sec. 131. Payment of Excise
Taxes on Imported Articles.
(A) Persons Liable. Excise taxes
on imported articles shall be paid
by the owner or importer to the
Customs Officers, conformably
with the regulations of the
Department of Finance and
before the release of such articles
from the customs house or by
the person who is found in
possession of articles which are
exempt from excise taxes other
than those legally entitled to
exemption.
In the case of tax-free articles
brought or imported into the
Philippines by persons, entities or
agencies exempt from tax which
are subsequently sold,
transferred or exchanged in the
Philippines to non-exempt
persons or entities, the
purchasers or recipients shall be
considered the importers thereof,
and shall be liable for the duty
and internal revenue tax due on
such importation.
The provision of any special or
general law to the contrary
notwithstanding, the importation
of cigars and cigarettes, distilled
spirits, fermented liquors and
wines into the Philippines, even if
destined for tax and duty free
shops, shall be subject to all
applicable taxes, duties, charges,
including excise taxes due
Sec. 131. Payment of Excise
Taxes on Imported Articles.
(A) Persons Liable. Excise taxes
on imported articles shall be paid
by the owner or importer to the
Customs Officers, conformably
with the regulations of the
Department of Finance and
before the release of such articles
from the customs house or by
the person who is found in
possession of articles which are
exempt from excise taxes other
than those legally entitled to
exemption.
In the case of tax-free articles
brought or imported into the
Philippines by persons, entities or
agencies exempt from tax which
are subsequently sold,
transferred or exchanged in the
Philippines to non-exempt
persons or entities, the
purchasers or recipients shall be
considered the importers thereof,
and shall be liable for the duty
and internal revenue tax due on
such importation.
The provision of any special or
general law to the contrary
notwithstanding, the importation
of cigars and cigarettes, distilled
spirits, fermented liquors and
wines into the Philippines, even if
destined for tax and duty free
shops, shall be subject to all
applicable taxes, duties, charges,
including excise taxes due
6

thereon. Provided, however, That
this shall not apply to cigars and
cigarettes, fermented spirits and
wines brought directly into the
duly chartered or legislated
freeports of the Subic Economic
Freeport Zone, created under
Republic Act No. 7227; the
Cagayan Special Economic Zone
and Freeport, created under
Republic Act No. 7922; and the
Zamboanga City Special
Economic Zone, created under
Republic Act No. 7903, and are
not transshipped to any other
port in the Philippines: Provided,
further, That importations of
cigars and cigarettes, distilled
spirits, fermented liquors and
wines made directly by a
government-owned and operated
duty-free shop, like the Duty Free
Philippines (DFP), shall be
exempted from all applicable
duties, charges, including excise
tax due thereon; Provided still
further, That such articles directly
imported by a government-
owned and operated duty-free
shop, like the Duty-Free
Philippines, shall be labeled "tax
and duty-free" and "not for
resale": Provided, still further,
That if such articles brought into
the duly chartered or legislated
freeports under Republic Acts
Nos. 7227, 7922 and 7903 are
subsequently introduced into the
Philippine customs territory, then
such articles shall, upon such
introduction, be deemed
imported into the Philippines and
shall be subject to all imposts
and excise taxes provided herein
and other statutes: Provided,
finally, That the removal and
transfer of tax and duty-free
goods, products, machinery,
equipment and other similar
articles, from one freeport to
thereon. This shall apply 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, created under Republic Act
No. 7227; the Cagayan Special
Economic Zone and Freeport,
created under Republic Act No.
7922; and the Zamboanga City
Special Economic Zone, created
under Republic Act No. 7903, and
such other freeports as may
hereafter be established or
created by law: Provided, further,
That importations of cigars and
cigarettes, distilled spirits,
fermented liquors and wines
made directly by a government-
owned and operated duty-free
shop, like the Duty Free
Philippines (DFP), shall be
exempted from all applicable
duties only: Provided still further,
That such articles directly
imported by a government-
owned and operated duty-free
shop, like the Duty-Free
Philippines, shall be labeled "tax
and duty-free" and "not for
resale": Provided, finally, That
the removal and transfer of tax
and duty-free goods, products,
machinery, equipment and other
similar articles other than cigars
and cigarettes, distilled spirits,
fermented liquors and wines,
from one Freeport to another
Freeport, shall not be deemed an
introduction into the Philippine
customs territory.
x x x x.
another freeport, shall not be
deemed an introduction into the
Philippine customs territory.
x x x x.
(Emphasis and underscoring supplied)
To note, the old Section 131 of the NIRC expressly provided that all taxes, duties,
charges, including excise taxes shall not apply to importations of cigars, cigarettes,
fermented spirits and wines brought directly into the duly chartered or legislated freeports
of the SBF.
On the other hand, Section 131, as amended by R.A. No. 9334, now provides that such
taxes, duties and charges, including excise taxes, shall apply to importation of cigars and
cigarettes, distilled spirits, fermented liquors and wines into the SBF.
Without necessarily passing upon the validity of the withdrawal of the tax exemption
privileges of private respondents, it behooves this Court to state certain basic principles
7

and observations that should throw light on the propriety of the issuance of the writ of
preliminary injunction in this case.
First. Every presumption must be indulged in favor of the constitutionality of a statute.
29

The burden of proving the unconstitutionality of a law rests on the party assailing the
law.
30
In passing upon the validity of an act of a co-equal and coordinate branch of the
government, courts must ever be mindful of the time-honored principle that a statute is
presumed to be valid.
Second. There is no vested right in a tax exemption, more so when the latest expression
of legislative intent renders its continuance doubtful. Being a mere statutory privilege,
31
a
tax exemption may be modified or withdrawn at will by the granting authority.
32

To state otherwise is to limit the taxing power of the State, which is unlimited, plenary,
comprehensive and supreme. The power to impose taxes is one so unlimited in force and
so searching in extent, it is subject only to restrictions which rest on the discretion of the
authority exercising it.
33

Third. As a general rule, tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.
34
The burden of proof rests upon
the party claiming exemption to prove that it is in fact covered by the exemption so
claimed.
35
In case of doubt, non-exemption is favored.
36

Fourth. A tax exemption cannot be grounded upon the continued existence of a statute
which precludes its change or repeal.
37
Flowing from the basic precept of constitutional
law that no law is irrepealable, Congress, in the legitimate exercise of its lawmaking
powers, can enact a law withdrawing a tax exemption just as efficaciously as it may grant
the same under Section 28(4) of Article VI
38
of the Constitution. There is no gainsaying
therefore that Congress can amend Section 131 of the NIRC in a manner it sees fit, as it
did when it passed R.A. No. 9334.
Fifth. The rights granted under the Certificates of Registration and Tax Exemption of
private respondents are not absolute and unconditional as to constitute rights in esse
those clearly founded on or granted by law or is enforceable as a matter of law.
39

These certificates granting private respondents a "permit to operate" their respective
businesses are in the nature of licenses, which the bulk of jurisprudence considers as
neither a property nor a property right.
40
The licensee takes his license subject to such
conditions as the grantor sees fit to impose, including its revocation at pleasure.
41
A
license can thus be revoked at any time since it does not confer an absolute right.
42

While the tax exemption contained in the Certificates of Registration of private
respondents may have been part of the inducement for carrying on their businesses in the
SBF, this exemption, nevertheless, is far from being contractual in nature in the sense that
the non-impairment clause of the Constitution can rightly be invoked.
43

Sixth. Whatever right may have been acquired on the basis of the Certificates of
Registration and Tax Exemption must yield to the States valid exercise of police power.
44

It is well to remember that taxes may be made the implement of the police power.
45

It is not difficult to recognize that public welfare and necessity underlie the enactment of
R.A. No. 9334. As petitioners point out, the now assailed provision was passed to curb the
pernicious practice of some unscrupulous business enterprises inside the SBF of using
their tax exemption privileges for smuggling purposes. Smuggling in whatever form is bad
enough; it is worse when the same is allegedly perpetrated, condoned or facilitated by
enterprises hiding behind the cloak of their tax exemption privileges.
Seventh. As a rule, courts should avoid issuing a writ of preliminary injunction which
would in effect dispose of the main case without trial.
46
This rule is intended to preclude a
prejudgment of the main case and a reversal of the rule on the burden of proof since by
issuing the injunctive writ, the court would assume the proposition that petitioners are
inceptively duty bound to prove.
47

Eighth. A court may issue a writ of preliminary injunction only when the petitioner
assailing a statute has made out a case of unconstitutionality or invalidity strong enough,
in the mind of the judge, to overcome the presumption of validity, in addition to a
showing of a clear legal right to the remedy sought.
48

Thus, it is not enough that petitioners make out a case of unconstitutionality or invalidity
to overcome the prima facie presumption of validity of a statute; they must also be able to
show a clear legal right that ought to be protected by the court. The issuance of the writ
is therefore not proper when the complainants right is doubtful or disputed.
49

Ninth. The feared injurious effects of the imposition of duties, charges and taxes on
imported cigars, cigarettes, distilled spirits, fermented liquors and wines on private
respondents businesses cannot possibly outweigh the dire consequences that the non-
collection of taxes, not to mention the unabated smuggling inside the SBF, would wreak
on the government. Whatever damage would befall private respondents must perforce
take a back seat to the pressing need to curb smuggling and raise revenues for
governmental functions.
All told, while the grant or denial of an injunction generally rests on the sound discretion
of the lower court, this Court may and should intervene in a clear case of abuse.
50

One such case of grave abuse obtained in this case when public respondent issued his
Order of May 4, 2005 and the Writ of Preliminary Injunction on May 11, 2005
51
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.
8

To stress, the possibility of irreparable damage without proof of an actual existing right
would not justify an injunctive relief.
52

Besides, private respondents are not altogether lacking an appropriate relief under the
law. As petitioners point out in their Petition
53
before this Court, private respondents may
avail themselves of a tax refund or tax credit should R.A. No. 9334 be finally declared
invalid.
Indeed, Sections 204
54
and 229
55
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.
It may not be amiss to add that private respondents can also opt not to import, or to
import less of, those items which no longer enjoy tax exemption under R.A. No. 9334 to
avoid the payment of taxes thereon.
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 public respondent to have overstepped his discretion
when he arbitrarily fixed the injunction bond of the SBF enterprises at only P1million.
The alleged sparseness of the testimony of Indigo Corporations representative
56
on the
injury to be suffered by private respondents may be excused because evidence for a
preliminary injunction need not be conclusive or complete. Nonetheless, considering the
number of private respondent enterprises and the volume of their businesses, the
injunction bond is undoubtedly not sufficient to answer for the damages that the
government was bound to suffer as a consequence of the suspension of the
implementation of the assailed provisions of R.A. No. 9334.
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.
57

Recalling this Courts pronouncements in Olalia v. Hizon
58
that:
x x x [T]here is no power the exercise of which is more delicate, which requires
greater caution, deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction. It is the strong arm of equity
that should never be extended unless to cases of great injury, where courts of
law cannot afford an adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the defendant and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied that the
law permits it and the emergency demands it,
it cannot be overemphasized that any injunction that restrains the collection of taxes,
which is the inevitable result of the suspension of the implementation of the assailed
Section 6 of R.A. No. 9334, is a limitation upon the right of the government to its lifeline
and wherewithal.
The power to tax emanates from necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.
59
That the
enforcement of tax laws and the collection of taxes are of paramount importance for the
sustenance of government has been repeatedly observed. Taxes being the lifeblood of the
government that should be collected without unnecessary hindrance,
60
every precaution
must be taken not to unduly suppress it.
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. To halt the proceedings at this point
may be acting too prematurely and would not be in keeping with the policy that courts
must decide controversies on the merits.
Moreover, lacking the requisite proof of public respondents 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.
WHEREFORE, the Petition is PARTLY GRANTED. The writ of certiorari to nullify and set
aside the Order of May 4, 2005 as well as the Writ of Preliminary Injunction issued by
respondent Judge Caguioa on May 11, 2005 is GRANTED. The assailed Order and Writ of
Preliminary Injunction are hereby declared NULL AND VOID and accordingly SET ASIDE.
The writ of prohibition prayed for is, however, DENIED.
SO ORDERED.
Puno, (Chief Justice), Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-
Martinez, Corona, Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., Nachura, Reyes, JJ.,
concur.


9





Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

COMMISSIONER OF INTERNAL G.R. No. 183505
REVENUE,
Petitioner, Present:

CARPIO, J., Chairperson,
- versus - BRION,
DEL CASTILLO,
ABAD, and
SM PRIME HOLDINGS, INC. PEREZ, JJ.
and FIRST ASIA REALTY
DEVELOPMENT CORPORATION, Promulgated:
Respondents. February 26, 2010
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

DEL CASTILLO, J.:

When the intent of the law is not apparent as worded, or when the application of the law
would lead to absurdity or injustice, legislative history is all important. In such cases, courts may take
judicial notice of the origin and history of the law,1[1] the deliberations during the enactment,2[2] as
well as prior laws on the same subject matter3[3] to ascertain the true intent or spirit of the law.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to
Republic Act (RA) No. 9282,4[4] seeks to set aside the April 30, 2008 Decision5[5] and the June 24,
2008 Resolution6[6] of the Court of Tax Appeals (CTA).
Factual Antecedents













10

Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development
Corporation (First Asia) are domestic corporations duly organized and existing under the laws of the
Republic of the Philippines. Both are engaged in the business of operating cinema houses, among
others.7[7]

CTA Case No. 7079

On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a
Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales in
the amount of P119,276,047.40 for taxable year 2000.8[8] In response, SM Prime filed a letter-
protest dated December 15, 2003.9[9]

On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged
VAT deficiency, which the latter protested in a letter dated January 14, 2004.10[10]









On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to
pay the VAT deficiency for taxable year 2000 in the amount of P124,035,874.12.11[11]

On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as
CTA Case No. 7079.12[12]

CTA Case No. 7085

On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on
cinema ticket sales for taxable year 1999 in the total amount of P35,823,680.93.13[13] First Asia
protested the PAN in a letter dated July 9, 2002.14[14]








11


Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency
which was protested by First Asia in a letter dated December 12, 2002.15[15]

On September 6, 2004, the BIR rendered a Decision denying the protest and ordering
First Asia to pay the amount of P35,823,680.93 for VAT deficiency for taxable year 1999.16[16]

Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA,
docketed as CTA Case No. 7085.17[17]

CTA Case No. 7111










On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket
sales for taxable year 2000 in the amount of P35,840,895.78. First Asia protested the PAN through a
letter dated April 22, 2004.18[18]

Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency.19[19]
First Asia protested the same in a letter dated July 9, 2004.20[20]

On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT
deficiency in the amount of P35,840,895.78 for taxable year 2000.21[21]










12

This prompted First Asia to file a Petition for Review before the CTA on December 16,
2004. The case was docketed as CTA Case No. 7111.22[22]

CTA Case No. 7272

Re: Assessment Notice No. 008-02

A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total
amount of P32,802,912.21 was issued against First Asia by the BIR. In response, First Asia filed a
protest-letter dated November 11, 2004. The BIR then sent a Formal Letter of Demand, which was
protested by First Asia on December 14, 2004.23[23]

Re: Assessment Notice No. 003-03

A PAN for VAT deficiency on cinema ticket sales in the total amount of P28,196,376.46 for
the taxable year 2003 was issued by the BIR against First Asia. In a letter dated September 23,





2004, First Asia protested the PAN. A Formal Letter of Demand was thereafter issued by the BIR to
First Asia, which the latter protested through a letter dated November 11, 2004. 24[24]

On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia
to pay the amounts of P33,610,202.91 and P28,590,826.50 for VAT deficiency for taxable years 2002
and 2003, respectively.25[25]

Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as
CTA Case No. 7272.26[26]

Consolidated Petitions

The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM
Prime and First Asia.27[27]







13


On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and
7272 with CTA Case No. 7079 on the grounds that the issues raised therein are identical and that SM
Prime is a majority shareholder of First Asia. The motion was granted.28[28]

Upon submission of the parties respective memoranda, the consolidated cases were
submitted for decision on the sole issue of whether gross receipts derived from admission tickets by
cinema/theater operators or proprietors are subject to VAT.29[29]

Ruling of the CTA First Division

On September 22, 2006, the First Division of the CTA rendered a Decision granting the
Petition for Review. Resorting to the language used and the legislative history of the law, it ruled that
the activity of showing cinematographic films is not a service covered by VAT under the National
Internal Revenue Code (NIRC) of 1997, as amended, but an activity subject to amusement tax under
RA 7160, otherwise known as the Local Government Code (LGC) of 1991. Citing House Joint







Resolution No. 13, entitled Joint Resolution Expressing the True Intent of Congress with Respect to
the Prevailing Tax Regime in the Theater and Local Film Industry Consistent with the States Policy to
Have a Viable, Sustainable and Competitive Theater and Film Industry as One of its Partners in
National Development,30[30] the CTA First Division held that the House of Representatives resolved
that there should only be one business tax applicable to theaters and movie houses, which is the
30% amusement tax imposed by cities and provinces under the LGC of 1991. Further, it held that
consistent with the States policy to have a viable, sustainable and competitive theater and film
industry, the national government should be precluded from imposing its own business tax in addition
to that already imposed and collected by local government units. The CTA First Division likewise
found that Revenue Memorandum Circular (RMC) No. 28-2001, which imposes VAT on gross receipts
from admission to cinema houses, cannot be given force and effect because it failed to comply with
the procedural due process for tax issuances under RMC No. 20-86.31[31] Thus, it disposed of the
case as follows:

IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the
Petitions for Review. Respondents Decisions denying petitioners protests
against deficiency value-added taxes are hereby REVERSED. Accordingly,
Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-
03 and 008-02 are ORDERED cancelled and set aside.

SO ORDERED.32[32]








14

Aggrieved, the CIR moved for reconsideration which was denied by the First Division in its
Resolution dated December 14, 2006.33[33]

Ruling of the CTA En Banc

Thus, the CIR appealed to the CTA En Banc.34[34] The case was docketed as CTA EB
No. 244.35[35] The CTA En Banc however denied36[36] the Petition for Review and
dismissed37[37] as well petitioners Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive
enumeration of what services are intended to be subject to VAT. And since the showing or exhibition











of motion pictures, films or movies by cinema operators or proprietors is not among the enumerated
activities contemplated in the phrase sale or exchange of services, then gross receipts derived by
cinema/ theater operators or proprietors from admission tickets in showing motion pictures, film or
movie are not subject to VAT. It reiterated that the exhibition or showing of motion pictures, films, or
movies is instead subject to amusement tax under the LGC of 1991. As regards the validity of RMC
No. 28-2001, the CTA En Banc agreed with its First Division that the same cannot be given force and
effect for failure to comply with RMC No. 20-86.

Issue

Hence, the present recourse, where petitioner alleges that the CTA En Banc seriously
erred:

(1) In not finding/holding that the gross receipts derived
by operators/proprietors of cinema houses from admission tickets
[are] subject to the 10% VAT because:

(a) THE EXHIBITION OF MOVIES BY CINEMA
OPERATORS/PROPRIETORS TO THE PAYING
PUBLIC IS A SALE OF SERVICE;

(b) UNLESS EXEMPTED BY LAW, ALL SALES OF
SERVICES ARE EXPRESSLY SUBJECT TO VAT
UNDER SECTION 108 OF THE NIRC OF 1997;

(c) SECTION 108 OF THE NIRC OF 1997 IS A
CLEAR PROVISION OF LAW AND THE
APPLICATION OF RULES OF STATUTORY
CONSTRUCTION AND EXTRINSIC AIDS IS
UNWARRANTED;

(d) GRANTING WITHOUT CONCEDING THAT
RULES OF CONSTRUCTION ARE APPLICABLE
HEREIN, STILL THE HONORABLE COURT
15

ERRONEOUSLY APPLIED THE SAME AND
PROMULGATED DANGEROUS PRECEDENTS;

(e) THERE IS NO VALID, EXISTING PROVISION
OF LAW EXEMPTING RESPONDENTS SERVICES
FROM THE VAT IMPOSED UNDER SECTION 108
OF THE NIRC OF 1997;

(f) QUESTIONS ON THE WISDOM OF THE
LAW ARE NOT PROPER ISSUES TO BE TRIED BY
THE HONORABLE COURT; and

(g) RESPONDENTS WERE TAXED BASED ON
THE PROVISION OF SECTION 108 OF THE NIRC.

(2) In ruling that the enumeration in Section 108 of the
NIRC of 1997 is exhaustive in coverage;

(3) In misconstruing the NIRC of 1997 to conclude that
the showing of motion pictures is merely subject to the
amusement tax imposed by the Local Government Code; and

(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-
2001.38[38]

Simply put, the issue in this case is whether the gross receipts derived by operators or
proprietors of cinema/theater houses from admission tickets are subject to VAT.




Petitioners Arguments

Petitioner argues that the enumeration of services subject to VAT in Section 108 of the
NIRC is not exhaustive because it covers all sales of services unless exempted by law. He claims that
the CTA erred in applying the rules on statutory construction and in using extrinsic aids in interpreting
Section 108 because the provision is clear and unambiguous. Thus, he maintains that the exhibition
of movies by cinema operators or proprietors to the paying public, being a sale of service, is subject
to VAT.

Respondents Arguments

Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of
1997 shows that the gross receipts of proprietors or operators of cinemas/theaters derived from
public admission are not among the services subject to VAT. Respondents insist that gross receipts
from cinema/theater admission tickets were never intended to be subject to any tax imposed by the
national government. According to them, the absence of gross receipts from cinema/theater
admission tickets from the list of services which are subject to the national amusement tax under
Section 125 of the NIRC of 1997 reinforces this legislative intent. Respondents also highlight the fact
that RMC No. 28-2001 on which the deficiency assessments were based is an unpublished
administrative ruling.

Our Ruling

16

The petition is bereft of merit.


The enumeration of services
subject to VAT under Section
108 of the NIRC is not
exhaustive


Section 108 of the NIRC of the 1997 reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease
of Properties.

(A) Rate and Base of Tax. There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services, including the use or lease of
properties.
The phrase sale or exchange of services means the performance
of all kinds of services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services;
lessors or distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, rest houses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other domestic
common carriers by land, air and water relative to their transport of goods or
cargoes; services of franchise grantees of telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under
Section 119 of this Code; services of banks, non-bank financial intermediaries
and finance companies; and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies; and
similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties. The phrase sale or
exchange of services shall likewise include:

(1) The lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;

x x x x

(7) The lease of motion picture films, films, tapes and discs; and

(8) The lease or the use of or the right to use radio, television,
satellite transmission and cable television time.

x x x x (Emphasis supplied)

A cursory reading of the foregoing provision clearly shows that the enumeration of the
sale or exchange of services subject to VAT is not exhaustive. The words, including, similar
services, and shall likewise include, indicate that the enumeration is by way of example
only.39[39]

Among those included in the enumeration is the lease of motion picture films, films, tapes
and discs. This, however, is not the same as the showing or exhibition of motion pictures or films.
As pointed out by the CTA En Banc:

Exhibition in Blacks Law Dictionary is defined as To show or display. x x x
To produce anything in public so that it may be taken into possession (6th
ed., p. 573). While the word lease is defined as a contract by which one
owning such property grants to another the right to possess, use and enjoy it
on specified period of time in exchange for periodic payment of a stipulated
price, referred to as rent (Blacks Law Dictionary, 6th ed., p. 889). x x x40[40]




17


Since the activity of showing motion pictures, films or movies by cinema/ theater
operators or proprietors is not included in the enumeration, it is incumbent upon the court to the
determine whether such activity falls under the phrase similar services. The intent of the legislature
must therefore be ascertained.

The legislature never intended
operators
or proprietors of cinema/theater
houses to be covered by VAT


Under the NIRC of 1939,41[41] the national government imposed amusement tax on
proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses, boxing
exhibitions, and other places of amusement, including cockpits, race tracks, and cabaret.42[42] In
the case of theaters or cinematographs, the taxes were first deducted, withheld, and paid by the
proprietors, lessees, or operators of such theaters or cinematographs before the gross receipts were
divided between the proprietors, lessees, or operators of the theaters or cinematographs and the






distributors of the cinematographic films. Section 1143[43] of the Local Tax Code,44[44] however,
amended this provision by transferring the power to impose amusement tax45[45] on admission
from theaters, cinematographs, concert halls, circuses and other places of amusements exclusively to
the local government. Thus, when the NIRC of 197746[46] was enacted, the national government
imposed amusement tax only on proprietors, lessees or operators of cabarets, day and night clubs,
Jai-Alai and race tracks.47[47]

On January 1, 1988, the VAT Law48[48] was promulgated. It amended certain
provisions of the NIRC of 1977 by imposing a multi-stage VAT to replace the tax on original and













18

subsequent sales tax and percentage tax on certain services. It imposed VAT on sales of services
under Section 102 thereof, which provides:

SECTION 102. Value-added tax on sale of services. (a)
Rate and base of tax. There shall be levied, assessed and collected, a value-
added tax equivalent to 10% percent of gross receipts derived by any person
engaged in the sale of services. The phrase sale of services means the
performance of all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of personal property; lessors or distributors of cinematographic
films; persons engaged in milling, processing, manufacturing or repacking
goods for others; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties: Provided That the following services performed in the Philippines by
VAT-registered persons shall be subject to 0%:

(1) Processing manufacturing or repacking goods for other
persons doing business outside the Philippines which goods are subsequently
exported, x x x

x x x x

Gross receipts means the total amount of money or its equivalent
representing the contract price, compensation or service fee, including the
amount charged for materials supplied with the services and deposits or
advance payments actually or constructively received during the taxable
quarter for the service performed or to be performed for another person,
excluding value-added tax.

(b) Determination of the tax. (1) Tax billed as a separate
item in the invoice. If the tax is billed as a separate item in the invoice, the
tax shall be based on the gross receipts, excluding the tax.

(2) Tax not billed separately or is billed erroneously in the
invoice. If the tax is not billed separately or is billed erroneously in the
invoice, the tax shall be determined by multiplying the gross receipts (including
the amount intended to cover the tax or the tax billed erroneously) by 1/11.
(Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended, however, were exempted
from the coverage of VAT.49[49]

On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88,
which clarified that the power to impose amusement tax on gross receipts derived from admission
tickets was exclusive with the local government units and that only the gross receipts of amusement
places derived from sources other than from admission tickets were subject to amusement tax under
the NIRC of 1977, as amended. Pertinent portions of RMC 8-88 read:

Under the Local Tax Code (P.D. 231, as amended), the jurisdiction
to levy amusement tax on gross receipts arising from admission to places of
amusement has been transferred to the local governments to the exclusion of
the national government.

x x x x

Since the promulgation of the Local Tax Code which took effect on
June 28, 1973 none of the amendatory laws which amended the National
Internal Revenue Code, including the value added tax law under Executive
Order No. 273, has amended the provisions of Section 11 of the Local Tax
Code. Accordingly, the sole jurisdiction for collection of amusement tax on
admission receipts in places of amusement rests exclusively on the local
government, to the exclusion of the national government. Since the Bureau of
Internal Revenue is an agency of the national government, then it follows that
it has no legal mandate to levy amusement tax on admission receipts in the
said places of amusement.

Considering the foregoing legal background, the provisions under
Section 123 of the National Internal Revenue Code as renumbered by
Executive Order No. 273 (Sec. 228, old NIRC) pertaining to amusement taxes
on places of amusement shall be implemented in accordance with BIR
RULING, dated December 4, 1973 and BIR RULING NO. 231-86 dated
November 5, 1986 to wit:




19

x x x Accordingly, only the gross receipts of the amusement places
derived from sources other than from admission tickets shall be subject to x x
x amusement tax prescribed under Section 228 of the Tax Code, as amended
(now Section 123, NIRC, as amended by E.O. 273). The tax on gross receipts
derived from admission tickets shall be levied and collected by the city
government pursuant to Section 23 of Presidential Decree No. 231, as
amended x x x or by the provincial government, pursuant to Section 11 of
P.D. 231, otherwise known as the Local Tax Code. (Emphasis supplied)

On October 10, 1991, the LGC of 1991 was passed into law. The local government
retained the power to impose amusement tax on proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more
than thirty percent (30%) of the gross receipts from admission fees under Section 140 thereof.50[50]
In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the local government before the gross receipts are divided between
said proprietors, lessees, or operators and the distributors of the cinematographic films. However,
the provision in the Local Tax Code expressly excluding the national government from collecting tax
from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and
other places of amusements was no longer included.

In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its
administration. Three years later, RA 7716 was amended by RA 8241. Shortly thereafter, the NIRC
of 199751[51] was signed into law. Several amendments52[52] were made to expand the coverage






of VAT. However, none pertain to cinema/theater operators or proprietors. At present, only lessors
or distributors of cinematographic films are subject to VAT. While persons subject to amusement
tax53[53] under the NIRC of 1997 are exempt from the coverage of VAT.54[54]
Based on the foregoing, the following facts can be established:

(1) Historically, the activity of showing motion pictures, films or
movies by cinema/theater operators or proprietors has always been
considered as a form of entertainment subject to amusement tax.

(2) Prior to the Local Tax Code, all forms of amusement tax were
imposed by the national government.

(3) When the Local Tax Code was enacted, amusement tax on
admission tickets from theaters, cinematographs, concert halls,
circuses and other places of amusements were transferred to the local
government.

(4) Under the NIRC of 1977, the national government imposed
amusement tax only on proprietors, lessees or operators of cabarets,
day and night clubs, Jai-Alai and race tracks.







20

(5) The VAT law was enacted to replace the tax on original and
subsequent sales tax and percentage tax on certain services.
(6) When the VAT law was implemented, it exempted persons
subject to amusement tax under the NIRC from the coverage of VAT.

(7) When the Local Tax Code was repealed by the LGC of 1991, the
local government continued to impose amusement tax on admission
tickets from theaters, cinematographs, concert halls, circuses and
other places of amusements.

(8) Amendments to the VAT law have been consistent in exempting
persons subject to amusement tax under the NIRC from the coverage
of VAT.

(9) Only lessors or distributors of cinematographic films are included
in the coverage of VAT.

These reveal the legislative intent not to impose VAT on persons already covered by the
amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC of
1991 precisely because the VAT law was intended to replace the percentage tax on certain services.
The mere fact that they are taxed by the local government unit and not by the national government
is immaterial. The Local Tax Code, in transferring the power to tax gross receipts derived by
cinema/theater operators or proprietor from admission tickets to the local government, did not intend
to treat cinema/theater houses as a separate class. No distinction must, therefore, be made
between the places of amusement taxed by the national government and those taxed by the local
government.

To hold otherwise would impose an unreasonable burden on cinema/theater houses
operators or proprietors, who would be paying an additional 10%55[55] VAT on top of the 30%


amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax. Such imposition
would result in injustice, as persons taxed under the NIRC of 1997 would be in a better position than
those taxed under the LGC of 1991. We need not belabor that a literal application of a law must be
rejected if it will operate unjustly or lead to absurd results.56[56] Thus, we are convinced that the
legislature never intended to include cinema/theater operators or proprietors in the coverage of VAT.

On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals,57[57] to
wit:

The power of taxation is sometimes called also the power to
destroy. Therefore, it should be exercised with caution to minimize injury to
the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the hen that lays the golden egg. And, in
order to maintain the general public's trust and confidence in the Government
this power must be used justly and not treacherously.


The repeal of the Local Tax Code
by the LGC of 1991 is not a legal
basis for the imposition of VAT






21



Petitioner, in issuing the assessment notices for deficiency VAT against respondents,
ratiocinated that:

Basically, it was acknowledged that a cinema/theater operator was
then subject to amusement tax under Section 260 of Commonwealth Act No.
466, otherwise known as the National Internal Revenue Code of 1939,
computed on the amount paid for admission. With the enactment of the Local
Tax Code under Presidential Decree (PD) No. 231, dated June 28, 1973, the
power of imposing taxes on gross receipts from admission of persons to
cinema/theater and other places of amusement had, thereafter, been
transferred to the provincial government, to the exclusion of the national or
municipal government (Sections 11 & 13, Local Tax Code). However, the
said provision containing the exclusive power of the provincial government to
impose amusement tax, had also been repealed and/or deleted by Republic
Act (RA) No. 7160, otherwise known as the Local Government Code of 1991,
enacted into law on October 10, 1991. Accordingly, the enactment of RA No.
7160, thus, eliminating the statutory prohibition on the national government to
impose business tax on gross receipts from admission of persons to places of
amusement, led the way to the valid imposition of the VAT pursuant to Section
102 (now Section 108) of the old Tax Code, as amended by the Expanded
VAT Law (RA No. 7716) and which was implemented beginning January 1,
1996.58[58] (Emphasis supplied)

We disagree.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition
of VAT on the gross receipts of cinema/theater operators or proprietors derived from admission



tickets. The removal of the prohibition under the Local Tax Code did not grant nor restore to the
national government the power to impose amusement tax on cinema/theater operators or
proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden on
the taxpayer, it cannot be presumed nor can it be extended by implication. A law will not be
construed as imposing a tax unless it does so clearly, expressly, and unambiguously.59[59] As it is,
the power to impose amusement tax on cinema/theater operators or proprietors remains with the
local government.

Revenue Memorandum Circular
No. 28-2001 is invalid


Considering that there is no provision of law imposing VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets, RMC No. 28-2001 which
imposes VAT on the gross receipts from admission to cinema houses must be struck down. We
cannot overemphasize that RMCs must not override, supplant, or modify the law, but must remain
consistent and in harmony with, the law they seek to apply and implement.60[60]

In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied
with the procedural due process for tax issuances as prescribed under RMC No. 20-86.





22


Rule on tax exemption does not
apply


Moreover, contrary to the view of petitioner, respondents need not prove their entitlement
to an exemption from the coverage of VAT. The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is clearly subject to the tax being levied against
him.61[61] The reason is obvious: it is both illogical and impractical to determine who are exempted
without first determining who are covered by the provision.62[62] Thus, unless a statute imposes a
tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the
imposition of a tax cannot be presumed.63[63] In fact, in case of doubt, tax laws must be construed
strictly against the government and in favor of the taxpayer.64[64]










WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the
Court of Tax Appeals En Banc holding that gross receipts derived by respondents from admission
tickets in showing motion pictures, films or movies are not subject to value-added tax under Section
108 of the National Internal Revenue Code of 1997, as amended, and its June 24, 2008 Resolution
denying the motion for reconsideration are AFFIRMED.

SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 154068 August 3, 2007
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ROSEMARIE ACOSTA, as represented by Virgilio A. Abogado, respondent.
D E C I S I O N
QUISUMBING, J.:
Assailed in this petition for review are the Decision
1
and Resolution
2
dated February 13,
2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572
which had reversed the Resolution
3
dated August 4, 1999 of the Court of Tax Appeals in
C.T.A. Case No. 5828 and ordered the latter to resolve respondents petition for review.
The facts are as follows:
Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the period
January 1, 1996 to December 31, 1996, respondent was assigned in a foreign country.
23

During that period, Intel withheld the taxes due on respondents compensation income
and remitted to the Bureau of Internal Revenue (BIR) the amount of P308,084.56.
On March 21, 1997, respondent and her husband filed with the BIR their Joint Individual
Income Tax Return for the year 1996. Later, on June 17, 1997, respondent, through her
representative, filed an amended return and a Non-Resident Citizen Income Tax Return,
and paid the BIR P17,693.37 plus interests in the amount of P14,455.76. On October 8,
1997, she filed another amended return indicating an overpayment of P358,274.63.
Claiming that the income taxes withheld and paid by Intel and respondent resulted in an
overpayment of P340,918.92,
4
respondent filed on April 15, 1999 a petition for review
docketed as C.T.A. Case No. 5828 with the Court of Tax Appeals (CTA). The
Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of
respondent to file the mandatory written claim for refund before the CIR.
In its Resolution dated August 4, 1999, the CTA dismissed respondents petition. For one,
the CTA ruled that respondent failed to file a written claim for refund with the CIR, a
condition precedent to the filing of a petition for review before the CTA.
5
Second, the CTA
noted that respondents omission, inadvertently or otherwise, to allege in her petition the
date of filing the final adjustment return, deprived the court of its jurisdiction over the
subject matter of the case.
6
The decretal portion of the CTAs resolution states:
WHEREFORE, in view of all the foregoing, Respondents Motion to Dismiss is
GRANTED. Accordingly[,] the Petition for Review is hereby DISMISSED.
SO ORDERED.
7

Upon review, the Court of Appeals reversed the CTA and directed the latter to resolve
respondents petition for review. Applying Section 204(c)
8
of the 1997 National Internal
Revenue Code (NIRC), the Court of Appeals ruled that respondents filing of an amended
return indicating an overpayment was sufficient compliance with the requirement of a
written claim for refund.
9
The decretal portion of the Court of Appeals decision reads:
WHEREFORE, finding the petition to be meritorious, this Court GRANTS it due
course and REVERSES the appealed Resolutions and DIRECTS the Court of Tax
Appeal[s] to resolve the petition for review on the merits.
SO ORDERED.
10

Petitioner sought reconsideration, but it was denied. Hence, the instant petition raising the
following questions of law:
I.
WHETHER OR NOT THE 1997 TAX REFORM ACT CAN BE APPLIED
RETROACTIVELY.
II.
WHETHER OR NOT THE CTA HAS JURISDICTION TO TAKE [COGNIZANCE] OF
RESPONDENTS PETITION FOR REVIEW.
11

While the main concern in this controversy is the CTAs jurisdiction, we must first resolve
two issues. First, does the amended return filed by respondent indicating an overpayment
constitute the written claim for refund required by law, thereby vesting the CTA with
jurisdiction over this case? Second, can the 1997 NIRC be applied retroactively?
Petitioner avers that an amended return showing an overpayment does not constitute the
written claim for refund required under Section 230
12
of the 1993 NIRC
13
(old Tax Code).
He claims that an actual written claim for refund is necessary before a suit for its recovery
may proceed in any court.
On the other hand, respondent contends that the filing of an amended return indicating
an overpayment of P358,274.63 constitutes a written claim for refund pursuant to the
clear proviso stated in the last sentence of Section 204(c) of the 1997 NIRC (new Tax
Code), to wit:
x x x x
Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
x x x x
Along the same vein, respondent invokes the liberal application of technicalities in tax
refund cases, conformably with our ruling in BPI-Family Savings Bank, Inc. v. Court of
Appeals.
14
We are, however, unable to agree with respondents submission on this score.
The applicable law on refund of taxes pertaining to the 1996 compensation income is
Section 230 of the old Tax Code, which was the law then in effect, and not Section 204(c)
of the new Tax Code, which was effective starting only on January 1, 1998.
Noteworthy, the requirements under Section 230 for refund claims are as follows:
1. A written claim for refund or tax credit must be filed by the taxpayer with the
Commissioner;
2. The claim for refund must be a categorical demand for reimbursement;
24

3. The claim for refund or tax credit must be filed, or the suit or proceeding
therefor must be commenced in court within two (2) years from date of
payment of the tax or penalty regardless of any supervening cause.
15
(Emphasis
ours.)
In our view, the law is clear. A claimant must first file a written claim for refund,
categorically demanding recovery of overpaid taxes with the CIR, before resorting to an
action in court. This obviously is intended, first, to afford the CIR an opportunity to correct
the action of subordinate officers; and second, to notify the government that such taxes
have been questioned, and the notice should then be borne in mind in estimating the
revenue available for expenditure.
16

Thus, on the first issue, we rule against respondents contention. Entrenched in our
jurisprudence is the principle that tax refunds are in the nature of tax exemptions which
are construed strictissimi juris against the taxpayer and liberally in favor of the
government. As tax refunds involve a return of revenue from the government, the
claimant must show indubitably the specific provision of law from which her right arises; it
cannot be allowed to exist upon a mere vague implication or inference
17
nor can it be
extended beyond the ordinary and reasonable intendment of the language actually used
by the legislature in granting the refund.
18
To repeat, strict compliance with the conditions
imposed for the return of revenue collected is a doctrine consistently applied in this
jurisdiction.
19

Under the circumstances of this case, we cannot agree that the amended return filed by
respondent constitutes the written claim for refund required by the old Tax Code, the law
prevailing at that time. Neither can we apply the liberal interpretation of the law based on
our pronouncement in the case of BPI-Family Savings Bank, Inc. v. Court of Appeals, as
the taxpayer therein filed a written claim for refund aside from presenting other evidence
to prove its claim, unlike this case before us.
On the second issue, petitioner argues that the 1997 NIRC cannot be applied retroactively
as the instant case involved refund of taxes withheld on a 1996 income. Respondent,
however, points out that when the petition was filed with the CTA on April 15, 1999, the
1997 NIRC was already in effect, hence, Section 204(c) should apply, despite the fact that
the refund being sought pertains to a 1996 income tax. Note that the issue on the
retroactivity of Section 204(c) of the 1997 NIRC arose because the last paragraph of
Section 204(c) was not found in Section 230 of the old Code. After a thorough
consideration of this matter, we find that we cannot give retroactive application to Section
204(c) abovecited. We have to stress that tax laws are prospective in operation, unless
the language of the statute clearly provides otherwise.
20

Moreover, it should be emphasized that a party seeking an administrative remedy must
not merely initiate the prescribed administrative procedure to obtain relief, but also pursue
it to its appropriate conclusion before seeking judicial intervention in order to give the
administrative agency an opportunity to decide the matter itself correctly and prevent
unnecessary and premature resort to court action.
21
This the respondent did not follow
through. Additionally, it could not escape notice that at the time respondent filed her
amended return, the 1997 NIRC was not yet in effect. Hence, respondent had no reason
at that time to think that the filing of an amended return would constitute the written
claim for refund required by applicable law.
Furthermore, as the CTA stressed, even the date of filing of the Final Adjustment Return
was omitted, inadvertently or otherwise, by respondent in her petition for review. This
omission was fatal to respondents claim, for it deprived the CTA of its jurisdiction over the
subject matter of the case.
Finally, we cannot agree with the Court of Appeals finding that the nature of the instant
case calls for the application of remedial laws. Revenue statutes are substantive laws and
in no sense must their application be equated with that of remedial laws. As well said in a
prior case, revenue laws are not intended to be liberally construed.
22
Considering that
taxes are the lifeblood of the government and in Holmess memorable metaphor, the price
we pay for civilization, tax laws must be faithfully and strictly implemented.
WHEREFORE, the petition is GRANTED. Both the assailed Decision and Resolution dated
February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP
No. 55572 are REVERSED and SET ASIDE. The Resolution dated August 4, 1999 of the
Court of Tax Appeals in C.T.A. Case No. 5828 is hereby REINSTATED.
No pronouncement as to costs.
SO ORDERED.
Carpio, Carpio-Morales, Tinga, Velasco, Jr., JJ., concur.



THIRD DIVISION
[G.R. No. 127708. March 25, 1999]
CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF SAN PABLO,
LAGUNA, and THE SANGGUNIANG PANGLUNSOD OF SAN PABLO, LAGUNA, petitioners,
vs. HONORABLE BIENVENIDO V. REYES, in his capacity as Presiding Judge, Regional Trial
Court, Branch 29, San Pablo City and the MANILA ELECTRIC COMPANY, respondents.
D E C I S I O N
GONZAGA-REYES, J.:
25

This is a petition under Rule 45 of the Rules of Court to review on a pure question of law
the decision of the Regional Trial Court (RTC) of San Pablo City, Branch 29 in Civil Case
No. SP-4459(96), entitled Manila Electric Company vs. City of San Pablo, Laguna, City
Treasurer of San Pablo Laguna, and the Sangguniang Panglunsod of San Pablo City,
Laguna. The RTC declared the imposition of franchise tax under Section 2.09 Article D of
Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo as
ineffective and void insofar as the respondent MERALCO is concerned for being violative
of Act No. 3648, Republic Act No. 2340 and PD 551. The RTC also granted MERALCOS
claim for refund of franchise taxes paid under protest.
The following antecedent facts are undisputed:
Act No. 3648 granted the Escudero Electric Services Company, a legislative franchise to
maintain and operate an electric light and power system in the City of San Pablo and
nearby municipalities Section 10 of Act No. 3648 provides:
x x x In consideration of the franchise and rights hereby granted, the grantee shall pay
unto the municipal treasury of each municipality in which it is supplying electric current to
the public under this franchise, a tax equal to two percentum of the gross earnings from
electric current sold or supplied under this franchise in each said municipality. Said tax
shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind,
nature or description levied, established or collected by any authority whatsoever,
municipal, provincial or insular, now or in the future, on its poles, wires, insulators,
switches, transformers, and structures, installations, conductors, and accessories place in
and over and under all public property, including public streets and highways, provincial
roads, bridges and public squares, and on its franchise, rights, privileges, receipts,
revenues and profits from which taxes the grantee is hereby expressly exempted.
Escuderos franchise was transferred to the plaintiff (herein respondent) MERALCO under
Republic Act No. 2340.
Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof
provides the following:
Section 1. Any provision of law or local ordinance to the contrary notwithstanding, the
franchise tax payable by all grantees of franchise to generate, distribute and sell electric
current for light, heat and power shall be two percent (2%) of their gross receipts
received from the sale of electric current and from transactions incident to the generation,
distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly
authorized representative on or before the twentieth day of the month following the end
of each calendar quarter or month as may be provided in the respective franchise or
pertinent municipal regulation and shall, any provision of the Local Tax Code or any other
law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever
nature imposed by any national or local authority on earnings, receipts, income and
privilege of generation, distribution and sale of electric current.
Republic Act No. 7160, otherwise known as the Local Government Code of 1991
(hereinafter referred to as the LGC) took effect on January 1, 1992. The said Code
authorizes the province/city to impose a tax on business enjoying a franchise at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year realized within its jurisdiction.
On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted Ordinance
No. 56, otherwise known as the Revenue Code of the City of San Pablo. The said
Ordinance took effect on October 30, 1992:i[1]
Section 2.09 Article D of said Ordinance provides:
Sec. 2.09. Franchise Tax There is hereby imposed a tax on business enjoying a
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during the
preceding calendar year within the city.
Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to private
respondent a letter demanding payment of the aforesaid franchise tax. From 1994 to
1996, private respondent paid under protest a total amount of P1,857,711.67.ii[2]
The private respondent subsequently filed this action before the Regional Trial Court to
declare Ordinance No. 56 null and void insofar as it imposes the franchise tax upon
private respondent MERALCOiii[3] and to claim for a refund of the taxes paid.
The Court ruled in favor of MERALCO and upheld its argument that the LGC did not
expressly or impliedly repeal the tax exemption/incentive enjoyed by it under its charter.
The dispositive portion of the decision reads:
WHEREFORE, the imposition of a franchise tax under Sec. 2.09 Article D of Ordinance
No. 56 otherwise known as the Revenue Code of the City of San Pablo, is declared
ineffective and null and void insofar as the plaintiff MERALCO is concerned for being
violative of Republic Act No. 2340, PD 551, and Republic Act No. 7160 and the defendants
are ordered to refund to the plaintiff the amount of ONE MILLION EIGHT HUNDRED FIFTY
SEVEN THOUSAND SEVEN HUNDRED ELEVEN & 67/100 (P1,857,711.67) and such other
amounts as may have been paid by the plaintiff under said Revenue Ordinance No. 56
after the filing of the complaint.iv[4]
SO ORDERED.
Its motion for reconsideration having been denied by the trial courtv[5] the petitioners
filed the instant petition with this Court raising pure questions of law based on the
following grounds:
I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT ACT NO. 3648, REPUBLIC
ACT NO. 2340 AND PRESIDENTIAL DECREE NO. 551 AS AMENDED, INSOFAR AS
26

THEY GRANT TAX INCENTIVES, PRIVILEGES AND IMMUNITIES TO PRIVATE
RESPONDENT, HAVE NOT BEEN REPEALED BY REPUBLIC ACT NO. 7160.
II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THAT SECTION 193 OF REPUBLIC
ACT NO. 7160 HAS NOT WITHDRAWN THE TAX INCENTIVES, PRIVILEGES AND
IMMUNITIES BEING ENJOYED BY THE PRIVATE RESPONDENT UNDER ACT NO.
3648, REPUBLIC ACT NO. 2340 AND PRESIDENTIAL DECREE NO. 551, AS AMENDED.
III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT THE FRANCHISE TAX IN
QUESTION CONSTITUTES AN IMPAIRMENT OF THE CONTRACT BETWEEN THE
GOVERNMENT AND THE PRIVATE RESPONDENT.
Petitioners position is the RA 7160 (LGC) expressly repealed Act No. 3648, Republic Act
No. 2340 and Presidential Decree 551 and that pursuant to the provisions of Sections 137
and 193 of the LGC, the province or city now has the power to impose a franchise tax on
a business enjoying a franchise. Petitioners rely on the ruling in the case of Mactan Cebu
International Airport Authority vs. Marcosvi[6] where the Supreme Court held that the
exemption from real property tax granted to Mactan Cebu International Airport Authority
under its charter has been withdrawn upon the effectivity of the LGC.
In addition, the petitioners cite in their Memorandum dated December 8, 1997 an
administrative interpretation made by the Bureau of Local Government Finance of the
Department of Finance in its 3
rd
indorsement dated February 15, 1994 to the effect that
the earlier ruling of the Department of Finance that holders of franchise which contain the
phrase in lieu of all taxes proviso are exempt from the payment of any kind of tax is no
longer applicable upon the effectivity of the LGC in view of the withdrawal of tax
exemption privileges as provided in Sections 193 and 234 thereof.
We resolve to reverse the court a quo.
The pivotal issue is whether the City of San Pablo may impose a local franchise tax
pursuant to the LGC upon the Manila Electric Company which pays a tax equal to two
percent of its gross receipts in lieu of all taxes and assessments of whatever nature
imposed by any national or local authority on savings or income.
It is necessary to reproduce the pertinent provisions of the LGC.
Section 137 Franchise Tax Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on business enjoying a franchise, at a
rate not exceeding fifty percent 50% of one percent 1% of the gross annual receipts for
the preceding calendar year based on the incoming receipts, or realized, within its
territorial jurisdiction. xxx
Section 151 Scope of Taxing Powers Except as otherwise provided in this Code, the
city, may levy the taxes, fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.
Section 193 Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
Section 534 (f) Repealing Clause All general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this code are hereby repealed
or modified accordingly.
Section 534 (f), the repealing clause of the LGC, provides that all general and special
laws, acts, city charters, decrees, executive orders, proclamations and administrative
regulations or parts thereof which are inconsistent with any of the provisions of the Code
are hereby repealed or modified accordingly.
This clause partakes of the nature of a general repealing clause.vii[7] It is certainly not an
express repealing clause because it fails to designate the specific act or acts identified by
number or title, that are intended to be repealed.viii[8]
Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise insofar
as the latter impose a 2% tax in lieu of all taxes and assessments of whatever nature?
We rule affirmatively.
We are mindful of the established rule that repeals by implication are not favored as laws
are presumed to be passed with deliberation and full knowledge of all laws existing on the
subject. A general law cannot be construed to have repealed a special law by mere
implication unless the intent to repeal or alter is manifestix[9] and it must be convincingly
demonstrated that the two laws are so clearly repugnant and patently inconsistent that
they cannot co-exist.x[10]
It is our view that petitioners correctly rely on the provisions of Section 137 and 193 of
the LGC to support their position that MERALCOs tax exemption has been withdrawn.
The explicit language of Section 137 which authorizes the province to impose franchise
tax notwithstanding any exemption granted by any law or other special laws" is all-
encompassing and clear. The franchise tax is imposable despite any exemption enjoyed
under special laws.
27

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or
presently enjoyed by all persons whether natural or juridical, including government-owned
or controlled corporations except 1) local water districts, 2) cooperatives duly registered
under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are
withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions
to the three enumerated entities. It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exlcusio alterius.xi[11] In the absence
of any provision of the Code to the contrary, and we find no other provision of the Code
to the contrary, and we find no other provision in point, any existing tax exemption or
incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.
Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of
the gross annual receipts for the preceding calendar year based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges
enjoyed under existing law or charter is clearly manifested by the language used in
Section 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or privileges, the
LGC provided for an express, albeit general, withdrawal of such exemptions or privileges.
No more unequivocal language could have been used.
It is true that the phrase in lieu of all taxes found in special franchises has been held in
several cases to exempt the franchise holder from payment of tax on its corporate
franchise imposed by the Internal Revenue Code, as the charter is in the nature of a
private contract and the exemption is part of the inducement for the acceptance of the
franchise, and that the imposition of another franchise tax by the local authority would
constitute an impairment of contract between the government and the corporation.xii[12]
But these magic words contained in the phrase shall be in lieu of all taxes.xiii[13] Have
to give way to the peremptory language of the LGC specifically providing for the
withdrawal of such exemption privileges.
Accordingly in Mactan Cebu International Airport Authority vs. Marcos,xiv[14] this Court
held that Section 193 of the LGC prescribes the general rule, viz., the tax exemptions or
incentives granted to or presently enjoyed by natural or juridical persons are withdrawn
upon the effectivity of the LGC except with respect to those entities expressly
enumerated. In the same vein We must hold that the express withdrawal upon effectivity
of the LGC of all exemptions only as provided therein, can no longer be invoked by
Meralco to disclaim liability for the local tax.
Private respondents further argue that the in lieu of provision contained in PD 551, Act
No. 3648 and RA 2340 does not partake of the nature of an exemption, but is a
commutative tax. This contention was raised but was not upheld in Cagayan Electric
Power and Light Co. Inc. vs. Commissioner of Internal Revenuexv[15] wherein the
Supreme Court stated:
xxx Congress could impair petitioners legislative franchise by making it liable for income
tax from which heretofore it was exempted by virtue of the exemption provided for in
section 3 of its franchise xxx
xxx Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to
income tax all corporate tax payers not expressly exempted therein and in section 27 of
the Code, had the effect of withdrawing petitioners exemption from income tax xxx
Private respondents invocation of the non-impairment clause of the Constitution is
accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to
ensure autonomy to local governmentsxvi[16] and to enable them to attain fullest
development as self-reliant communities.xvii[17] Thus in Mactan Cebu International
Airport Authority vs. Marcos, supra, this Court pointed out, in upholding the withdrawal of
the real estate tax exemption previously enjoyed by the Mactan Cebu International Airport
Authority, as follows:
Note that as reproduced in Section 234(a) the phrase and any government owned or
controlled corporation so exempt by its charter was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges especially in light of the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governments and the objective of the LGC that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities
and make them effective partners in attainment of national goals. The power to tax is the
most effective instrument to raise needed revenues to finance and support myriad
activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity
of the people. It may also be relevant to recall that the original reasons for the
withdrawal of tax exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such privilege resulted in serious
tax base erosion and distortions in the tax treatment of similarly situated enterprises, and
there was a need for these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them.xviii[18]
The Court therein concluded that:
nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject to tax. Where it is
done precisely to fulfill a constitutional mandate and national policy, no one can doubt its
wisdom.xix[19]
The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution.xx[20] Thus Article X, Section 5 of the Constitution reads:
28

Section 5 Each Local Government unit shall have the power to create its own sources
of revenue and to levy taxes, fees and charges subject to such guidelines and limitations
as the Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the Local Governments.
The important legal effect of Section 5 is that henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will have to be resolved in favor of municipal
corporations.xxi[21]
There is further basis for the conclusion that the non-impairment of contract clause
cannot be invoked to uphold Meralco's exemption from the local tax. Escudero Electric
Co. was originally given the legislative franchise under Act. 3648 to operate an electric
light and power system in the City of San Pablo and nearby municipalities. The term of
the franchise under Act No. 3648 is a period of fifty years from the Acts approval in 1929.
The said law provided that the franchise is granted upon the condition that it shall be
subject to amendment, or repeal by the Congress of the United States.xxii[22] Under the
1935,xxiii[23] the 1973xxiv[24] and the 1987xxv[25] Constitutions, no franchise or right
shall be granted except under the condition that it shall be subject to amendment,
alteration or repeal by the National Assembly when the public interest so requires. With
or without the reservation clause, franchises are subject to alterations through a
reasonable exercise of the police power; they are also subject to alteration by the power
to tax, which like police power cannot be contracted away.xxvi[26]
Finally, while the matter is not of controlling significance, the Court notes that whereas
the original Escudero franchise exempted the franchise holder from all taxes levied or
collected now or in the futurexxvii[27] this phrase is noticeably omitted in the
counterpart provision of P.D. 551 that said omission is intended not to foreclose future
taxes may reasonably be deduced by statutory construction.
WHEREFORE, the instant petition is GRANTED. The decision of the Regional Trial Court of
San Pablo City, appealed from is hereby reversed and set aside and the complaint of
MERALCO is hereby DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Romero, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.









Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE,
respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as
Secretary of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue; and their AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and
OFELIA L. DIMALANTA, petitioners,
29

vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO
B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.
CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM
DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAADA,
petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE,
respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue,
HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON.
ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V.
CHATO, as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR.,
in his capacity as the Commissioner of Customs, respondents.
R E S O L U T I O N

MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in
these cases 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 in these cases, with the exception of the Philippine
Educational Publishers Association, Inc. and the Association of Philippine Booksellers,
petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to
which the Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No.
115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder
to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners
(Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate
and Builders Association (CREBA)) reiterate previous claims made by them that R.A. No.
7716 did not "originate exclusively" in the House of Representatives as required by Art.
VI, 24 of the Constitution. Although they admit that H. No. 11197 was filed in the House
of Representatives where it passed three readings and that afterward it was sent to the
Senate where after first reading it was referred to the Senate Ways and Means
Committee, they complain that the Senate did not pass it on second and third readings.
Instead what the Senate did was to pass its own version (S. No. 1630) which it approved
on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have
done was to amend H. No. 11197 by striking out the text of the bill and substituting it
with the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the
Senate version just becomes the text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an
amendment to a House revenue bill by enacting its own version of a revenue bill. On at
least two occasions during the Eighth Congress, the Senate passed its own version of
revenue bills, which, in consolidation with House bills earlier passed, became the enrolled
bills. These were:
30

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the
President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which
was approved by the House on January 29, 1992, and S. No. 1920, which was approved
by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE
REWARD TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was
approved by the President on May 22, 1992. This Act is a consolidation of H. No. 22232,
which was approved by the House of Representatives on August 2, 1989, and S. No. 807,
which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of
the consolidation of House and Senate bills. These are the following, with indications of
the dates on which the laws were approved by the President and dates the separate bills
of the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING
FOR THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE
TO REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY
MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS
OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE
TO PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE
TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL
SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS)
TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE
RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE
PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS
FOR SERVICES RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN
CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND
ADMINISTRATION OF THE DOCUMENTARY STAMP TAX, AMENDING
FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR
SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23,
1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
31

7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF
SHARES OF STOCK LISTED AND TRADED THROUGH THE LOCAL
STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the
exercise of its power to propose amendments to bills required to originate in the House,
passed its own version of a House revenue measure. It is noteworthy that, in the
particular case of S. No. 1630, petitioners Tolentino and Roco, as members of the Senate,
voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner
Tolentino, concerns a mere matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in this case, a separate bill like S.
No. 1630 is instead enacted as a substitute measure, "taking into Consideration . . . H.B.
11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall
be considered.
No amendment by substitution shall be entertained unless the text
thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is taken
thereon.
69. No amendment which seeks the inclusion of a legislative
provision foreign to the subject matter of a bill (rider) shall be
entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with
another which covers a subject distinct from that proposed in the
original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the
Philippine Senate possesses less power than the U.S. Senate because of textual
differences between constitutional provisions giving them the power to propose or concur
with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with
amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of
the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to
drop the phrase "as on other Bills" in the American version, according to petitioners,
shows the intention of the framers of our Constitution to restrict the Senate's power to
propose amendments to revenue bills. Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate" and "the words 'as in any other bills' (sic)
were eliminated so as to show that these bills were not to be like other bills but must be
treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of
constitutional intent are nothing but the relics of an unsuccessful attempt to limit the
power of the Senate. It will be recalled that the 1935 Constitution originally provided for a
unicameral National Assembly. When it was decided in 1939 to change to a bicameral
legislature, it became necessary to provide for the procedure for lawmaking by the Senate
and the House of Representatives. The work of proposing amendments to the Constitution
was done by the National Assembly, acting as a constituent assembly, some of whose
members, jealous of preserving the Assembly's lawmaking powers, sought to curtail the
powers of the proposed Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local
application, and private bills shall originate exclusively in the
Assembly, but the Senate may propose or concur with amendments.
In case of disapproval by the Senate of any such bills, the Assembly
32

may repass the same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted and may be
submitted to the President for corresponding action. In the event that
the Senate should fail to finally act on any such bills, the Assembly
may, after thirty days from the opening of the next regular session of
the same legislative term, reapprove the same with a vote of two-
thirds of all the members of the Assembly. And upon such reapproval,
the bill shall be deemed enacted and may be submitted to the
President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the
proposal. It deleted everything after the first sentence. As rewritten, the proposal was
approved by the National Assembly and embodied in Resolution No. 38, as amended by
Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The
proposed amendment was submitted to the people and ratified by them in the elections
held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of
the present Constitution was derived. It explains why the word "exclusively" was added to
the American text from which the framers of the Philippine Constitution borrowed and why
the phrase "as on other Bills" was not copied. Considering the defeat of the proposal, the
power of the Senate to propose amendments must be understood to be full, plenary and
complete "as on other Bills." Thus, because revenue bills are required to originate
exclusively in the House of Representatives, the Senate cannot enact revenue measures of
its own without such bills. After a revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version on the same subject matter. This
follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to
concur is clear from the following commentaries:
The power of the Senate to propose or concur with amendments is
apparently without restriction. It would seem that by virtue of this
power, the Senate can practically re-write a bill required to come from
the House and leave only a trace of the original bill. For example, a
general revenue bill passed by the lower house of the United States
Congress contained provisions for the imposition of an inheritance tax
. This was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the United States
Supreme Court to be sufficiently broad to enable it to make the
alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed.
389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES
247 (1961))
The above-mentioned bills are supposed to be initiated by the House
of Representatives because it is more numerous in membership and
therefore also more representative of the people. Moreover, its
members are presumed to be more familiar with the needs of the
country in regard to the enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its
power to propose or concur with amendments to the bills initiated by
the House of Representatives. Thus, in one case, a bill introduced in
the U.S. House of Representatives was changed by the Senate to
make a proposed inheritance tax a corporation tax. It is also accepted
practice for the Senate to introduce what is known as an amendment
by substitution, which may entirely replace the bill initiated in the
House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and private bills must
"originate exclusively in the House of Representatives," it also adds, "but the Senate may
propose or concur with amendments." In the exercise of this power, the Senate may
propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the
bill omitting or adding sections or altering its language; (3) to make
and endorse an entirely new bill as a substitute, in which case it will
be known as a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258
(1950))
To except from this procedure the amendment of bills which are required to originate in
the House by prescribing that the number of the House bill and its other parts up to the
enacting clause must be preserved although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to insist on a mere technicality. At
any rate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is
therefore as much an amendment of H. No. 11197 as any which the Senate could have
made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they
assume that S. No. 1630 is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the Senate "in substitution of S.B. No.
1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there
is something substantially different between the reference to S. No. 1129 and the
reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716 originated
both in the House and in the Senate and that it is the product of two "half-baked bills
because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."
33

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be
mere amendments of the corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No. 1630 attached as Supplement A
to the basic petition of petitioner Tolentino, while showing differences between the two
bills, at the same time indicates that the provisions of the Senate bill were precisely
intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the
Senate bill was a mere amendment of the House bill, H. No. 11197 in its original form did
not have to pass the Senate on second and three readings. It was enough that after it
was passed on first reading it was referred to the Senate Committee on Ways and Means.
Neither was it required that S. No. 1630 be passed by the House of Representatives
before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No.
1630. When the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting
the disclosure of bank deposits), were referred to a conference committee, the question
was raised whether the two bills could be the subject of such conference, considering that
the bill from one house had not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure:
If a House bill is passed by the House but not passed by the Senate,
and a Senate bill of a similar nature is passed in the Senate but never
passed in the House, can the two bills be the subject of a conference,
and can a law be enacted from these two bills? I understand that the
Senate bill in this particular instance does not refer to investments in
government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only
investigation of deposits in banks but also investigation of
investments in government securities. Now, since the two bills differ
in their subject matter, I believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It
is precisely in cases like this where a conference should be had. If the
House bill had been approved by the Senate, there would have been
no need of a conference; but precisely because the Senate passed
another bill on the same subject matter, the conference committee
had to be created, and we are now considering the report of that
committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis
added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630
are distinct and unrelated measures also accounts for the petitioners' (Kilosbayan's and
PAL's) contention that because the President separately certified to the need for the
immediate enactment of these measures, his certification was ineffectual and void. The
certification had to be made of the version of the same revenue bill which at the moment
was being considered. Otherwise, to follow petitioners' theory, it would be necessary for
the President to certify as many bills as are presented in a house of Congress even though
the bills are merely versions of the bill he has already certified. It is enough that he
certifies the bill which, at the time he makes the certification, is under consideration. Since
on March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to
be certified. For that matter on June 1, 1993 the President had earlier certified H. No.
9210 for immediate enactment because it was the one which at that time was being
considered by the House. This bill was later substituted, together with other bills, by H.
No. 11197.
As to what Presidential certification can accomplish, we have already explained in the
main decision that the phrase "except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, 26 (2) qualifies not only the requirement that
"printed copies [of a bill] in its final form [must be] distributed to the members three days
before its passage" but also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only textual support for such
construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been
printed and copies thereof in its final form furnished its Members at
least three calendar days prior to its passage, except when the
President shall have certified to the necessity of its immediate
enactment. Upon the last reading of a bill, no amendment thereof
shall be allowed and the question upon its passage shall be taken
immediately thereafter, and the yeas and nays entered on the
Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been
distributed to the Members three days before its passage, except
when the Prime Minister certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last
reading of a bill, no amendment thereto shall be allowed, and the
vote thereon shall be taken immediately thereafter, and the yeas and
nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26
(2) of the present Constitution, thus:
34

(2) No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in
its final form have been distributed to its Members three days before
its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings
on separate days are required and a bill has to be printed in final form before it can be
passed, the need for a law may be rendered academic by the occurrence of the very
emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially
in a country like the Philippines where budget deficit is a chronic condition. Even if this
were the case, an enormous budget deficit does not make the need for R.A. No. 7716 any
less urgent or the situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases)
believed that there was an urgent need for consideration of S. No. 1630, because they
responded to the call of the President by voting on the bill on second and third readings
on the same day. While the judicial department is not bound by the Senate's acceptance
of the President's certification, the respect due coequal departments of the government in
matters committed to them by the Constitution and the absence of a clear showing of
grave abuse of discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the
Senate where it was discussed for six days. Only its distribution in advance in its final
printed form was actually dispensed with by holding the voting on second and third
readings on the same day (March 24, 1994). Otherwise, sufficient time between the
submission of the bill on February 8, 1994 on second reading and its approval on March
24, 1994 elapsed before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold:
(1) to inform the members of Congress of what they must vote on and (2) to give them
notice that a measure is progressing through the enacting process, thus enabling them
and others interested in the measure to prepare their positions with reference to it. (1 J.
G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION 10.04, p. 282 (1972)).
These purposes were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and
the Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI))
that in violation of the constitutional policy of full public disclosure and the people's right
to know (Art. II, 28 and Art. III, 7) the Conference Committee met for two days in
executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold
such sessions with only the conferees and their staffs in attendance and it was only in
1975 when a new rule was adopted requiring open sessions. Unlike its American
counterpart, the Philippine Congress has not adopted a rule prescribing open hearings for
conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in
1975, at least staff members were present. These were staff members of the Senators
and Congressmen, however, who may be presumed to be their confidential men, not
stenographers as in this case who on the last two days of the conference were excluded.
There is no showing that the conferees themselves did not take notes of their proceedings
so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic
negotiations involving state interests, conferees keep notes of their meetings. Above all,
the public's right to know was fully served because the Conference Committee in this case
submitted a report showing the changes made on the differing versions of the House and
the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports
must contain "a detailed, sufficiently explicit statement of the changes in or other
amendments." These changes are shown in the bill attached to the Conference Committee
Report. The members of both houses could thus ascertain what changes had been made
in the original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400
(Land Reform Act of 1955) was reported by the Conference Committee. Congressman
Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider
the report of the conference committee regarding House Bill No. 2557
by reason of the provision of Section 11, Article XII, of the Rules of
this House which provides specifically that the conference report must
be accompanied by a detailed statement of the effects of the
amendment on the bill of the House. This conference committee
report is not accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in
connection with the point of order raised by the gentleman from
Pangasinan.
There is no question about the provision of the Rule cited by the
gentleman from Pangasinan, but this provision applies to those cases
where only portions of the bill have been amended. In this case
before us an entire bill is presented; therefore, it can be easily seen
35

from the reading of the bill what the provisions are. Besides, this
procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into
the reason for the provisions of the Rules, and the reason for the
requirement in the provision cited by the gentleman from Pangasinan
is when there are only certain words or phrases inserted in or deleted
from the provisions of the bill included in the conference report, and
we cannot understand what those words and phrases mean and their
relation to the bill. In that case, it is necessary to make a detailed
statement on how those words and phrases will affect the bill as a
whole; but when the entire bill itself is copied verbatim in the
conference report, that is not necessary. So when the reason for the
Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the
ruling was appealed, it was upheld by viva voce and when a division of the House was
called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new
provisions as long as these are germane to the subject of the conference. As this Court
held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion written
by then Justice Cruz, the jurisdiction of the conference committee is not limited to
resolving differences between the Senate and the House. It may propose an entirely new
provision. What is important is that its report is subsequently approved by the respective
houses of Congress. This Court ruled that it would not entertain allegations that, because
new provisions had been added by the conference committee, there was thereby a
violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners'
charges that an amendment was made upon the last reading of the
bill that eventually became R.A. No. 7354 and that copies thereof in
its final form were not distributed among the members of each
House. Both the enrolled bill and the legislative journals certify that
the measure was duly enacted i.e., in accordance with Article VI, Sec.
26 (2) of the Constitution. We are bound by such official assurances
from a coordinate department of the government, to which we owe,
at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the
Philippines in a 1979 study:
Conference committees may be of two types: free or instructed.
These committees may be given instructions by their parent bodies or
they may be left without instructions. Normally the conference
committees are without instructions, and this is why they are often
critically referred to as "the little legislatures." Once bills have been
sent to them, the conferees have almost unlimited authority to
change the clauses of the bills and in fact sometimes introduce new
measures that were not in the original legislation. No minutes are
kept, and members' activities on conference committees are difficult
to determine. One congressman known for his idealism put it this
way: "I killed a bill on export incentives for my interest group [copra]
in the conference committee but I could not have done so anywhere
else." The conference committee submits a report to both houses,
and usually it is accepted. If the report is not accepted, then the
committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES
AND LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES
AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We
cite it only to say that conference committees here are no different from their
counterparts in the United States whose vast powers we noted in Philippine Judges
Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the power
"to determine the rules of its proceedings," including those of its committees. Any
meaningful change in the method and procedures of Congress or its committees must
therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates
Art. VI, 26 (1) of the Constitution which provides that "Every bill passed by Congress
shall embrace only one subject which shall be expressed in the title thereof." PAL
contends that the amendment of its franchise by the withdrawal of its exemption from the
VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in
lieu of all other taxes, duties, royalties, registration, license and other fees and charges of
any kind, nature, or description, imposed, levied, established, assessed or collected by any
municipal, city, provincial or national authority or government agency, now or in the
future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the
National Internal Revenue Code, which provides as follows:
36

103. Exempt transactions. The following shall be exempt from the
value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international
agreements to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by
amending 103, as follows:
103. Exempt transactions. The following shall be exempt from the
value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those
granted under Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION,
AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND
FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which
stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law
by specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply with
the constitutional requirement, since it is already stated in the title that the law seeks to
amend the pertinent provisions of the NIRC, among which is 103(q), in order to widen
the base of the VAT. Actually, it is the bill which becomes a law that is required to express
in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact
specifically referred to 103 of the NIRC as among the provisions sought to be amended.
We are satisfied that sufficient notice had been given of the pendency of these bills in
Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by
PAL was rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL
CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES,
PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was
contended that the withdrawal of franking privileges was not expressed in the title of the
law. In holding that there was sufficient description of the subject of the law in its title,
including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of
the general objectives of the statute to be expressed in its title would
not only be unreasonable but would actually render legislation
impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has
been correctly explained:
The details of a legislative act need not be
specifically stated in its title, but matter germane
to the subject as expressed in the title, and
adopted to the accomplishment of the object in
view, may properly be included in the act. Thus,
it is proper to create in the same act the
machinery by which the act is to be enforced, to
prescribe the penalties for its infraction, and to
remove obstacles in the way of its execution. If
such matters are properly connected with the
subject as expressed in the title, it is unnecessary
that they should also have special mention in the
title. (Southern Pac. Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general
proposition, the press is not exempt from the taxing power of the State and that what the
constitutional guarantee of free press prohibits are laws which single out the press or
target a group belonging to the press for special treatment or which in any way
discriminate against the press on the basis of the content of the publication, and R.A. No.
7716 is none of these.
Now it is contended by the PPI 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."
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.
37

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. It is thus different from the
tax involved in the cases invoked by the PPI. The license tax in Grosjean v. American
Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it
was laid on the gross advertising receipts only of newspapers whose weekly circulation
was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in
Louisiana. These large papers were critical of Senator Huey Long who controlled the state
legislature which enacted the license tax. The censorial motivation for the law was thus
evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because
although it could have been made liable for the sales tax or, in lieu thereof, for the use
tax on the privilege of using, storing or consuming tangible goods, the press was not.
Instead, the press was exempted from both taxes. It was, however, later made to pay a
special use tax on the cost of paper and ink which made these items "the only items
subject to the use tax that were component of goods to be sold at retail." The U.S.
Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn
"absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as
those previously granted to PAL, petroleum concessionaires, enterprises registered with
the Export Processing Zone Authority, and many more are likewise totally withdrawn, in
addition to exemptions which are partially withdrawn, in an effort to broaden the base of
the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716.
An enumeration of some of these transactions will suffice to show that by and large this is
not so and that the exemptions are granted for a purpose. As the Solicitor General says,
such exemptions are granted, in some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user rather than for profit. The exempt
transactions are:
(a) Goods for consumption or use which are in their original state
(agricultural, marine and forest products, cotton seeds in their original
state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services to enhance agriculture
(milling of palay, corn, sugar cane and raw sugar, livestock, poultry
feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and
personal effects of citizens returning to the Philippines) or for
professional use, like professional instruments and implements, by
persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be
used for manufacture of petroleum products subject to excise tax and
services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary
services, and services rendered under employer-employee
relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international
agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding
P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
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." PPI cites in support of this assertion the following statement
in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The
protection afforded by the First Amendment is not so restricted. A
license tax certainly does not acquire constitutional validity because it
classifies the privileges protected by the First Amendment along with
the wares and merchandise of hucksters and peddlers and treats
them all alike. Such equality in treatment does not save the
ordinance. Freedom of press, freedom of speech, freedom of religion
are in preferred position.
The Court was speaking in that case 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. Hence, although its application to others, such those
selling goods, is valid, its application to the press or to religious groups, such as the
Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets,
is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on
income or property of a preacher. It is quite another thing to exact a tax on him for
delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101
Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on
38

those engaged in the sale of general merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible Society without restraining the free
exercise of its right to propagate.
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.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the
proceeds derived from the sales are used to subsidize the cost of printing copies which
are given free to those who cannot afford to pay so that to tax the sales would be to
increase the price, while reducing the volume of sale. Granting that to be the case, the
resulting burden on the exercise of religious freedom is so incidental as to make it difficult
to differentiate it from any other economic imposition that might make the right to
disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as
amended by 7 of R.A. No. 7716, although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such as those relating to
accounting in 108 of the NIRC. That the PBS distributes free bibles and therefore is not
liable to pay the VAT does not excuse it from the payment of this fee because it also sells
some copies. At any rate whether the PBS is liable for the VAT must be decided in
concrete cases, in the event it is assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the
rule on taxation. CREBA 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."
With respect to the first contention, it is claimed that the application of the tax to existing
contracts of the sale of real property by installment or on deferred payment basis would
result in substantial increases in the monthly amortizations to be paid because of the 10%
VAT. The additional amount, it is pointed out, is something that the buyer did not
anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from
numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a
new subject, or an increased tax on an old one, interferes with a contract or impairs its
obligation, within the meaning of the Constitution. 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." (La Insular v.
Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only
existing laws but also "the reservation of the essential attributes of sovereignty, is . . .
read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been
made in reference to the possible exercise of the rightful authority of the government and
no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore
and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 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
real property for socialized and low-cost housing is exempted from the tax, but CREBA
claims that real estate transactions of "the less poor," i.e., the middle class, who are
equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are
essential goods and services was already exempt under 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. Moreover, there is a difference between the "homeless poor" and
the "homeless less poor" in the example given by petitioner, because the second group or
middle class can afford to rent houses in the meantime that they cannot yet buy their own
homes. The two social classes are thus differently situated in life. "It is inherent in the
power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil.
148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v.
Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art.
VI, 28(1) which provides that "The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of
the same class be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. To satisfy this requirement
it is enough that the statute or ordinance applies equally to all persons, forms and
corporations placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v.
Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was
enacted. R.A. No. 7716 merely expands the base of the tax. The validity of the original
VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v.
Tan, 163 SCRA 383 (1988) on grounds similar to those made in these cases, namely, that
39

the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI,
28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid
tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and
services sold to the public, which are not exempt, at the constant rate
of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of
goods or services by persons engaged in business with an aggregate
gross annual sales exceeding P200,000.00. Small corner sari-sari
stores are consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, so that the costs
of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within
the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative
Union of the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law
contravenes the mandate of Congress to provide for a progressive system of taxation
because the law imposes a flat rate of 10% and thus places the tax burden on all
taxpayers without regard to their ability to pay.
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." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed.
(1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive
tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes,
would have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973
Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also
regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult,
if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability
to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition
by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b)
of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4,
amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are
exempted from the VAT:
(a) Goods for consumption or use which are in their original state
(agricultural, marine and forest products, cotton seeds in their original
state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services to enhance agriculture
(milling of palay, corn sugar cane and raw sugar, livestock, poultry
feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and
personal effects of citizens returning to the Philippines) and or
professional use, like professional instruments and implements, by
persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be
used for manufacture of petroleum products subject to excise tax and
services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary
services, and services rendered under employer-employee
relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international
agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding
P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve
goods and services which are used or availed of mainly by higher income groups. These
include real properties held primarily for sale to customers or for lease in the ordinary
course of trade or business, the right or privilege to use patent, copyright, and other
similar property or right, the right or privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio, television, satellite transmission
and cable television time, hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses, and other common carriers,
services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional
violations by tendering issues not at retail but at wholesale and in the abstract. There is
no fully developed record which can impart to adjudication the impact of actuality. There
40

is no factual foundation to show in the concrete the application of the law to actual
contracts and exemplify its effect on property rights. For the fact is that petitioner's
members have not even been assessed the VAT. Petitioner's case is not made concrete by
a series of hypothetical questions asked which are no different from those dealt with in
advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here, does not suffice. There must
be a factual foundation of such unconstitutional taint. Considering
that petitioner here would condemn such a provision as void on its
face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal
protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such
a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may
be that postponement of adjudication would result in a multiplicity of suits. This need not
be the case, however. Enforcement of the law may give rise to such a case. A test case,
provided it is an actual case and not an abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract
issues. Otherwise, adjudication would be no different from the giving of advisory opinion
that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made
that "there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the government." This duty can
only arise if an actual case or controversy is before us. Under Art . VIII, 5 our jurisdiction
is defined in terms of "cases" and all that Art. VIII, 1, 2 can plausibly mean is that in
the exercise of that jurisdiction we have the judicial power to determine questions of
grave abuse of discretion by any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the
power of a court to hear and decide cases pending between parties who have the right to
sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559
(1912)), as distinguished from legislative and executive power. This power cannot be
directly appropriated until it is apportioned among several courts either by the
Constitution, as in the case of Art. VIII, 5, or by statute, as in the case of the Judiciary
Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129).
The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of
all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming
within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of
discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative
Union of the Philippines (CUP), after briefly surveying the course of legislation, argues that
it 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. Petitioner claims that in 1973, P.D.
No. 175 was promulgated exempting cooperatives from the payment of income taxes and
sales taxes but in 1984, because of the crisis which menaced the national economy, this
exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted
cooperatives exemption from income and sales taxes until December 31, 1991, but, in the
same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the framers of the
Constitution "repudiated the previous actions of the government adverse to the interests
of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives
and instead upheld the policy of strengthening the cooperatives by way of the grant of tax
exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable
distribution of opportunities, income, and wealth; a sustained increase
in the amount of goods and services produced by the nation for the
benefit of the people; and an expanding productivity as the key to
raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based
on sound agricultural development and agrarian reform, through
industries that make full and efficient use of human and natural
resources, and which are competitive in both domestic and foreign
markets. However, the State shall protect Filipino enterprises against
unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all
regions of the country shall be given optimum opportunity to develop.
Private enterprises, including corporations, cooperatives, and similar
collective organizations, shall be encouraged to broaden the base of
their ownership.
15. The Congress shall create an agency to promote the viability and
growth of cooperatives as instruments for social justice and economic
development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955
singled out cooperatives by withdrawing their exemption from income and sales taxes
under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to withdraw the exemptions and
preferential treatments theretofore granted to private business enterprises in general, in
view of the economic crisis which then beset the nation. It is true that after P.D. No.
2008, 2 had restored the tax exemptions of cooperatives in 1986, the exemption was
again repealed by E.O. No. 93, 1, but then again cooperatives were not the only ones
41

whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does not
really require that cooperatives be granted tax exemptions in order to promote their
growth and viability. Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of vacillation, as far as the grant
of tax privileges was concerned, and that it was to put an end to this indecision that the
constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the discretion of Congress. If
Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are
exempt from taxation. Such theory is contrary to the Constitution under which only the
following are exempt from taxation: charitable institutions, churches and parsonages, by
reason of Art. VI, 28 (3), and non-stock, non-profit educational institutions by reason of
Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies
cooperatives the equal protection of the law because electric cooperatives are exempted
from the VAT. The classification between electric and other cooperatives (farmers
cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently rests on a
congressional determination that there is greater need to provide cheaper electric power
to as many people as possible, especially those living in the rural areas, than there is to
provide them with other necessities in life. We cannot say that such classification is
unreasonable.
We have carefully read the various arguments raised against the constitutional validity of
R.A. No. 7716. We have in fact taken the extraordinary step of enjoining its enforcement
pending resolution of these cases. We have now come to the conclusion that the law
suffers from none of the infirmities attributed to it by petitioners and that its enactment by
the other branches of the government does not constitute a grave abuse of discretion.
Any question as to its necessity, desirability or expediency must be addressed to Congress
as the body which is electorally responsible, remembering that, as Justice Holmes has
said, "legislators are the ultimate guardians of the liberties and welfare of the people in
quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543
does in arguing that we should enforce the public accountability of legislators, that those
who took part in passing the law in question by voting for it in Congress should later
thrust to the courts the burden of reviewing measures in the flush of enactment. This
Court does not sit as a third branch of the legislature, much less exercise a veto power
over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary
restraining order previously issued is hereby lifted.
SO ORDERED.
Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco and Hermosisima, Jr., JJ., concur.
Padilla and Vitug, JJ., maintained their separate opinion.
Regalado, Davide, Jr., Romero, Bellosillo and Puno, JJ, maintained their dissenting
opinion.
Panganiban, J., took no part.









EN BANC


ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO,
G.R. No. 168056
Petitioners, Present:

DAVIDE, JR., C.J.,
PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
- versus - CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
CALLEJO, SR.,
42

AZCUNA,
TINGA,
CHICO-NAZARIO, and
GARCIA, JJ.
THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA; HONORABLE SECRETARY OF
THE DEPARTMENT OF FINANCE CESAR PURISIMA;
and HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR.,

Respondents.

x - - - - - - - - - - - - - - - - - - - - - - - - - x

AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-
ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL,
AND SERGIO R. OSMEA III,
G.R. No. 168207
Petitioners,

- versus -

EXECUTIVE SECRETARY EDUARDO R. ERMITA,
CESAR V. PURISIMA, SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO, JR., COMMISSIONER OF
THE BUREAU OF INTERNAL REVENUE,

Respondents.

x - - - - - - - - - - - - - - - - - - - - - - - - - x

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.
represented by its President, ROSARIO ANTONIO;
PETRON DEALERS ASSOCIATION represented by
its President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERS OF THE PHILIPPINES
represented by its President, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO doing business under
the name and style of ANB NORTH SHELL SERVICE
STATION; LOURDES MARTINEZ doing business
under the name and style of SHELL GATE N.
DOMINGO; BETHZAIDA TAN doing business under
the name and style of ADVANCE SHELL STATION;
REYNALDO P. MONTOYA doing business under the
name and style of NEW LAMUAN SHELL SERVICE
STATION; EFREN SOTTO doing business under the
name and style of RED FIELD SHELL SERVICE
STATION; DONICA CORPORATION represented by
its President, DESI TOMACRUZ; RUTH E. MARBIBI
doing business under the name and style of R&R
PETRON STATION; PETER M. UNGSON doing
business under the name and style of CLASSIC
G.R. No. 168461
STAR GASOLINE SERVICE STATION; MARIAN
SHEILA A. LEE doing business under the name and
style of NTE GASOLINE & SERVICE STATION;
JULIAN CESAR P. POSADAS doing business under
the name and style of STARCARGA ENTERPRISES;
ADORACION MAEBO doing business under the
name and style of CMA MOTORISTS CENTER;
SUSAN M. ENTRATA doing business under the
name and style of LEONAS GASOLINE STATION
and SERVICE CENTER; CARMELITA BALDONADO
doing business under the name and style of FIRST
CHOICE SERVICE CENTER; MERCEDITAS A.
GARCIA doing business under the name and style
of LORPED SERVICE CENTER; RHEAMAR A.
RAMOS doing business under the name and style of
RJRAM PTT GAS STATION; MA. ISABEL VIOLAGO
doing business under the name and style of
VIOLAGO-PTT SERVICE CENTER; MOTORISTS
HEART CORPORATION represented by its Vice-
President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HARVARD
CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS HERITAGE CORPORATION
represented by its Vice-President for Operations,
JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD
OIL CORPORATION represented by its Vice-
President for Operations, JOSELITO F.
FLORDELIZA; ROMEO MANUEL doing business
under the name and style of ROMMAN GASOLINE
STATION; ANTHONY ALBERT CRUZ III doing
business under the name and style of TRUE
SERVICE STATION,
Petitioners,

- versus -

CESAR V. PURISIMA, in his capacity as Secretary of
the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue,

Respondents.

x - - - - - - - - - - - - - - - - - - - - - - - - - x

FRANCIS JOSEPH G. ESCUDERO, VINCENT
CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA,
RODOLFO G. PLAZA, DARLENE ANTONINO-
CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C.
AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN
G.R. No. 168463
43

MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV
S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A.
SANTIAGO, TEOFISTO DL. GUINGONA III, RUY
ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and
TEODORO A. CASIO,
Petitioners,

- versus -

CESAR V. PURISIMA, in his capacity as Secretary of
Finance, GUILLERMO L. PARAYNO, JR., in his
capacity as Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as Executive
Secretary,






Respondents.

x - - - - - - - - - - - - - - - - - - - - - - - - - x

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. G.R. No. 168730
Petitioner,

- versus -

HON. EDUARDO R. ERMITA, in his capacity as the
Executive Secretary; HON. MARGARITO TEVES, in
his capacity as Secretary of Finance; HON. JOSE
MARIO BUNAG, in his capacity as the OIC
Commissioner of the Bureau of Internal Revenue;
and HON. ALEXANDER AREVALO, in his capacity as
the OIC Commissioner of the Bureau of Customs,








Promulgated:
Respondents. September 1, 2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- x


D E C I S I O N


AUSTRIA-MARTINEZ, J.:


The expenses of government, having for their object the interest of all, should be borne
by everyone, and the more man enjoys the advantages of society, the more he ought to
hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist

Mounting budget deficit, revenue generation, inadequate fiscal allocation for
education, increased emoluments for health workers, and wider coverage for full value-
added tax benefits these are the reasons why Republic Act No. 9337 (R.A. No. 9337)[1]
was enacted. Reasons, the wisdom of which, the Court even with its extensive
constitutional power of review, cannot probe. The petitioners in these cases, however,
44

question not only the wisdom of the law, but also perceived constitutional infirmities in its
passage.

Every law enjoys in its favor the presumption of constitutionality. Their
arguments notwithstanding, petitioners failed to justify their call for the invalidity of the
law. Hence, R.A. No. 9337 is not unconstitutional.

LEGISLATIVE HISTORY

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos.
3555 and 3705, and Senate Bill No. 1950.

House Bill No. 3555[2] was introduced on first reading on January 7, 2005. The
House Committee on Ways and Means approved the bill, in substitution of House Bill No.
1468, which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The
President certified the bill on January 7, 2005 for immediate enactment. On January 27,
2005, the House of Representatives approved the bill on second and third reading.

House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105
introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep.
Jacinto V. Paras. Its mother bill is House Bill No. 3555. The House Committee on Ways
and Means approved the bill on February 2, 2005. The President also certified it as urgent
on February 8, 2005. The House of Representatives approved the bill on second and third
reading on February 28, 2005.

Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No.
1950[4] on March 7, 2005, in substitution of Senate Bill Nos. 1337, 1838 and 1873,
taking into consideration House Bill Nos. 3555 and 3705. Senator Ralph G. Recto
sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The
President certified the bill on March 11, 2005, and was approved by the Senate on second
and third reading on April 13, 2005.

On the same date, April 13, 2005, the Senate agreed to the request of the
House of Representatives for a committee conference on the disagreeing provisions of the
proposed bills.

Before long, the Conference Committee on the Disagreeing Provisions of House
Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, after having met and
discussed in full free and conference, recommended the approval of its report, which the
Senate did on May 10, 2005, and with the House of Representatives agreeing thereto the
next day, May 11, 2005.

45

On May 23, 2005, the enrolled copy of the consolidated House and Senate
version was transmitted to the President, who signed the same into law on May 24,
2005. Thus, came R.A. No. 9337.

July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came,
the Court issued a temporary restraining order, effective immediately and continuing until
further orders, enjoining respondents from enforcing and implementing the law.

Oral arguments were held on July 14, 2005. Significantly, during the hearing,
the Court speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for its
issuance of the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of
your presentation, let me just tell you a
little background. You know when the
law took effect on July 1, 2005, the
Court issued a TRO at about 5 oclock
in the afternoon. But before that,
there was a lot of complaints aired on
television and on radio. Some people
in a gas station were complaining that
the gas prices went up by 10%. Some
people were complaining that their
electric bill will go up by 10%. Other
times people riding in domestic air
carrier were complaining that the
prices that theyll have to pay would
have to go up by 10%. While all that
was being aired, per your presentation
and per our own understanding of the
law, thats not true. Its not true that
the e-vat law necessarily increased
prices by 10% uniformly isnt it?

ATTY. BANIQUED : No, Your Honor.

J. PANGANIBAN : It is not?

ATTY. BANIQUED : Its not, because, Your Honor, there is
an Executive Order that granted the
Petroleum companies some subsidy . .
. interrupted


J. PANGANIBAN : Thats correct . . .

ATTY. BANIQUED : . . . and therefore that was meant to
temper the impact . . . interrupted


J. PANGANIBAN : . . . mitigating measures . . .

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : As a matter of fact a part of the
mitigating measures would be the
elimination of the Excise Tax and the
import duties. That is why, it is not
correct to say that the VAT as to
petroleum dealers increased prices by
10%.

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : And therefore, there is no justification
for increasing the retail price by 10%
to cover the E-Vat tax. If you consider
the excise tax and the import duties,
the Net Tax would probably be in the
neighborhood of 7%? We are not
going into exact figures I am just trying
to deliver a point that different
industries, different products, different
services are hit differently. So its not
correct to say that all prices must go
up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.


J. PANGANIBAN : Now. For instance, Domestic Airline
companies, Mr. Counsel, are at present
imposed a Sales Tax of 3%. When this
E-Vat law took effect the Sales Tax was
also removed as a mitigating
measure. So, therefore, there is no
46

justification to increase the fares by
10% at best 7%, correct?

ATTY. BANIQUED : I guess so, Your Honor, yes.

J. PANGANIBAN : There are other products that the
people were complaining on that first
day, were being increased arbitrarily by
10%. And thats one reason among
many others this Court had to issue
TRO because of the confusion in the
implementation. Thats why we added
as an issue in this case, even if its
tangentially taken up by the pleadings
of the parties, the confusion in the
implementation of the E-vat. Our
people were subjected to the mercy of
that confusion of an across the board
increase of 10%, which you yourself
now admit and I think even the
Government will admit is incorrect. In
some cases, it should be 3% only, in
some cases it should be 6% depending
on these mitigating measures and the
location and situation of each product,
of each service, of each company, isnt
it?

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : Alright. So thats one reason why we
had to issue a TRO pending the
clarification of all these and we wish
the government will take time to clarify
all these by means of a more detailed
implementing rules, in case the law is
upheld by this Court. . . .[6]


The Court also directed the parties to file their respective Memoranda.

G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al.,
filed a petition for prohibition on May 27, 2005. They question the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of
goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section
6 imposes a 10% VAT on sale of services and use or lease of properties. 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 %).


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.

G.R. No. 168207
47


On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for
certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to
increase the VAT rate to 12%, on the ground that it amounts to an undue delegation of
legislative power, petitioners also contend that the increase in the VAT rate to 12%
contingent on any of the two conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and
additional tax burden on the people, in that: (1) the 12% increase is ambiguous because
it does not state if the rate would be returned to the original 10% if the conditions are no
longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is
supposed to be an incentive to the President to raise the VAT collection to at least 2
4
/5 of
the GDP of the previous year, should only be based on fiscal adequacy.

Petitioners further claim that the inclusion of a stand-by authority granted to the
President by the Bicameral Conference Committee is a violation of the no-amendment
rule upon last reading of a bill laid down in Article VI, Section 26(2) of the Constitution.

G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by the
Association of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A.
No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition,
excluding the VAT components, exceeds One Million Pesos
(P1, 000,000.00);

2) Section 8, amending Section 110 (B) of the NIRC, imposing a
70% limit on the amount of input tax to be credited against
the output tax; and

3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including
GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10%
VAT under Sections 106 (sale of goods and properties) and
108 (sale of services and use or lease of properties) of the
NIRC.


Petitioners contend that these provisions are unconstitutional for being
arbitrary, oppressive, excessive, and confiscatory.

Petitioners argument is premised on the constitutional right of non-deprivation
of life, liberty or property without due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested sections impose limitations on the
amount of input tax that may be claimed. Petitioners also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited
without due process of law. Petitioners further contend that like any other property or
48

property right, the input tax credit may be transferred or disposed of, and that by limiting
the same, the government gets to tax a profit or value-added even if there is no profit or
value-added.

Petitioners also believe that these provisions violate the constitutional guarantee
of equal protection of the law under Article III, Section 1 of the Constitution, as the
limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or (2)
invests in capital equipment; or (3) has several transactions with the government, is not
based on real and substantial differences to meet a valid classification.

Lastly, petitioners contend that the 70% limit is anything but progressive,
violative of Article VI, Section 28(1) of the Constitution, and that it is the smaller
businesses with higher input tax to output tax ratio that will suffer the consequences
thereof for it wipes out whatever meager margins the petitioners make.

G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G.
Escudero filed this petition for certiorari on June 30, 2005. They question the
constitutionality of R.A. No. 9337 on the following grounds:

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue
delegation of legislative power, in violation of Article VI,
Section 28(2) of the Constitution;

2) The Bicameral Conference Committee acted without
jurisdiction in deleting the no pass on provisions present in
Senate Bill No. 1950 and House Bill No. 3705; and

3) Insertion by the Bicameral Conference Committee of Sections
27, 28, 34, 116, 117, 119, 121, 125,[7] 148, 151, 236, 237
and 288, which were present in Senate Bill No. 1950,
violates Article VI, Section 24(1) of the Constitution, which
provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives

G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari
and prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground that
the limitation on the creditable input tax in effect allows VAT-registered establishments to
retain a portion of the taxes they collect, thus violating the principle that tax collection and
revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia
further claims that allowing these establishments to pass on the tax to the consumers is
inequitable, in violation of Article VI, Section 28(1) of the Constitution.

RESPONDENTS COMMENT

49

The Office of the Solicitor General (OSG) filed a Comment in behalf of
respondents. Preliminarily, respondents contend that R.A. No. 9337 enjoys the
presumption of constitutionality and petitioners failed to cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e.,
legality of the bicameral proceedings, exclusive origination of revenue measures and the
power of the Senate concomitant thereto, have already been settled. With regard to the
issue of undue delegation of legislative power to the President, respondents contend that
the law is complete and leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.

Respondents also refute petitioners argument that the increase to 12%, as well
as the 70% limitation on the creditable input tax, the 60-month amortization on the
purchase or importation of capital goods exceeding P1,000,000.00, and the 5% final
withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and
that it violates the constitutional principle on progressive taxation, among others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of the
governments fiscal reform agenda. A reform in the value-added system of taxation is the
core revenue measure that will tilt the balance towards a sustainable macroeconomic
environment necessary for economic growth.

ISSUES

The Court defined the issues, as follows:

PROCEDURAL ISSUE

Whether R.A. No. 9337 violates the following provisions of
the Constitution:

a. Article VI, Section 24, and
b. Article VI, Section 26(2)

SUBSTANTIVE ISSUES

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108 of the NIRC, violate the following
provisions of the Constitution:

a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)

2. Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337,
amending Section 114(C) of the NIRC, violate the following provisions
of the Constitution:

a. Article VI, Section 28(1), and
b. Article III, Section 1


RULING OF THE COURT

50

As a prelude, the Court deems it apt to restate the general principles and
concepts of value-added tax (VAT), as the confusion and inevitably, litigation, breeds from
a fallacious notion of its nature.

The VAT is a tax on spending or consumption. It is levied on the sale, barter,
exchange or lease of goods or properties and services.[8] Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to the
buyer,[9] with the seller acting merely as a tax collector.[10] The burden of VAT is
intended to fall on the immediate buyers and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the burden to someone
else.[11] Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.[12]

In the Philippines, the value-added system of sales taxation has long been in
existence, albeit in a different mode. Prior to 1978, the system was a single-stage tax
computed under the cost deduction method and was payable only by the original
sellers. The single-stage system was subsequently modified, and a mixture of the cost
deduction method and tax credit method was used to determine the value-added tax
payable.[13] Under the tax credit method, an entity can credit against or subtract from
the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and
imports.[14]

It was only in 1987, when President Corazon C. Aquino issued Executive Order
No. 273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0%
or 10% on all sales using the tax credit method.[15]


E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,[16] R.A.
No. 8241 or the Improved VAT Law,[17] R.A. No. 8424 or the Tax Reform Act of
1997,[18] and finally, the presently beleaguered R.A. No. 9337, also referred to by
respondents as the VAT Reform Act.

The Court will now discuss the issues in logical sequence.

PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:

a. Article VI, Section 24, and
b. Article VI, Section 26(2)

A. The Bicameral Conference Committee

51

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral
Conference Committee exceeded its authority by:

1) Inserting the stand-by authority in favor of the President in
Sections 4, 5, and 6 of R.A. No. 9337;

2) Deleting entirely the no pass-on provisions found in both the
House and Senate bills;

3) Inserting the provision imposing a 70% limit on the amount
of input tax to be credited against the output tax; and

4) Including the amendments introduced only by Senate Bill No.
1950 regarding other kinds of taxes in addition to the value-added
tax.


Petitioners now beseech the Court to define the powers of the Bicameral
Conference Committee.

It should be borne in mind that the power of internal regulation and discipline
are intrinsic in any legislative body for, as unerringly elucidated by Justice Story, [i]f the
power did not exist, it would be utterly impracticable to transact the business of the
nation, either at all, or at least with decency, deliberation, and order.[19] Thus, Article
VI, Section 16 (3) of the Constitution provides that each House may determine the rules
of its proceedings. Pursuant to this inherent constitutional power to promulgate and
implement its own rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives
provides as follows:

Sec. 88. Conference Committee. In the event that the
House does not agree with the Senate on the amendment to any bill
or joint resolution, the differences may be settled by the conference
committees of both chambers.

In resolving the differences with the Senate, the House
panel shall, as much as possible, adhere to and support the House
Bill. If the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact to the
House for the latters appropriate action.

Sec. 89. Conference Committee Reports. . . . Each report
shall contain a detailed, sufficiently explicit statement of the changes
in or amendments to the subject measure.

. . .

The Chairman of the House panel may be interpellated on
the Conference Committee Report prior to the voting thereon. The
House shall vote on the Conference Committee Report in the same
manner and procedure as it votes on a bill on third and final reading.


Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with
the House of Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference committee
of both Houses which shall meet within ten (10) days after their
composition. The President shall designate the members of the
Senate Panel in the conference committee with the approval of the
Senate.
52


Each Conference Committee Report shall contain a detailed
and sufficiently explicit statement of the changes in, or amendments
to the subject measure, and shall be signed by a majority of the
members of each House panel, voting separately.

A comparative presentation of the conflicting House and
Senate provisions and a reconciled version thereof with the
explanatory statement of the conference committee shall be attached
to the report.

. . .


The creation of such conference committee was apparently in response to a
problem, not addressed by any constitutional provision, where the two houses of
Congress find themselves in disagreement over changes or amendments introduced by
the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to
discipline its members, may the Court then delve into the details of how Congress
complies with its internal rules or how it conducts its business of passing legislation? Note
that in the present petitions, the issue is not whether provisions of the rules of both
houses creating the bicameral conference committee are unconstitutional, but whether
the bicameral conference committee has strictly complied with the rules of both houses,
thereby remaining within the jurisdiction conferred upon it by Congress.

In the recent case of Farias vs. The Executive Secretary,[20] the Court En
Banc, unanimously reiterated and emphasized its adherence to the enrolled bill doctrine,
thus, declining therein petitioners plea for the Court to go behind the enrolled copy of the
bill. Assailed in said case was Congresss creation of two sets of bicameral conference
committees, the lack of records of said committees proceedings, the alleged violation of
said committees of the rules of both houses, and the disappearance or deletion of one of
the provisions in the compromise bill submitted by the bicameral conference
committee. It was argued that such irregularities in the passage of the law nullified R.A.
No. 9006, or the Fair Election Act.

Striking down such argument, the Court held thus:

Under the enrolled bill doctrine, the signing of a bill by the Speaker of the House and
the Senate President and the certification of the Secretaries of both Houses of Congress
that it was passed are conclusive of its due enactment. A review of cases reveals the
Courts consistent adherence to the rule. The Court finds no reason to deviate from the
salutary rule in this case where the irregularities alleged by the petitioners mostly involved
the internal rules of Congress, e.g., creation of the 2
nd
or 3
rd
Bicameral Conference
Committee by the House. This Court is not the proper forum for the enforcement of these
internal rules of Congress, whether House or Senate. Parliamentary rules are merely
procedural and with their observance the courts have no concern. Whatever doubts there
may be as to the formal validity of Rep. Act No. 9006 must be resolved in its favor. The
Court reiterates its ruling in Arroyo vs. De Venecia, viz.:

But the cases, both here and abroad, in
varying forms of expression, all deny to the
courts the power to inquire into allegations that,
in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of
showing that there was a violation of a
constitutional provision or the rights of private
individuals. In Osmea v. Pendatun, it was held:
At any rate, courts have declared that the rules
adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure
of the body adopting them. And it has been said
that Parliamentary rules are merely procedural,
and with their observance, the courts have no
concern. They may be waived or disregarded by
53

the legislative body. Consequently, mere failure
to conform to parliamentary usage will not
invalidate the action (taken by a deliberative
body) when the requisite number of members
have agreed to a particular
measure.[21] (Emphasis supplied)


The foregoing declaration is exactly in point with the present cases, where
petitioners allege irregularities committed by the conference committee in introducing
changes or deleting provisions in the House and Senate bills. Akin to the Farias
case,[22] the present petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding Congress compliance with its own internal
rules. As stated earlier, one of the most basic and inherent power of the legislature is the
power to formulate rules for its proceedings and the discipline of its members. Congress
is the best judge of how it should conduct its own business expeditiously and in the
most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if
it believes that said members violated any of its rules of proceedings. Even the expanded
jurisdiction of this Court cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-
equal branch of government.

Moreover, as far back as 1994 or more than ten years ago, in the case of
Tolentino vs. Secretary of Finance,[23] the Court already made the pronouncement that
[i]f a change is desired in the practice [of the Bicameral Conference Committee] it must
be sought in Congress since this question is not covered by any constitutional provision
but is only an internal rule of each house. [24] To date, Congress has not seen it fit to
make such changes adverted to by the Court. It seems, therefore, that Congress finds
the practices of the bicameral conference committee to be very useful for purposes of
prompt and efficient legislative action.

Nevertheless, just to put minds at ease that no blatant irregularities tainted the
proceedings of the bicameral conference committees, the Court deems it necessary to
dwell on the issue. The Court observes that there was a necessity for a conference
committee because a comparison of the provisions of House Bill Nos. 3555 and 3705 on
one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed
disagreements. As pointed out in the petitions, said disagreements were as follows:

House Bill No. 3555


House Bill No.3705

Senate Bill No. 1950

With regard to Stand-By Authority in favor of President

Provides for 12% VAT
on every sale of goods
or properties
(amending Sec. 106 of
NIRC); 12% VAT on
importation of goods
(amending Sec. 107 of
NIRC); and 12% VAT
on sale of services and
use or lease of
properties (amending
Provides for 12% VAT in
general on sales of goods
or properties and reduced
rates for sale of certain
locally manufactured goods
and petroleum products
and raw materials to be
used in the manufacture
thereof (amending Sec. 106
of NIRC); 12% VAT on
importation of goods and
Provides for a single rate
of 10% VAT on sale of
goods or properties
(amending Sec. 106 of
NIRC), 10% VAT on sale
of services including sale
of electricity by
generation companies,
transmission and
distribution companies,
and use or lease of
54

Sec. 108 of NIRC) reduced rates for certain
imported products including
petroleum products
(amending Sec. 107 of
NIRC); and 12% VAT on
sale of services and use or
lease of properties and a
reduced rate for certain
services including power
generation (amending Sec.
108 of NIRC)
properties (amending
Sec. 108 of NIRC)


With regard to the no pass-on provision

No similar provision Provides that the VAT
imposed on power
generation and on the sale
of petroleum products shall
be absorbed by generation
companies or sellers,
respectively, and shall not
be passed on to consumers
Provides that the VAT
imposed on sales of
electricity by generation
companies and services
of transmission
companies and
distribution companies,
as well as those of
franchise grantees of
electric utilities shall not
apply to residential
end-users. VAT shall be
absorbed by generation,
transmission, and
distribution companies.
With regard to 70% limit on input tax credit

Provides that the input
tax credit for capital
goods on which a VAT
has been paid shall be
equally distributed over
5 years or the
depreciable life of such
capital goods; the input
tax credit for goods
and services other than
capital goods shall not
No similar provision Provides that the input
tax credit for capital
goods on which a VAT
has been paid shall be
equally distributed over
5 years or the
depreciable life of such
capital goods; the input
tax credit for goods and
services other than
capital goods shall not
exceed 5% of the total
amount of such goods
and services; and for
persons engaged in
retail trading of goods,
the allowable input tax
credit shall not exceed
11% of the total
amount of goods
purchased.
exceed 90% of the
output VAT.


With regard to amendments to be made to NIRC provisions regarding income and excise
taxes

No similar provision No similar provision Provided for
amendments to several
NIRC provisions
regarding corporate
income, percentage,
franchise and excise
taxes


The disagreements between the provisions in the House bills and the Senate bill
were with regard to (1) what rate of VAT is to be imposed; (2) whether only the VAT
imposed on electricity generation, transmission and distribution companies should not be
passed on to consumers, as proposed in the Senate bill, or both the VAT imposed on
electricity generation, transmission and distribution companies and the VAT imposed on
sale of petroleum products should not be passed on to consumers, as proposed in the
House bill; (3) in what manner input tax credits should be limited; (4) and whether the
55

NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should
be amended.

There being differences and/or disagreements on the foregoing provisions of
the House and Senate bills, the Bicameral Conference Committee was mandated by the
rules of both houses of Congress to act on the same by settling said differences and/or
disagreements. The Bicameral Conference Committee acted on the disagreeing provisions
by making the following changes:

1. With regard to the disagreement on the rate of VAT to be imposed, it would appear
from the Conference Committee Report that the Bicameral Conference Committee tried to
bridge the gap in the difference between the 10% VAT rate proposed by the Senate, and
the various rates with 12% as the highest VAT rate proposed by the House, by striking a
compromise whereby the present 10% VAT rate would be retained until certain conditions
arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP)
of the previous year exceeds 2 4/5%, or National Government deficit as a percentage of
GDP of the previous year exceeds 1%, when the President, upon recommendation of
the Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.

2. With regard to the disagreement on whether only the VAT imposed on
electricity generation, transmission and distribution companies should not be passed on to
consumers or whether both the VAT imposed on electricity generation, transmission and
distribution companies and the VAT imposed on sale of petroleum products may be
passed on to consumers, the Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no pass-on provision.

3. With regard to the disagreement on whether input tax credits should be limited or
not, the Bicameral Conference Committee decided to adopt the position of the House by
putting a limitation on the amount of input tax that may be credited against the output
tax, although it crafted its own language as to the amount of the limitation on input tax
credits and the manner of computing the same by providing thus:

(A) Creditable Input Tax. . . .

. . .

Provided, The input tax on goods
purchased or imported in a calendar month for
use in trade or business for which deduction for
depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and
the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds
one million Pesos (P1,000,000.00): PROVIDED,
however, that if the estimated useful life of the
capital good is less than five (5) years, as used
for depreciation purposes, then the input VAT
shall be spread over such shorter period: . . .

(B) Excess Output or Input Tax. If
at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by
the VAT-registered person. If the input tax
exceeds the output tax, the excess shall be
carried over to the succeeding quarter or
quarters: PROVIDED that the input tax inclusive
of input VAT carried over from the previous
quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the
output VAT: PROVIDED, HOWEVER, THAT any
input tax attributable to zero-rated sales by a
VAT-registered person may at his option be
refunded or credited against other internal
revenue taxes, . . .


4. With regard to the amendments to other provisions of the NIRC on
corporate income tax, franchise, percentage and excise taxes, the conference committee
decided to include such amendments and basically adopted the provisions found in Senate
Bill No. 1950, with some changes as to the rate of the tax to be imposed.

Under the provisions of both the Rules of the House of Representatives and
Senate Rules, the Bicameral Conference Committee is mandated to settle the differences
between the disagreeing provisions in the House bill and the Senate bill. The term
56

settle is synonymous to reconcile and harmonize.[25] To reconcile or harmonize
disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the
specific provisions of either the House bill or Senate bill, (b) decide that neither provisions
in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between
the disagreeing provisions.


In the present case, the changes introduced by the Bicameral Conference
Committee on disagreeing provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the
subject embraced by the original provisions.

The so-called stand-by authority in favor of the President, whereby the rate of
10% VAT wanted by the Senate is retained until such time that certain conditions arise
when the 12% VAT wanted by the House shall be imposed, appears to be a compromise
to try to bridge the difference in the rate of VAT proposed by the two houses of
Congress. Nevertheless, such compromise is still totally within the subject of what rate of
VAT should be imposed on taxpayers.

The no pass-on provision was deleted altogether. In the transcripts of the
proceedings of the Bicameral Conference Committee held on May 10, 2005, Sen. Ralph
Recto, Chairman of the Senate Panel, explained the reason for deleting the no pass-on
provision in this wise:

. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were
thinking that no sector should be a beneficiary of legislative grace, neither should any
sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And lets keep
it plain and simple. Lets not confuse the bill and put a no pass-on provision. Two-thirds
of the world have a VAT system and in this two-thirds of the globe, I have yet to see a
VAT with a no pass-though provision. So, the thinking of the Senate is basically simple,
lets keep the VAT simple.[26] (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on
provision never really enjoyed the support of either House.[27]

With regard to the amount of input tax to be credited against output tax, the
Bicameral Conference Committee came to a compromise on the percentage rate of the
limitation or cap on such input tax credit, but again, the change introduced by the
Bicameral Conference Committee was totally within the
intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the
House of Representatives, one of the major objectives was to plug a glaring loophole in
the tax policy and administration by creating vital restrictions on the claiming of input VAT
tax credits . . . and [b]y introducing limitations on the claiming of tax credit, we are
capping a major leakage that has placed our collection efforts at an apparent
disadvantage.[28]
57


As to the amendments to NIRC provisions on taxes other than the value-added
tax proposed in Senate Bill No. 1950, since said provisions were among those referred to
it, the conference committee had to act on the same and it basically adopted the version
of the Senate.

Thus, all the changes or modifications made by the Bicameral
Conference Committee were germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of
discretion amounting to lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs.
Prado[29] and Tolentino vs. Secretary of Finance,[30] the Court recognized the long-
standing legislative practice of giving said conference committee ample latitude fo
r compromising differences between the Senate and the House. Thus, in the Tolentino
case, it was held that:

. . . it is within the power of a conference committee to
include in its report an entirely new provision that is not found either
in the House bill or in the Senate bill. If the committee can propose
an amendment consisting of one or two provisions, there is no reason
why it cannot propose several provisions, collectively considered as
an amendment in the nature of a substitute, so long as such
amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval
of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus without any
basis.[31] (Emphasis supplied)


B. R.A. No. 9337 Does Not Violate Article VI,
Section 26(2) of the Constitution on
the No-Amendment Rule


Article VI, Sec. 26 (2) of the Constitution, states:

No bill passed by either House shall become a law unless it
has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members three
days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto
shall be allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.


Petitioners argument that the practice where a bicameral conference committee
is allowed to add or delete provisions in the House bill and the Senate bill after these had
passed three readings is in effect a circumvention of the no amendment rule (Sec. 26
(2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from its ruling
in the Tolentino case that:

Nor is there any reason for requiring that the Committees
Report in these cases must have undergone three readings in each of
the two houses. If that be the case, there would be no end to
negotiation since each house may seek modification of the
compromise bill. . . .

58

Art. VI. 26 (2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of Congress,
not to the conference committee report.[32] (Emphasis supplied)


The Court reiterates here that the no-amendment rule refers only to the
procedure to be followed by each house of Congress with regard to bills initiated in each
of said respective houses, before said bill is transmitted to the other house for its
concurrence or amendment. Verily, to construe said provision in a way as to proscribe
any further changes to a bill after one house has voted on it would lead to absurdity as
this would mean that the other house of Congress would be deprived of its constitutional
power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing provisions in bills that have
been acted upon by both houses of Congress is prohibited.

C. R.A. No. 9337 Does Not Violate Article VI,
Section 24 of the Constitution on
Exclusive Origination of Revenue Bills


Coming to the issue of the validity of the amendments made regarding the
NIRC provisions on corporate income taxes and percentage, excise taxes. Petitioners
refer to the following provisions, to wit:

Section
27

Rates of Income Tax on
Domestic Corporation
28(A)(1) Tax on Resident Foreign
Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt
from VAT
117 Percentage Tax on
domestic carriers and
keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-
Bank Financial
Intermediaries
148 Excise Tax on
manufactured oils and
other fuels
151 Excise Tax on mineral
products
236 Registration requirements
237 Issuance of receipts or
sales or commercial
invoices
288 Disposition of Incremental
Revenue


Petitioners claim that the amendments to these provisions of the NIRC did not
at all originate from the House. They aver that House Bill No. 3555 proposed amendments
only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No.
59

3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of the
NIRC; thus, the other sections of the NIRC which the Senate amended but which
amendments were not found in the House bills are not intended to be amended by the
House of Representatives. Hence, they argue that since the proposed amendments did
not originate from the House, such amendments are a violation of Article VI, Section 24 of
the Constitution.

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments.


In the present cases, petitioners admit that it was indeed House Bill Nos. 3555
and 3705 that initiated the move for amending provisions of the NIRC dealing mainly with
the value-added tax. Upon transmittal of said House bills to the Senate, the Senate came
out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the
value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value- added tax,
which is the only kind of tax being amended in the House bills, still within the purview of
the constitutional provision authorizing the Senate to propose or concur with amendments
to a revenue bill that originated from the House?

The foregoing question had been squarely answered in the Tolentino case,
wherein the Court held, thus:

. . . To begin with, it is not the law but the revenue bill
which is required by the Constitution to originate exclusively in the
House of Representatives. It is important to emphasize this, because
a bill originating in the House may undergo such extensive changes in
the Senate that the result may be a rewriting of the whole. . . . At
this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue
statute and not only the bill which initiated the legislative process
culminating in the enactment of the law must substantially be the
same as the House bill would be to deny the Senates power not only
to concur with amendments but also to propose amendments. It
would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the
Senate.



Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version even with
respect to bills which are required by the Constitution to originate in
the House.
. . .

Indeed, what 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.[33] (Emphasis supplied)
60



Since there is no question that 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.

Furthermore, the amendments introduced by the Senate to the NIRC provisions
that had not been touched in the House bills are still in furtherance of the intent of the
House in initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468,
the very first House bill introduced on the floor, which was later substituted by House Bill
No. 3555, stated:

One of the challenges faced by the present administration
is the urgent and daunting task of solving the countrys serious
financial problems. To do this, government expenditures must be
strictly monitored and controlled and revenues must be significantly
increased. This may be easier said than done, but our fiscal
authorities are still optimistic the government will be operating on a
balanced budget by the year 2009. In fact, several measures that will
result to significant expenditure savings have been identified by the
administration. It is supported with a credible package of revenue
measures that include measures to improve tax administration and
control the leakages in revenues from income taxes and the value-
added tax (VAT). (Emphasis supplied)


Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555,
declared that:

In the budget message of our President in the year 2005,
she reiterated that we all acknowledged that on top of our agenda
must be the restoration of the health of our fiscal system.

In order to considerably lower the consolidated public
sector deficit and eventually achieve a balanced budget by the year
2009, we need to seize windows of opportunities which might seem
poignant in the beginning, but in the long run prove effective and
beneficial to the overall status of our economy. One such opportunity
is a review of existing tax rates, evaluating the relevance given our
present conditions.[34] (Emphasis supplied)


Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration
and control of the leakages in revenues from income taxes and value-added taxes. As
these house bills were transmitted to the Senate, the latter, approaching the measures
from the point of national perspective, can introduce amendments within the purposes of
those bills. It can provide for ways that would soften the impact of the VAT measure on
the consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto
on why the provisions on income tax on corporation were included is worth quoting:
61


All in all, the proposal of the Senate Committee on Ways
and Means will raise P64.3 billion in additional revenues annually even
while by mitigating prices of power, services and petroleum products.

However, not all of this will be wrung out of VAT. In fact,
only P48.7 billion amount is from the VAT on twelve goods and
services. The rest of the tab P10.5 billion- will be picked by
corporations.

What we therefore prescribe is a burden sharing between
corporate Philippines and the consumer. Why should the latter bear
all the pain? Why should the fiscal salvation be only on the burden of
the consumer?

The corporate worlds equity is in form of the increase in
the corporate income tax from 32 to 35 percent, but up to 2008 only.
This will raise P10.5 billion a year. After that, the rate will slide back,
not to its old rate of 32 percent, but two notches lower, to 30
percent.

Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that will be in
effect for 1,200 days, while we put our fiscal house in order. This
fiscal medicine will have an expiry date.

For their assistance, a reward of tax reduction awaits them.
We intend to keep the length of their sacrifice brief. We would like to
assure them that not because there is a light at the end of the tunnel,
this government will keep on making the tunnel long.

The responsibility will not rest solely on the weary
shoulders of the small man. Big business will be there to share the
burden.[35]


As the Court has said, the Senate can propose amendments and in fact, the
amendments made on provisions in the tax on income of corporations are germane to the
purpose of the house bills which is to raise revenues for the government.


Likewise, the Court finds the sections referring to other percentage and excise
taxes germane to the reforms to the VAT system, as these sections would cushion the
effects of VAT on consumers. Considering that certain goods and services which were
subject to percentage tax and excise tax would no longer be VAT-exempt, the consumer
would be burdened more as they would be paying the VAT in addition to these taxes.
Thus, there is a need to amend these sections to soften the impact of VAT. Again, in his
sponsorship speech, Sen. Recto said:

However, for power plants that run on oil, we will reduce to zero the present excise tax on
bunker fuel, to lessen the effect of a VAT on this product.

For electric utilities like Meralco, we will wipe out the
franchise tax in exchange for a VAT.

And in the case of petroleum, while we will levy the VAT on
oil products, so as not to destroy the VAT chain, we will however
bring down the excise tax on socially sensitive products such as
diesel, bunker, fuel and kerosene.

. . .

What do all these exercises point to? These are not
contortions of giving to the left hand what was taken from the right.
Rather, these sprang from our concern of softening the impact of
VAT, so that the people can cushion the blow of higher prices they
will have to pay as a result of VAT.[36]


62

The other sections amended by the Senate pertained to matters of tax
administration which are necessary for the implementation of the changes in the VAT
system.

To reiterate, the sections introduced by the Senate are germane to the subject
matter and purposes of the house bills, which is to supplement our countrys fiscal deficit,
among others. Thus, the Senate acted within its power to propose those amendments.

SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of
the NIRC, violate the following provisions of the Constitution:

a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of
Legislative Power


Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero,
et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the NIRC giving the President the stand-by authority to
raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue
delegation of the legislative power to tax.

The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby
further amended to read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties.


(A) Rate and Base of Tax. There shall be
levied, assessed and collected on every sale,
barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10%)
of the gross selling price or gross value in money
of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or
transferor: provided, 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
%).

SEC. 5. Section 107 of the same Code, as amended, is
hereby further amended to read as follows:

SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied,
assessed and collected on every importation of
goods a value-added tax equivalent to ten
percent (10%) based on the total value used by
63

the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise
taxes, if any, and other charges, such tax to be
paid by the importer prior to the release of such
goods from customs custody: Provided, That
where the customs duties are determined on the
basis of the quantity or volume of the goods, the
value-added tax shall be based on the landed
cost plus excise taxes, if any: provided, further,
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
%).

SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as
follows:

SEC. 108. Value-added Tax on Sale of Services
and Use or Lease of Properties

(A) Rate and Base of Tax. There shall be
levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services:
provided, 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
%). (Emphasis supplied)


Petitioners allege that the grant of the stand-by authority to the President to
increase the VAT rate is a virtual abdication by Congress of its exclusive power to tax
because such delegation is not within the purview of Section 28 (2), Article VI of the
Constitution, which provides:

The Congress may, by law, authorize the President to fix within specified limits, and may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the
government.


They argue that the VAT is a tax levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services, which cannot be
included within the purview of tariffs under the exempted delegation as the latter refers to
customs duties, tolls or tribute payable upon merchandise to the government and usually
imposed on goods or merchandise imported or exported.

Petitioners ABAKADA GURO Party List, et al., further contend that delegating to
the President the legislative power to tax is contrary to republicanism. They insist that
64

accountability, responsibility and transparency should dictate the actions of Congress and
they should not pass to the President the decision to impose taxes. They also argue that
the law also effectively nullified the Presidents power of control, which includes the
authority to set aside and nullify the acts of her subordinates like the Secretary of
Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.

Petitioners Pimentel, et al. aver that the President has ample powers to cause,
influence or create the conditions provided by the law to bring about either or both the
conditions precedent.

On the other hand, petitioners Escudero, et al. find bizarre and revolting the
situation that the imposition of the 12% rate would be subject to the whim of the
Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation
without representation. They submit that the Secretary of Finance is not mandated to give
a favorable recommendation and he may not even give his recommendation. Moreover,
they allege that no guiding standards are provided in the law on what basis and as to how
he will make his 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.

A brief discourse on the principle of non-delegation of powers is instructive.

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.[37] A logical
corollary to the doctrine of separation of powers 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.[38] This doctrine is based on the
ethical principle that such as 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.[39]

With respect to the Legislature, Section 1 of Article VI of the Constitution
provides that the Legislative power shall be vested in the Congress of the Philippines
which shall consist of a Senate and a House of Representatives. The powers which
Congress is prohibited from delegating are those which are strictly, or inherently and
exclusively, legislative. Purely legislative power, which can never be delegated, has been
described as the authority to make a complete law complete as to the time when it shall
take effect and as to whom it shall be applicable and to determine the expediency of its
enactment.[40] Thus, the rule is that in order that a court may be justified in holding a
statute unconstitutional as a delegation of legislative power, it must appear that the
power involved is purely legislative in nature that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its delegation.
65


Nonetheless, the general rule barring delegation of legislative powers is subject
to the following recognized limitations or exceptions:

(1) Delegation of tariff powers to the President under Section 28 (2) of
Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2)
of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.


In every case of permissible delegation, there must be a showing that the
delegation itself is valid. It is valid only if the law (a) is complete in itself, setting forth
therein the policy to be executed, carried out, or implemented by the delegate;[41] and
(b) fixes a standard the limits of which are sufficiently determinate and determinable
to which the delegate must conform in the performance of his functions.[42] A sufficient
standard is one which defines legislative policy, marks its limits, maps out its boundaries
and specifies the public agency to apply it. It indicates the circumstances under which the
legislative command is to be effected.[43] Both tests are intended to prevent a total
transference of legislative authority to the delegate, who is not allowed to step into the
shoes of the legislature and exercise a power essentially legislative.[44]

In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel,
expounded on the concept and extent of delegation of power in this wise:

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 true distinction, says Judge Ranney, is between the
delegation of power to make the law, which necessarily involves a
discretion as to what it shall be, and conferring an authority or
discretion as to its execution, to be exercised under and in pursuance
of the law. The first cannot be done; to the latter no valid objection
can be made.

. . .

It is contended, however, that a legislative act may be
made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on certain
contingencies, as by proclamation of the executive or the adoption by
the people of a particular community. In Wayman vs. Southard, the
Supreme Court of the United States ruled that the legislature may
delegate a power not legislative which it may itself rightfully exercise.
The power to ascertain facts is such a power which may be
delegated. There is nothing essentially legislative in ascertaining the
existence of facts or conditions as the basis of the taking into effect of
a law. That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to
relax the rule prohibiting delegation of legislative authority on account
of the complexity arising from social and economic forces at work in
this modern industrial age, the orthodox pronouncement of Judge
Cooley in his work on Constitutional Limitations finds restatement in
Prof. Willoughby's treatise on the Constitution of the United States in
the following language speaking of declaration of legislative power
to administrative agencies: The principle which permits the legislature
to provide that the administrative agent may determine when the
circumstances are such as require the application of a law is defended
upon the ground that at the time this authority is granted, the rule of
public policy, which is the essence of the legislative act, is determined
66

by the legislature. In other words, the legislature, as it is its duty to
do, determines that, under given circumstances, certain executive or
administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is
thus left to the administrative official is not the legislative
determination of what public policy demands, but simply the
ascertainment of what the facts of the case require to be done
according to the terms of the law by which he is governed. The
efficiency of an Act as a declaration of legislative will must, of course,
come from Congress, but the ascertainment of the contingency upon
which the Act shall take effect may be left to such agencies as it may
designate. The legislature, then, may provide that a law shall take
effect upon the happening of future specified contingencies leaving to
some other person or body the power to determine when the
specified contingency has arisen. (Emphasis supplied).[46]


In Edu vs. Ericta,[47] the Court reiterated:

What cannot be delegated is the authority under the
Constitution to make laws and to alter and repeal them; the test is
the completeness of the statute in all its terms and provisions when it
leaves the hands of the legislature. To determine whether or not
there is an undue delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure enacted. The
legislative does not abdicate its functions when it describes what job
must be done, who is to do it, and what is the scope of his authority.
For a complex economy, that may be the only way in which the
legislative process can go forward. A distinction has rightfully been
made between delegation of power to make the laws which
necessarily involves a discretion as to what it shall be, which
constitutionally may not be done, and delegation of authority or
discretion as to its execution to be exercised under and in pursuance
of the law, to which no valid objection can be made. The Constitution
is thus not to be regarded as denying the legislature the necessary
resources of flexibility and practicability. (Emphasis supplied).[48]


Clearly, the legislature may delegate to executive officers or bodies the power
to determine certain facts or conditions, or the happening of contingencies, on which the
operation of a statute is, by its terms, made to depend, but the legislature must prescribe
sufficient standards, policies or limitations on their authority.[49] While the power to tax
cannot be delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends.[50]

The rationale for this is that the preliminary ascertainment of facts as basis for
the enactment of legislation is not of itself a legislative function, but is simply ancillary to
legislation. Thus, the duty of correlating information and making recommendations is the
kind of subsidiary activity which the legislature may perform through its members, or
which it may delegate to others to perform. Intelligent legislation on the complicated
problems of modern society is impossible in the absence of accurate information on the
part of the legislators, and any reasonable method of securing such information is
proper.[51] The Constitution as a continuously operative charter of government does not
require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy
to particular facts and circumstances impossible for Congress itself properly to
investigate.[52]

67

In the present case, the challenged section of R.A. No. 9337 is the common
proviso in Sections 4, 5 and 6 which reads as follows:

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 %).


The case before the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent. The legislature has made the operation of the
12% rate effective January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon factual matters outside
of the control of the executive.

No discretion would be exercised by the President. Highlighting the absence of
discretion is the fact that the word shall is used in the common proviso. The use of the
word shall connotes a mandatory order. Its use in a statute denotes an imperative
obligation and is inconsistent with the idea of discretion.[53] Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have no choice
but to see to it that the mandate is obeyed.[54]

Thus, it is the ministerial duty of the President to immediately impose the 12%
rate upon the existence of any of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as the law specifically uses the word
shall, the exercise of discretion by the President does not come into play. It is a clear
directive to impose the 12% VAT rate when the specified conditions are present. The time
of taking into effect of the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a person or body
other than the legislature itself.

The Court finds no merit to the contention of petitioners ABAKADA GURO Party
List, et al. that the law effectively nullified the Presidents power of control over the
Secretary of Finance by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of
Finance. The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the
phrase upon the recommendation of the Secretary of Finance. Neither does the Court
find persuasive the submission of petitioners Escudero, et al. that any recommendation by
the Secretary of Finance can easily be brushed aside by the President since the former is
a mere alter ego of the latter.

When one speaks of the Secretary of Finance as the alter ego of the President,
it simply means that as head of the Department of Finance he is the assistant and agent
68

of the Chief Executive. The multifarious executive and administrative functions of the
Chief Executive are performed by and through the executive departments, and the acts of
the secretaries of such departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by
the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of
Finance, as such, occupies a political position and holds office in an advisory capacity,
and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is subject to the direction
of the President."[55]


In the present case, in making his recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not acting as the
alter ego of the President or even her subordinate. In such instance, he is not subject to
the power of control and direction of the President. He is acting as the agent of the
legislative department, to determine and declare the event upon which its expressed will
is to take effect.[56] The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all the
facilities to gather data and information and has a much broader perspective to properly
evaluate them. His function is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out by Congress is present. His
personality in such instance is in reality but a projection of that of Congress. Thus, being
the agent of Congress and not of the President, the President cannot alter or modify or
nullify, or set aside the findings of the Secretary of Finance and to substitute the
judgment of the former for that of the latter.

Congress simply granted the Secretary of Finance the authority to ascertain the
existence of a fact, namely, whether by December 31, 2005, the 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 the national government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent (1%). If either of these
two instances has occurred, the Secretary of Finance, by legislative mandate, must submit
such information to the President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This is constitutionally
permissible.[57] 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.[58]

As to the argument of petitioners ABAKADA GURO Party List, et al. that
delegating to the President the legislative power to tax is contrary to the principle of
republicanism, the same deserves scant consideration. Congress did not delegate the
power to tax but the mere implementation of the law. The intent and will to increase the
VAT rate to 12% came from Congress and the task of the President is to simply execute
the legislative policy. That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law.[59]
69


The insinuation by petitioners Pimentel, et al. that the President has ample powers
to cause, influence or create the conditions to bring about either or both the conditions
precedent does not deserve any merit as this argument is highly speculative. The Court
does not rule on allegations which are manifestly conjectural, as these may not exist at
all. The Court deals with facts, not fancies; on realities, not appearances. When the Court
acts on appearances instead of realities, justice and law will be short-lived.

B. The 12% Increase VAT Rate Does Not
Impose an Unfair and Unnecessary
Additional Tax Burden


Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair
and additional tax burden on the people. Petitioners also argue that the 12% increase,
dependent on any of the 2 conditions set forth in the contested provisions, is ambiguous
because it does not state if the VAT rate would be returned to the original 10% if the
rates are no longer satisfied. Petitioners also argue that such rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to year.

Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of
the two conditions set forth therein are satisfied, the President shall increase the VAT rate
to 12%. The provisions of the law are clear. It does not provide for a return to the 10%
rate nor does it empower the President to so revert if, after the rate is increased to 12%,
the VAT collection goes below the 2
4
/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year does not exceed 1%.

Therefore, no statutory construction or interpretation is needed. Neither can
conditions or limitations be introduced where none is provided for. Rewriting the law is a
forbidden ground that only Congress may tread upon.[60]

Thus, in the absence of any provision providing for a return to the 10% rate,
which in this case the Court finds none, petitioners argument is, at best, purely
speculative. There is no basis for petitioners fear of a fluctuating VAT rate because the
law itself does not provide that the rate should go back to 10% if the conditions provided
in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the
law is clear and unambiguous, so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of judicial addition or
subtraction.[61]

Petitioners also contend that the increase in the VAT rate, which was allegedly
an incentive to the President to raise the VAT collection to at least 2
4
/5 of the GDP of the
previous year, should be based on fiscal adequacy.

Petitioners obviously overlooked that increase in VAT collection is not the only
condition. There is another condition, i.e., the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1 %).

70

Respondents explained the philosophy behind these alternative conditions:

1. VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12% have
economic or fiscal meaning. If VAT/GDP is less than 2.8%, it means
that government has weak or no capability of implementing the VAT
or that VAT is not effective in the function of the tax
collection. Therefore, there is no value to increase it to 12% because
such action will also be ineffectual.

2. Natl Govt Deficit/GDP >1.5%

The condition set for increasing VAT when deficit/GDP is
1.5% or less means the fiscal condition of government has reached a
relatively sound position or is towards the direction of a balanced
budget position. Therefore, there is no need to increase the VAT rate
since the fiscal house is in a relatively healthy position. Otherwise
stated, if the ratio is more than 1.5%, there is indeed a need to
increase the VAT rate.[62]


That the first condition amounts to an incentive to the President to increase the
VAT collection does not render it unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to raise revenue. In fact, fiscal
adequacy dictated the need for a raise in revenue.

The principle of fiscal adequacy as a characteristic of a sound tax system was
originally stated by Adam Smith in his Canons of Taxation (1776), as:

IV. Every tax ought to be so contrived as both to take out and to
keep out of the pockets of the people as little as possible
over and above what it brings into the public treasury of
the state.[63]


It simply means that sources of revenues must be adequate to meet
government expenditures and their variations.[64]

The dire need for revenue cannot be ignored. Our country is in a quagmire of
financial woe. During the Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the countrys gloomy state of economic affairs, thus:

First, let me explain the position that the Philippines finds
itself in right now. We are in a position where 90 percent of our
revenue is used for debt service. So, for every peso of revenue that
we currently raise, 90 goes to debt service. Thats interest plus
amortization of our debt. So clearly, this is not a sustainable
situation. Thats the first fact.

The second fact is that our debt to GDP level is way out of
line compared to other peer countries that borrow money from that
international financial markets. Our debt to GDP is approximately
equal to our GDP. Again, that shows you that this is not a sustainable
situation.

The third thing that Id like to point out is the environment
that we are presently operating in is not as benign as what it used to
be the past five years.

What do I mean by that?

In the past five years, weve been lucky because we were
operating in a period of basically global growth and low interest
rates. The past few months, we have seen an inching up, in fact, a
71

rapid increase in the interest rates in the leading economies of the
world. And, therefore, our ability to borrow at reasonable prices is
going to be challenged. In fact, ultimately, the question is our ability
to access the financial markets.

When the President made her speech in July last year, the
environment was not as bad as it is now, at least based on the
forecast of most financial institutions. So, we were assuming that
raising 80 billion would put us in a position where we can then
convince them to improve our ability to borrow at lower rates. But
conditions have changed on us because the interest rates have gone
up. In fact, just within this room, we tried to access the market for a
billion dollars because for this year alone, the Philippines will have to
borrow 4 billion dollars. Of that amount, we have borrowed 1.5
billion. We issued last January a 25-year bond at 9.7 percent
cost. We were trying to access last week and the market was not as
favorable and up to now we have not accessed and we might pull
back because the conditions are not very good.

So given this situation, we at the Department of Finance
believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase of the
debt and we are in what we call a debt spiral. The more debt you
have, the more deficit you have because interest and debt service
eats and eats more of your revenue. We need to get out of this debt
spiral. And the only way, I think, we can get out of this debt spiral is
really have a front-end adjustment in our revenue base.[65]


The image portrayed is chilling. Congress passed the law hoping for rescue
from an inevitable catastrophe. Whether the law is indeed sufficient to answer the states
economic dilemma is not for the Court to judge. In the Farias case, the Court refused to
consider the various arguments raised therein that dwelt on the wisdom of Section 14 of
R.A. No. 9006 (The Fair Election Act), pronouncing that:

. . . policy matters are not the concern of the
Court. Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to look
into the wisdom or propriety of legislative determination. Indeed,
whether an enactment is wise or unwise, whether it is based on
sound economic theory, whether it is the best means to achieve the
desired results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner are
matters for the judgment of the legislature, and the serious conflict of
opinions does not suffice to bring them within the range of judicial
cognizance.[66]


In the same vein, the Court in this case will not dawdle on the purpose of
Congress or the executive policy, given that it is not for the judiciary to "pass upon
questions of wisdom, justice or expediency of legislation.[67]

II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:

a. Article VI, Section 28(1), and
b. Article III, Section 1


A. Due Process and Equal Protection Clauses


72

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8
of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No.
9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and
confiscatory. Their argument is premised on the constitutional right against deprivation of
life, liberty of property without due process of law, as embodied in Article III, Section 1 of
the Constitution.

Petitioners also contend that these provisions violate the constitutional
guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.[68]

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against the output tax. It
states, in part: [P]rovided, that the input tax inclusive of the input VAT carried over from
the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT:

Input Tax is defined under Section 110(A) of the NIRC, as amended, as the
value-added tax due from or paid by a VAT-registered person on the importation of goods
or local purchase of good and services, including lease or use of property, in the course of
trade or business, from a VAT-registered person, and Output Tax is the value-added tax
due on the sale or lease of taxable goods or properties or services by any person
registered or required to register under the law.


Petitioners claim that the contested sections impose limitations on the amount
of input tax that may be claimed. In effect, a portion of the input tax that has already
been paid cannot now be credited against the output tax.

Petitioners argument is not absolute. It assumes that the input tax exceeds
70% of the output tax, and therefore, the input tax in excess of 70% remains
uncredited. However, to the extent that the input tax is less than 70% of the output tax,
then 100% of such input tax is still creditable.

More importantly, the excess input tax, if any, is retained in a businesss books
of accounts and remains creditable in the succeeding quarter/s. This is explicitly allowed
by Section 110(B), which provides that if the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters. In addition, Section 112(B)
allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been
73

applied against the output taxes. Such unused input tax may be used in payment of his
other internal revenue taxes.

The non-application of the unutilized input tax in a given quarter is not ad
infinitum, as petitioners exaggeratedly contend. Their analysis of the effect of the 70%
limitation is incomplete and one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the
fact that such unapplied/unutilized input tax may be credited in the subsequent periods as
allowed by the carry-over provision of Section 110(B) or that it may later on be refunded
through a tax credit certificate under Section 112(B).

Therefore, petitioners argument must be rejected.

On the other hand, it appears that petitioner Garcia failed to comprehend the
operation of the 70% limitation on the input tax. According to petitioner, the limitation on
the creditable input tax in effect allows VAT-registered establishments to retain a portion
of the taxes they collect, which violates the principle that tax collection and revenue
should be for public purposes and expenditures

As earlier stated, the input tax is the tax paid by a person, passed on to him by
the seller, when he buys goods. Output tax meanwhile is the tax due to the person when
he sells goods. In computing the VAT payable, three possible scenarios may arise:

First, if at the end of a taxable quarter the output taxes charged by the seller
are equal to the input taxes that he paid and passed on by the suppliers, then no payment
is required;

Second, when the output taxes exceed the input taxes, the person shall be
liable for the excess, which has to be paid to the Bureau of Internal Revenue (BIR);[69]
and

Third, if the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zero-rated
or effectively zero-rated transactions, any excess over the output taxes shall instead be
refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayers option.[70]

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input
tax. Thus, a person can credit his input tax only up to the extent of 70% of the output
tax. In laymans term, the value-added taxes that a person/taxpayer paid and passed on
to him by a seller can only be credited up to 70% of the value-added taxes that is due to
him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will
subsequently remit such input tax to the BIR. The party directly liable for the payment of
74

the tax is the seller.[71] What only needs to be done is for the person/taxpayer to apply
or credit these input taxes, as evidenced by receipts, against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the
input tax partakes the nature of a property that may not be confiscated, appropriated, or
limited without due process of law.

The input tax is not a property or a property right within the constitutional
purview of the due process clause. A VAT-registered persons entitlement to the
creditable input tax is a mere statutory privilege.

The distinction between statutory privileges and vested rights must be borne in
mind for persons have no vested rights in statutory privileges. The state may change or
take away rights, which were created by the law of the state, although it may not take
away property, which was vested by virtue of such rights.[72]

Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of the
cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273
imposing a 10% multi-stage tax on all sales, it was then that the crediting of the input tax
paid on purchase or importation of goods and services by VAT-registered persons against
the output tax was introduced.[73] This was adopted by the Expanded VAT Law (R.A.
No. 7716),[74] and The Tax Reform Act of 1997 (R.A. No. 8424).[75] The right to credit
input tax as against the output tax is clearly a privilege created by law, a privilege that
also the law can remove, or in this case, limit.

Petitioners also contest as arbitrary, oppressive, excessive and confiscatory,
Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:

SEC. 110. Tax Credits.

(A) Creditable Input Tax.

Provided, That the input tax on goods purchased or imported
in a calendar month for use in trade or business for which deduction
for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding the
VAT component thereof, exceeds One million pesos
(P1,000,000.00): Provided, however, That if the estimated useful life
of the capital goods is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a
shorter period: Provided, finally, That in the case of purchase of
services, lease or use of properties, the input tax shall be creditable
to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.


The foregoing section imposes a 60-month period within which to amortize the
creditable input tax on purchase or importation of capital goods with acquisition cost of P1
Million pesos, exclusive of the VAT component. Such spread out only poses a delay in the
crediting of the input tax. Petitioners argument is without basis because the taxpayer is
not permanently deprived of his privilege to credit the input tax.
75


It is worth mentioning that Congress admitted that the spread-out of the
creditable input tax in this case amounts to a 4-year interest-free loan to the
government.[76] In the same breath, Congress also justified its move by saying that the
provision was designed to raise an annual revenue of 22.6 billion.[77] The legislature also
dispelled the fear that the provision will fend off foreign investments, saying that foreign
investors have other tax incentives provided by law, and citing the case of China, where
despite a 17.5% non-creditable VAT, foreign investments were not deterred.[78] Again,
for whatever is the purpose of the 60-month amortization, this involves executive
economic policy and legislative wisdom in which the Court cannot intervene.

With regard to the 5% creditable withholding tax imposed on payments made
by the government for taxable transactions, Section 12 of R.A. No. 9337, which amended
Section 114 of the NIRC, reads:

SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of Value-added Tax. The Government or
any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods
and services which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold a final value-
added tax at the rate of five percent (5%) of the gross payment
thereof: Provided, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For purposes of this
Section, the payor or person in control of the payment shall be
considered as the withholding agent.

The value-added tax withheld under this Section shall
be remitted within ten (10) days following the end of the month the
withholding was made.


Section 114(C) merely provides a method of collection, or as stated by
respondents, a more simplified VAT withholding system. The government in this case is
constituted as a withholding agent with respect to their payments for goods and services.

Prior to its amendment, Section 114(C) provided for different rates of value-
added taxes to be withheld -- 3% on gross payments for purchases of goods; 6% on
gross payments for services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public work contractors; or
10% on payment for the lease or use of properties or property rights to nonresident
owners. Under the present Section 114(C), these different rates, except for the 10% on
lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5%
is applied.

The Court observes, however, that the law the used the word final. In tax
usage, final, as opposed to creditable, means full. Thus, it is provided in Section 114(C):
final value-added tax at the rate of five percent (5%).

In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax
Reform Act of 1997), the concept of final withholding tax on income was explained, to wit:
76


SECTION 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. Under the final withholding
tax system the amount of income tax withheld by the withholding
agent is constituted as full and final payment of the income tax due
from the payee on the said income. The liability for payment of the
tax rests primarily on the payor as a withholding agent. Thus, in case
of his failure to withhold the tax or in case of underwithholding, the
deficiency tax shall be collected from the payor/withholding agent.

(B) Creditable Withholding Tax. Under the creditable
withholding tax system, taxes withheld on certain income payments
are intended to equal or at least approximate the tax due of the
payee on said income. Taxes withheld on income payments
covered by the expanded withholding tax (referred to in Sec. 2.57.2
of these regulations) and compensation income (referred to in Sec.
2.78 also of these regulations) are creditable in nature.


As applied to value-added tax, this means that taxable transactions with the
government are subject to a 5% rate, which constitutes as full payment of the tax payable
on the transaction. This represents the net VAT payable of the seller. The other 5%
effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual
input VAT directly or attributable to the taxable transaction.[79]

The Court need not explore the rationale behind the provision. It is clear that
Congress intended to treat differently taxable transactions with the government.[80] This
is supported by the fact that under the old provision, the 5% tax withheld by the
government remains creditable against the tax liability of the seller or contractor, to wit:

SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of Creditable Value-added Tax. The
Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase
of goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of
this Code, deduct and withhold the value-added tax due at the rate of
three percent (3%) of the gross payment for the purchase of goods
and six percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which shall be
creditable against the value-added tax liability of the seller or
contractor: Provided, however, That in the case of government public
works contractors, the withholding rate shall be eight and one-half
percent (8.5%): Provided, further, That the payment for lease or use
of properties or property rights to nonresident owners shall be subject
to ten percent (10%) withholding tax at the time of payment. For
this purpose, the payor or person in control of the payment shall be
considered as the withholding agent.

The valued-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made. (Emphasis supplied)


As amended, the use of the word final and the deletion of the word creditable
exhibits Congresss intention to treat transactions with the government differently. Since
it has not been shown that the class subject to the 5% final withholding tax has been
unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as
petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It
applies to all those who deal with the government.

Moreover, the actual input tax is not totally lost or uncreditable, as petitioners
believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should the actual input tax exceed 5%
77

of gross payments, the excess may form part of the cost. Equally, should the actual input
tax be less than 5%, the difference is treated as income.[81]

Petitioners also argue that by imposing a limitation on the creditable input tax,
the government gets to tax a profit or value-added even if there is no profit or value-
added.

Petitioners stance is purely hypothetical, argumentative, and again, one-
sided. The Court will not engage in a legal joust where premises are what ifs, arguments,
theoretical and facts, uncertain. Any disquisition by the Court on this point will only be, as
Shakespeare describes life in Macbeth,[82] full of sound and fury, signifying nothing.

Whats more, petitioners contention assumes the proposition that there is no
profit or value-added. It need not take an astute businessman to know that it is a matter
of exception that a business will sell goods or services without profit or value-added. It
cannot be overstressed that a business is created precisely for profit.

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.[83]

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 States 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.[84]

Petitioners point out that the limitation on the creditable input tax if the entity
has a high ratio of input tax, or invests in capital equipment, or has several transactions
with the government, is not based on real and substantial differences to meet a valid
classification.

The argument is pedantic, if not outright baseless. The law does not make any
classification in 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. Petitioners
alleged distinctions are based on variables that bear different consequences. While the
implementation of the law may yield varying end results depending on ones profit margin
and value-added, the Court cannot go beyond what the legislature has laid down and
interfere with the affairs of business.

The equal protection clause does not require the universal application of the
laws on all persons or things without distinction. This might in fact sometimes result in
unequal protection. What the clause requires is equality among equals as determined
78

according to a valid classification. By classification is meant the grouping of persons or
things similar to each other in certain particulars and different from all others in these
same particulars.[85]

Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by
Sens. S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House
Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend the 70%
limitation by increasing the same to 90%. This, according to petitioners, supports their
stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say
that these are still proposed legislations. Until Congress amends the law, and absent any
unequivocal basis for its unconstitutionality, the 70% limitation stays.

B. Uniformity and Equitability of Taxation


Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.


Uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. Different articles may be taxed at different
amounts provided that the rate is uniform on the same class everywhere with all people at
all times.[86]

In this case, the tax law is uniform as it provides a standard rate of 0% or 10%
(or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%)
on sale of goods and properties, importation of goods, and sale of services and use or
lease of properties. These same sections also provide for a 0% rate on certain sales and
transaction.

Neither does the law make any distinction as to the type of industry or trade
that will bear the 70% limitation on the creditable input tax, 5-year amortization of input
tax paid on purchase of capital goods or the 5% final withholding tax by the
government. It must be stressed that the rule of uniform taxation does not deprive
Congress of the power to classify subjects of taxation, and only demands uniformity within
the particular class.[87]

R.A. No. 9337 is also equitable. The law is equipped with a threshold
margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or
services with gross annual sales or receipts not exceeding P1,500,000.00.[88] Also, basic
marine and agricultural food products in their original state are still not subject to the
tax,[89] thus ensuring that prices at the grassroots level will remain accessible. As was
stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:[90]

79

The disputed sales tax is also equitable. It is imposed only
on sales of goods or services by persons engaged in business with an
aggregate gross annual sales exceeding P200,000.00. Small corner
sari-sari stores are consequently exempt from its application. Likewise
exempt from the tax are sales of farm and marine products, so that
the costs of basic food and other necessities, spared as they are from
the incidence of the VAT, are expected to be relatively lower and
within the reach of the general public.


It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
margins, and unduly favors those with high profit margins. Congress was not oblivious to
this. Thus, to equalize the weighty burden the law entails, the law, under Section 116,
imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e.,
transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts
as a equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-
exempt taxpayers stand on equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of the
imposition of the tax on those previously exempt. Excise taxes on petroleum products[91]
and natural gas[92] were reduced. Percentage tax on domestic carriers was
removed.[93] Power producers are now exempt from paying franchise tax.[94]

Aside from these, Congress also increased the income tax rates of corporations,
in order to distribute the burden of taxation. Domestic, foreign, and non-resident
corporations are now subject to a 35% income tax rate, from a previous
32%.[95] Intercorporate dividends of non-resident foreign corporations are still subject to
15% final withholding tax but the tax credit allowed on the corporations domicile was
increased to 20%.[96] The Philippine Amusement and Gaming Corporation (PAGCOR) is
not exempt from income taxes anymore.[97] Even the sale by an artist of his works or
services performed for the production of such works was not spared.

All these were designed to ease, as well as spread out, the burden of taxation,
which would otherwise rest largely on the consumers. It cannot therefore be gainsaid
that R.A. No. 9337 is equitable.

C. Progressivity of Taxation


Lastly, petitioners contend that the limitation on the creditable input tax is
anything but regressive. It is the smaller business with higher input tax-output tax ratio
that will suffer the consequences.

Progressive taxation is built on the principle of the taxpayers ability to
pay. This principle was also lifted from Adam Smiths Canons of Taxation, and it states:

80

I. The subjects of every state ought to contribute towards the
support of the government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion
to the revenue which they respectively enjoy under the
protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the
person affected.[98]

The VAT is an antithesis of progressive taxation. By its very nature, it is
regressive. The principle of progressive taxation has no relation with the VAT system
inasmuch as the VAT paid by the consumer or business for every goods bought or
services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The
disparity lies in the income earned by a person or profit margin marked by a business,
such that the higher the income or profit margin, the smaller the portion of the income or
profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger
the part that the VAT eats away. At the end of the day, it is really the lower income
group or businesses with low-profit margins that is always hardest hit.

Nevertheless, the Constitution does not really prohibit the imposition of indirect
taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive
system of taxation." The Court stated in the Tolentino case, thus:

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. (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977))
Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the
oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which
the present Art. VI, 28 (1) was taken. Sales taxes are also
regressive.

Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to pay. In
the case of the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain transactions (R.A.
No. 7716, 3, amending 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, 4 amending 103
of the NIRC)[99]


CONCLUSION

It has been said that taxes are the lifeblood of the government. In this case, it
is just an enema, a first-aid measure to resuscitate an economy in distress. The Court is
neither blind nor is it turning a deaf ear on the plight of the masses. But it does not have
the panacea for the malady that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply because of its yokes.

Let us not be overly influenced by the plea that for every
wrong there is a remedy, and that the judiciary should stand ready to
81

afford relief. There are undoubtedly many wrongs the judicature may
not correct, for instance, those involving political questions. . . .

Let us likewise disabuse our minds from the notion that the
judiciary is the repository of remedies for all political or social ills; We
should not forget that the Constitution has judiciously allocated the
powers of government to three distinct and separate compartments;
and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives
of each, knowing full well that one is not the guardian of the others
and that, for official wrong-doing, each may be brought to account,
either by impeachment, trial or by the ballot box.[100]


The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds
true now. All things considered, there is no raison d'tre for the unconstitutionality of R.A.
No. 9337.

WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in
G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.

There being no constitutional impediment to the full enforcement and
implementation of R.A. No. 9337, the temporary restraining order issued by the Court on
July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice








EN BANC


RENATO V. DIAZ and G.R. No. 193007
AURORA MA. F. TIMBOL,
Petitioners, Present:

CORONA, C.J.,

CARPIO,
VELASCO, JR.,
LEONARDO-DE
CASTRO,
BRION,
- versus - PERALTA,
82

BERSAMIN,*
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO,** JJ.
THE SECRETARY OF FINANCE
and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondents. July 19, 2011


x ---------------------------------------------------------------------------------------- x


DECISION






ABAD, J.:


May toll fees collected by tollway operators be subjected to value- added tax?


The Facts and the Case

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this
petition for declaratory relief65[1] 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 Republic Act 7716 (the 1994 Expanded VAT Law
or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the
NIRC) at the House of Representatives. Timbol, on the other hand, claims that she



83

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 IIIs 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 users 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 temporary restraining order (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.66[2] Later, the Court issued another resolution
treating the petition as one for prohibition.67[3]

On August 23, 2010 the Office of the Solicitor General filed the governments
comment.68[4] 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.69[5]

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 (TOAs) between the government and tollway operators. At any
rate, the non-impairment clause cannot limit the States sovereign taxing power which is
generally read into contracts.









84


Finally, the government contends that the non-inclusion of VAT in the
parametric formula for computing toll rates cannot exempt tollway operators from VAT.
In any event, it cannot be claimed that the rights of tollway operators to a reasonable rate
of return will be impaired by the VAT since this is imposed on top of the toll rate. Further,
the imposition of VAT on toll fees would have very minimal effect on motorists using the
tollways.

In their reply70[6] to the governments comment, petitioners point out that
tollway operators cannot be regarded as franchise grantees under the NIRC since they do
not hold legislative franchises. Further, the BIR intends to collect the VAT by rounding off
the toll rate and putting any excess collection in an escrow account. But this would be
illegal since only the Congress can modify VAT rates and authorize its disbursement.
Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll
companies to record an accumulated input VAT of zero balance in their books as of
August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first
become liable to VAT a transitional input tax credit of 2% on beginning inventory. For this
reason, the VAT on toll fees cannot be implemented.

The Issues Presented

The case presents two procedural issues:




1. Whether or not the Court may treat the petition for declaratory relief
as one for prohibition; and

2. Whether or not petitioners Diaz and Timbol have legal standing to file
the action.

The case also presents two substantive issues:

1. Whether or not the government is unlawfully expanding VAT
coverage by including tollway operators and tollway operations in the terms franchise
grantees and sale of services under Section 108 of the Code; and

2. Whether or not the imposition of VAT on tollway operators a)
amounts to a tax on tax and not a tax on services; b) will impair the tollway operators
right to a reasonable return of investment under their TOAs; and c) is not administratively
feasible and cannot be implemented.

The Courts Rulings

A. On the Procedural Issues:

On August 24, 2010 the Court issued a resolution, treating the petition as one
for prohibition rather than one for declaratory relief, the characterization that petitioners
85

Diaz and Timbol gave their action. The government has sought reconsideration of the
Courts resolution,71[7] however, arguing that petitioners allegations clearly made out a
case for declaratory relief, an action over which the Court has no original jurisdiction. The
government adds, moreover, that the petition does not meet the requirements of Rule 65
for actions for prohibition since the BIR did not exercise judicial, quasi-judicial, or
ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz
and Timbol has a plain, speedy, and adequate remedy in the ordinary course of law
against the BIR action in the form of an appeal to the Secretary of Finance.

But there are precedents for treating a petition for declaratory relief as one for
prohibition if the case has far-reaching implications and raises questions that need to be
resolved for the public good.72[8] The Court has also held that a petition for prohibition
is a proper remedy to prohibit or nullify acts of executive officials that amount to
usurpation of legislative authority.73[9]

Here, the imposition of VAT on toll fees has far-reaching implications. Its
imposition would impact, not only on the more than half a million motorists who use the







tollways everyday, but more so on the governments effort to raise revenue for funding
various projects and for reducing budgetary deficits.

To dismiss the petition and resolve the issues later, after the challenged VAT
has been imposed, could cause more mischief both to the tax-paying public and the
government. A belated declaration of nullity of the BIR action would make any attempt to
refund to the motorists what they paid an administrative nightmare with no solution.
Consequently, it is not only the right, but the duty of the Court to take cognizance of and
resolve the issues that the petition raises.

Although the petition does not strictly comply with the requirements of Rule 65,
the Court has ample power to waive such technical requirements when the legal questions
to be resolved are of great importance to the public. The same may be said of the
requirement of locus standi which is a mere procedural requisite.74[10]

B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC, as amended.
VAT is levied, assessed, and collected, according to Section 108, on the gross receipts
derived from the sale or exchange of services as well as from the use or lease of
properties. The third paragraph of Section 108 defines sale or exchange of services as
follows:



86


The phrase sale or exchange of services means the
performance of all kinds of services in the Philippines for others for a
fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors
of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; proprietors, operators
or keepers of hotels, motels, resthouses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers; dealers in
securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods
or cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes; common carriers by air
and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines;
sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television broadcasting
and all other franchise grantees except those under Section 119 of
this Code and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or
mental faculties. (Underscoring supplied)

It is plain from the above that the law imposes VAT on all kinds of services
rendered in the Philippines for a fee, including those specified in the list. The
enumeration of affected services is not exclusive.75[11] By qualifying services with the
words all kinds, Congress has given the term services an all-encompassing meaning.
The listing of specific services are intended to illustrate how pervasive and broad is the
VATs reach rather than establish concrete limits to its application. Thus, every activity



that can be imagined as a form of service rendered for a fee should be deemed included
unless some provision of law especially excludes it.

Now, do tollway operators render services for a fee? Presidential Decree (P.D.)
1112 or the Toll Operation Decree establishes the legal basis for the services that tollway
operators render. Essentially, tollway operators construct, maintain, and operate
expressways, also called tollways, at the operators expense. Tollways serve as
alternatives to regular public highways that meander through populated areas and branch
out to local roads. Traffic in the regular public highways is for this reason slow-moving.
In consideration for constructing tollways at their expense, the operators are allowed to
collect government-approved fees from motorists using the tollways until such operators
could fully recover their expenses and earn reasonable returns from their investments.

When a tollway operator takes a toll fee from a motorist, the fee is in effect for
the latters use of the tollway facilities over which the operator enjoys private proprietary
rights76[12] that its contract and the law recognize. In this sense, the tollway operator is
no different from the following service providers under Section 108 who allow others to
use their properties or facilities for a fee:

1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);



87

6. Transportation contractors on their transport of
goods or cargoes, including persons who transport goods or cargoes
for hire and other domestic common carriers by land relative to their
transport of goods or cargoes; and
7. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines.

It does not help petitioners cause that Section 108 subjects to VAT all kinds of
services rendered for a fee regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties. This means that services to
be subject to VAT need not fall under the traditional concept of services, the personal or
professional kinds that require the use of human knowledge and skills.

And not only do tollway operators come under the broad term all kinds of
services, they also come under the specific class described in Section 108 as all other
franchise grantees who are subject to VAT, except those under Section 119 of this
Code.

Tollway operators are franchise grantees and they do not belong to exceptions
(the low-income radio and/or television broadcasting companies with gross annual
incomes of less than P10 million and gas and water utilities) that Section 11977[13]
spares from the payment of VAT. The word franchise broadly covers government grants
of a special right to do an act or series of acts of public concern.78[14]





Petitioners of course contend that tollway operators cannot be considered
franchise grantees under Section 108 since they do not hold legislative franchises. But
nothing in Section 108 indicates that the franchise grantees it speaks of are those who
hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any,
for making a distinction between franchises granted by Congress and franchises granted
by some other government agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by local authorities, as agents of the
state, constitute as much a legislative franchise as though the grant had been made by
Congress itself.79[15] The term franchise has been broadly construed as referring, not
only to authorizations that Congress directly issues in the form of a special law, but also to
those granted by administrative agencies to which the power to grant franchises has been
delegated by Congress.80[16]

Tollway operators are, owing to the nature and object of their business,
franchise grantees. The construction, operation, and maintenance of toll facilities on
public improvements are activities of public consequence that necessarily require a special
grant of authority from the state. Indeed, Congress granted special franchise for the
operation of tollways to the Philippine National Construction Company, the former tollway
concessionaire for the North and South Luzon Expressways. Apart from Congress, tollway
franchises may also be granted by the TRB, pursuant to the exercise of its delegated






88

powers under P.D. 1112.81[17] The franchise in this case is evidenced by a Toll
Operation Certificate.82[18]

Petitioners contend that the public nature of the services rendered by tollway
operators excludes such services from the term sale of services under Section 108 of the
Code. But, again, nothing in Section 108 supports this contention. The reverse is true.
In specifically including by way of example electric utilities, telephone, telegraph, and
broadcasting companies in its list of VAT-covered businesses, Section 108 opens other
companies rendering public service for a fee to the imposition of VAT. Businesses of a
public nature such as public utilities and the collection of tolls or charges for its use or
service is a franchise.83[19]

Nor can petitioners cite as binding on the Court statements made by certain
lawmakers in the course of congressional deliberations of the would-be law. As the Court
said in South African Airways v. Commissioner of Internal Revenue,84[20] statements









made by individual members of Congress in the consideration of a bill do not necessarily
reflect the sense of that body and are, consequently, not controlling in the interpretation
of law. The congressional will is ultimately determined by the language of the law that
the lawmakers voted on. Consequently, the meaning and intention of the law must first
be sought in the words of the statute itself, read and considered in their natural,
ordinary, commonly accepted and most obvious significations, according to good and
approved usage and without resorting to forced or subtle construction.

Two. Petitioners argue that a toll fee is a users tax and to impose VAT on toll
fees is tantamount to taxing a tax.85[21] Actually, petitioners base this argument on the
following discussion in Manila International Airport Authority (MIAA) v. Court of
Appeals:86[22]

No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like roads, canals, rivers,
torrents, ports and bridges constructed by the State, are owned by
the State. The term ports includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a port constructed by the
State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the
State or the Republic of the Philippines.

x x x The operation by the government of a tollway does
not change the character of the road as one for public use. Someone
must pay for the maintenance of the road, either the public indirectly
through the taxes they pay the government, or only those among the





89

public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance of public
roads.

The charging of fees to the public does not determine the
character of the property whether it is for public dominion or not.
Article 420 of the Civil Code defines property of public dominion as
one intended for public use. Even if the government collects toll
fees, the road is still intended for public use if anyone can use the
road under the same terms and conditions as the rest of the public.
The charging of fees, the limitation on the kind of vehicles that can
use the road, the speed restrictions and other conditions for the use
of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as
the landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of such
fees does not change the character of MIAA as an airport for public
use. Such fees are often termed users tax. This means taxing those
among the public who actually use a public facility instead of taxing
all the public including those who never use the particular public
facility. A users tax is more equitable a principle of taxation
mandated in the 1987 Constitution.87[23] (Underscoring supplied)

Petitioners assume that what the Court said above, equating terminal fees to a
users tax must also pertain to tollway fees. But the main issue in the MIAA case was
whether or not Paraaque City could sell airport lands and buildings under MIAA
administration at public auction to satisfy unpaid real estate taxes. Since local
governments have no power to tax the national government, the Court held that the City
could not proceed with the auction sale. MIAA forms part of the national government
although not integrated in the department framework.88[24] Thus, its airport lands and





buildings are properties of public dominion beyond the commerce of man under Article
420(1)89[25] of the Civil Code and could not be sold at public auction.

As can be seen, the discussion in the MIAA case on toll roads and toll fees was
made, not to establish a rule that tollway fees are users tax, but to make the point that
airport lands and buildings are properties of public dominion and that the collection of
terminal fees for their use does not make them private properties. Tollway fees are not
taxes. Indeed, they are not assessed and collected by the BIR and do not go to the
general coffers of the government.

It would of course be another matter if Congress enacts a law imposing a users
tax, collectible from motorists, for the construction and maintenance of certain roadways.
The tax in such a case goes directly to the government for the replenishment of resources
it spends for the roadways. This is not the case here. What the government seeks to tax
here are fees collected from tollways that are constructed, maintained, and operated by
private tollway operators at their own expense under the build, operate, and transfer
scheme that the government has adopted for expressways.90[26] Except for a fraction
given to the government, the toll fees essentially end up as earnings of the tollway
operators.






90

In sum, fees paid by the public to tollway operators for use of the tollways, are
not taxes in any sense. A tax is imposed under the taxing power of the government
principally for the purpose of raising revenues to fund public expenditures.91[27] Toll
fees, on the other hand, are collected by private tollway operators as reimbursement for
the costs and expenses incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income. Although toll fees are
charged for the use of public facilities, therefore, they are not government exactions that
can be properly treated as a tax. Taxes may be imposed only by the government under
its sovereign authority, toll fees may be demanded by either the government or private
individuals or entities, as an attribute of ownership.92[28]

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due
to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made between
the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift
or pass on the amount of VAT it paid on goods, properties or services to the buyer. In
such a case, what is transferred is not the sellers liability but merely the burden of the
VAT.93[29]








Thus, the seller remains directly and legally liable for payment of the VAT, but
the buyer bears its burden since the amount of VAT paid by the former is added to the
selling price. Once shifted, the VAT ceases to be a tax94[30] and simply becomes part of
the cost that the buyer must pay in order to purchase the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user,
but on the tollway operator. Under Section 105 of the Code, 95[31] VAT is imposed on
any person who, in the course of trade or business, sells or renders services for a fee. In
other words, the seller of services, who in this case is the tollway operator, is the person
liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the
toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if toll
fees were deemed as a users tax. VAT is assessed against the tollway operators gross
receipts and not necessarily on the toll fees. Although the tollway operator may shift the
VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The
shifted VAT burden simply becomes part of the toll fees that one has to pay in order to
use the tollways.96[32]







91


Three. Petitioner Timbol has no personality to invoke the non-impairment of
contract clause on behalf of private investors in the tollway projects. She will neither be
prejudiced by nor be affected by the alleged diminution in return of investments that may
result from the VAT imposition. She has no interest at all in the profits to be earned under
the TOAs. The interest in and right to recover investments solely belongs to the private
tollway investors.

Besides, her allegation that the private investors rate of recovery will be
adversely affected by imposing VAT on tollway operations is purely speculative. Equally
presumptuous is her assertion that a stipulation in the TOAs known as the Material
Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on
matters that are manifestly conjectural. Neither can it prohibit the State from exercising
its sovereign taxing power based on uncertain, prophetic grounds.

Four. Finally, petitioners assert that the substantiation requirements for
claiming input VAT make the VAT on tollway operations impractical and incapable of
implementation. They cite the fact that, in order to claim input VAT, the name, address
and tax identification number of the tollway user must be indicated in the VAT receipt or
invoice. The manner by which the BIR intends to implement the VAT by rounding off
the toll rate and putting any excess collection in an escrow account is also illegal, while
the alternative of giving change to thousands of motorists in order to meet the exact toll
rate would be a logistical nightmare. Thus, according to them, the VAT on tollway
operations is not administratively feasible.97[33]




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.98[34] 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,99[35] 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 BIRs
discretion on the matter, absent any clear violation of law or the Constitution.

For the same reason, the Court cannot prematurely declare as illegal, BIR RMC
63-2010 which directs toll companies to record an accumulated input VAT of zero balance





92

in their books as of August 16, 2010, the date when the VAT imposition was supposed to
take effect. The issuance allegedly violates Section 111(A)100[36] of the Code which
grants first time VAT payers a transitional input VAT of 2% on beginning inventory.

In this connection, the BIR explained that BIR RMC 63-2010 is actually the
product of negotiations with tollway operators who have been assessed VAT as early as
2005, but failed to charge VAT-inclusive toll fees which by now can no longer be collected.
The tollway operators agreed to waive the 2% transitional input VAT, in exchange for
cancellation of their past due VAT liabilities. Notably, the right to claim the 2% transitional
input VAT belongs to the tollway operators who have not questioned the circulars validity.
They are thus the ones who have a right to challenge the circular in a direct and proper
action brought for the purpose.

Conclusion

In fine, the Commissioner of Internal Revenue did not usurp legislative
prerogative or expand the VAT laws 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.101[37] But as the law is written, no such exemption
obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it
is found.

Lastly, the grant of tax exemption is a matter of legislative policy that is within
the exclusive prerogative of Congress. The Courts role is to merely uphold this legislative
policy, as reflected first and foremost in the language of the tax statute. Thus, any
unwarranted burden that may be perceived to result from enforcing such policy must be
properly referred to Congress. The Court has no discretion on the matter but simply
applies the law.

The VAT on franchise grantees has been in the statute books since 1994 when
R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now, however,
that the executive has earnestly pursued the VAT imposition against tollway operators.
The executive exercises exclusive discretion in matters pertaining to the implementation
and execution of tax laws. Consequently, the executive is more properly suited to deal
with the immediate and practical consequences of the VAT imposition.

WHEREFORE, the Court DENIES respondents Secretary of Finance and
Commissioner of Internal Revenues motion for reconsideration of its August 24, 2010
resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition



93

for lack of merit, and SETS ASIDE the Courts temporary restraining order dated August
13, 2010.

SO ORDERED.

ROBERTO A. ABAD
Associate Justice


SECOND DIVISION
[G.R. No. 149636. June 8, 2005]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF COMMERCE,
respondent.
D E C I S I O N
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in
CA-G.R. SP No. 52706, affirming the ruling of the Court of Tax Appeals (CTA)[2] in CTA
Case No. 5415.
The facts of the case are undisputed.
In 1994 and 1995, the respondent Bank of Commerce derived passive income in the form
of interests or discounts from its investments in government securities and private
commercial papers. On several occasions during the said period, it paid 5% gross receipts
tax on its income, as reflected in its quarterly percentage tax returns. Included therein
were the respondent banks passive income from the said investments amounting to
P85,384,254.51, which had already been subjected to a final tax of 20%.
Meanwhile, on January 30, 1996, the CTA rendered judgment in Asia Bank Corporation v.
Commissioner of Internal Revenue, CTA Case No. 4720, holding that the 20% final
withholding tax on interest income from banks does not form part of taxable gross
receipts for Gross Receipts Tax (GRT) purposes. The CTA relied on Section 4(e) of
Revenue Regulations (Rev. Reg.) No. 12-80.
Relying on the said decision, the respondent bank filed an administrative claim for refund
with the Commissioner of Internal Revenue on July 19, 1996. It claimed that it had
overpaid its gross receipts tax for 1994 to 1995 by P853,842.54, computed as follows:
Gross receipts subjected to
Final Tax Derived from Passive
Investment P85,384,254.51
x 20%
20% Final Tax Withheld 17,076,850.90
at Source x 5%
P 853,842.54
Before the Commissioner could resolve the claim, the respondent bank filed a petition for
review with the CTA, lest it be barred by the mandatory two-year prescriptive period
under Section 230 of the Tax Code (now Section 229 of the Tax Reform Act of 1997).
In his answer to the petition, the Commissioner interposed the following special and
affirmative defenses:

5. The alleged refundable/creditable gross receipts taxes were collected and paid
pursuant to law and pertinent BIR implementing rules and regulations; hence, the same
are not refundable. Petitioner must prove that the income from which the
refundable/creditable taxes were paid from, were declared and included in its gross
income during the taxable year under review;
6. Petitioners allegation that it erroneously and excessively paid its gross receipt tax
during the year under review does not ipso facto warrant the refund/credit. Petitioner
must prove that the exclusions claimed by it from its gross receipts must be an allowable
exclusion under the Tax Code and its pertinent implementing Rules and
Regulations. Moreover, it must be supported by evidence;
7. Petitioner must likewise prove that the alleged refundable/creditable gross receipt
taxes were neither automatically applied as tax credit against its tax liability for the
succeeding quarter/s of the succeeding year nor included as creditable taxes declared and
applied to the succeeding taxable year/s;
8. Claims for tax refund/credit are construed in strictissimi juris against the taxpayer
as it partakes the nature of an exemption from tax and it is incumbent upon the petitioner
94

to prove that it is entitled thereto under the law. Failure on the part of the petitioner to
prove the same is fatal to its claim for tax refund/credit;
9. Furthermore, petitioner must prove that it has complied with the provision of
Section 230 (now Section 229) of the Tax Code, as amended.[3]
The CTA summarized the issues to be resolved as follows: whether or not the final income
tax withheld should form part of the gross receipts[4] of the taxpayer for GRT purposes;
and whether or not the respondent bank was entitled to a refund of P853,842.54.[5]
The respondent bank averred that for purposes of computing the 5% gross receipts tax,
the final withholding tax does not form part of gross receipts.[6] On the other hand, while
the Commissioner conceded that the Court defined gross receipts as all receipts of
taxpayers excluding those which have been especially earmarked by law or regulation for
the government or some person other than the taxpayer in CIR v. Manila Jockey Club,
Inc.,[7] he claimed that such definition was applicable only to a proprietor of an
amusement place, not a banking institution which is an entirely different entity altogether.
As such, according to the Commissioner, the ruling of the Court in Manila Jockey Club was
inapplicable.
In its Decision dated April 27, 1999, the CTA by a majority decision[8] partially granted
the petition and ordered that the amount of P355,258.99 be refunded to the respondent
bank. The fallo of the decision reads:
WHEREFORE, in view of all the foregoing, respondent is hereby ORDERED to REFUND in
favor of petitioner Bank of Commerce the amount of P355,258.99 representing validly
proven erroneously withheld taxes from interest income derived from its investments in
government securities for the years 1994 and 1995.[9]
In ruling for respondent bank, the CTA relied on the ruling of the Court in Manila Jockey
Club, and held that the term gross receipts excluded those which had been especially
earmarked by law or regulation for the government or persons other than the
taxpayer. The CTA also cited its rulings in China Banking Corporation v. CIR[10] and
Equitable Banking Corporation v. CIR.[11]
The CTA ratiocinated that the aforesaid amount of P355,258.99 represented the claim of
the respondent bank, which was filed within the two-year mandatory prescriptive period
and was substantiated by material and relevant evidence. The CTA applied Section
204(3) of the National Internal Revenue Code (NIRC).[12]
The Commissioner then filed a petition for review under Rule 43 of the Rules of Court
before the CA, alleging that:
(1) There is no provision of law which excludes the 20% final income tax withheld
under Section 50(a) of the Tax Code in the computation of the 5% gross
receipts tax.
(2) The Tax Court erred in applying the ruling in Collector of Internal Revenue vs.
Manila Jockey Club (108 Phil. 821) in the resolution of the legal issues
involved in the instant case.[13]
The Commissioner reiterated his stand that the ruling of this Court in Manila Jockey Club,
which was affirmed in Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal
Revenue,[14] is not decisive. He averred that the factual milieu in the said case is
different, involving as it did the wager fund. The Commissioner further pointed out that
in Manila Jockey Club, the Court ruled that the race tracks commission did not form part
of the gross receipts, and as such were not subjected to the 20% amusement tax. On the
other hand, the issue in Visayan Cebu Terminal was whether or not the gross receipts
corresponding to 28% of the total gross income of the service contractor delivered to the
Bureau of Customs formed part of the gross receipts was subject to 3% of contractors tax
under Section 191 of the Tax Code. It was further pointed out that the respondent bank,
on the other hand, was a banking institution and not a contractor. The petitioner insisted
that the term gross receipts is self-evident; it includes all items of income of the
respondent bank regardless of whether or not the same were allocated or earmarked for a
specific purpose, to distinguish it from net receipts.
On August 14, 2001, the CA rendered judgment dismissing the petition. Citing Sections 51
and 58(A) of the NIRC, Section 4(e) of Rev. Reg. No. 12-80[15] and the ruling of this
Court in Manila Jockey Club, the CA held that the P17,076,850.90 representing the final
withholding tax derived from passive investments subjected to final tax should not be
construed as forming part of the gross receipts of the respondent bank upon which the
5% gross receipts tax should be imposed. The CA declared that the final withholding tax
in the amount of P17,768,509.00 was a trust fund for the government; hence, does not
form part of the respondents gross receipts. The legal ownership of the amount had
already been vested in the government. Moreover, the CA declared, the respondent did
not reap any benefit from the said amount. As such, subjecting the said amount to the
5% gross receipts tax would result in double taxation. The appellate court further cited
CIR v. Tours Specialists, Inc.,[16] and declared that the ruling of the Court in Manila
Jockey Club was decisive of the issue.
The Commissioner now assails the said decision before this Court, contending that:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE 20% FINAL WITHHOLDING TAX
ON BANKS INTEREST INCOME DOES NOT FORM PART OF THE TAXABLE GROSS
RECEIPTS IN COMPUTING THE 5% GROSS RECEIPTS TAX (GRT, for brevity).[17]
The petitioner avers that the reliance by the CTA and the CA on Section 4(e) of Rev. Reg.
No. 12-80 is misplaced; the said provision merely authorizes the determination of the
amount of gross receipts based on the taxpayers method of accounting under then
Section 37 (now Section 43) of the Tax Code. The petitioner asserts that the said
provision ceased to exist as of October 15, 1984, when Rev. Reg. No. 17-84 took effect.
The petitioner further points out that under paragraphs 7(a) and (c) of Rev. Reg. No. 17-
84, interest income of financial institutions (including banks) subject to withholding tax
are included as part of the gross receipts upon which the gross receipts tax is to be
imposed. Citing the ruling of the CA in Commissioner of Internal Revenue v. Asianbank
95

Corporation[18] (which likewise cited Bank of America NT & SA v. Court of Appeals,[19])
the petitioner posits that in computing the 5% gross receipts tax, the income need not be
actually received. For income to form part of the taxable gross receipts, constructive
receipt is enough. The petitioner is, likewise, adamant in his claim that the final
withholding tax from the respondent banks income forms part of the taxable gross
receipts for purposes of computing the 5% of gross receipts tax. The petitioner posits
that the ruling of this Court in Manila Jockey Club is not decisive of the issue in this case.
The petition is meritorious.
The issues in this case had been raised and resolved by this Court in China Banking
Corporation v. Court of Appeals,[20] and CIR v. Solidbank Corporation.[21]
Section 27(D)(1) of the Tax Code reads:
(D) Rates of Tax on Certain Passive Incomes.
(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes and from Trust Funds and Similar Arrangements, and Royalties. A final tax
at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on
currency bank deposit and yield or any other monetary benefit from deposit substitutes
and from trust funds and similar arrangements received by domestic corporations, and
royalties, derived from sources within the Philippines: Provided, however, That interest
income derived by a domestic corporation from a depository bank under the expanded
foreign currency deposit system shall be subject to a final income tax at the rate of seven
and one-half percent (7%) of such interest income.
On the other hand, Section 57(A)(B) of the Tax Code authorizes the withholding of final
tax on certain income creditable at source:
SEC. 57. Withholding of Tax at Source.
(A) Withholding of Final Tax on Certain Incomes. Subject to rules and regulations, the
Secretary of Finance may promulgate, upon the recommendation of the Commissioner,
requiring the filing of income tax return by certain income payees, the tax imposed or
prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B),
25(C), 25(D), 25(E); 27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5); 28(A)(4), 28(A)(5),
28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a),
28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on specified items of income shall be
withheld by payor-corporation and/or person and paid in the same manner and subject to
the same conditions as provided in Section 58 of this Code.
(B) Withholding of Creditable Tax at Source. The Secretary of Finance may, upon the
recommendation of the Commissioner, require the withholding of a tax on the items of
income payable to natural or juridical persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate of not less than one percent (1%)
but not more than thirty-two percent (32%) thereof, which shall be credited against the
income tax liability of the taxpayer for the taxable year.
The tax deducted and withheld by withholding agents under the said provision shall be
held as a special fund in trust for the government until paid to the collecting officer.[22]
Section 121 (formerly Section 119) of the Tax Code provides that a tax on gross receipts
derived from sources within the Philippines by all banks and non-bank financial
intermediaries shall be computed in accordance with the schedules therein:
(a) On interest, commissions and discounts from lending activities as well as income from
financial leasing, on the basis of remaining maturities of instruments from which such
receipts are derived:
Short-term maturity (not in excess of two (2) years) 5%
Medium-term maturity (over two (2) years but
not exceeding four (4) years) 3%
Long-term maturity
(1) Over four (4) years but not exceeding
seven (7) years 1%
(2) Over seven (7) years 0%
(b) On dividends 0%
(c) On royalties, rentals of property, real or personal,
profits from exchange and all other items treated
as gross income under Section 32 of this Code 5%
Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pre-termination, then the maturity period shall be reckoned to end as of
the date of pre-termination for purposes of classifying the transaction as short, medium or
long-term and the correct rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein
provided on persons performing similar banking activities.
The Tax Code does not define gross receipts. Absent any statutory definition, the
Bureau of Internal Revenue has applied the term in its plain and ordinary meaning.[23]
96

In National City Bank v. CIR,[24] the CTA held that gross receipts should be interpreted as
the whole amount received as interest, without deductions; otherwise, if deductions were
to be made from gross receipts, it would be considered as net receipts. The CTA
changed course, however, when it promulgated its decision in Asia Bank; it applied
Section 4(e) of Rev. Reg. No. 12-80 and the ruling of this Court in Manila Jockey Club,
holding that the 20% final withholding tax on the petitioner banks interest income should
not form part of its taxable gross receipts, since the final tax was not actually received by
the petitioner bank but went to the coffers of the government.
The Court agrees with the contention of the petitioner that the appellate courts reliance
on Rev. Reg. No. 12-80, the rulings of the CTA in Asia Bank, and of this Court in Manila
Jockey Club has no legal and factual bases. Indeed, the Court ruled in China Banking
Corporation v. Court of Appeals[25] that:
In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v.
Commissioner, both promulgated on 16 November 2001, the tax court ruled that the final
withholding tax forms part of the banks gross receipts in computing the gross receipts
tax. The tax court held that Section 4(e) of Revenue Regulations No. 12-80 did not
prescribe the computation of the amount of gross receipts but merely authorized the
determination of the amount of gross receipts on the basis of the method of accounting
being used by the taxpayer.
The word gross must be used in its plain and ordinary meaning. It is defined as whole,
entire, total, without deduction. A common definition is without deduction.[26] Gross
is also defined as taking in the whole; having no deduction or abatement; whole, total as
opposed to a sum consisting of separate or specified parts.[27] Gross is the antithesis of
net.[28] Indeed, in China Banking Corporation v. Court of Appeals,[29] the Court defined
the term in this wise:
As commonly understood, the term gross receipts means the entire receipts without any
deduction. Deducting any amount from the gross receipts changes the result, and the
meaning, to net receipts. Any deduction from gross receipts is inconsistent with a law
that mandates a tax on gross receipts, unless the law itself makes an exception. As
explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v.
Koppers Company, Inc., -
Highly refined and technical tax concepts have been developed by the accountant and
legal technician primarily because of the impact of federal income tax
legislation. However, this in no way should affect or control the normal usage of words in
the construction of our statutes; and we see nothing that would require us not to include
the proceeds here in question in the gross receipts allocation unless statutorily such
inclusion is prohibited. Under the ordinary basic methods of handling accounts, the term
gross receipts, in the absence of any statutory definition of the term, must be taken to
include the whole total gross receipts without any deductions, x x x. [Citations omitted]
(Emphasis supplied)
Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri held:
The word gross appearing in the term gross receipts, as used in the ordinance, must
have been and was there used as the direct antithesis of the word net. In its usual and
ordinary meaning gross receipts of a business is the whole and entire amount of the
receipts without deduction, x x x. On the contrary, net receipts usually are the receipts
which remain after deductions are made from the gross amount thereof of the expenses
and cost of doing business, including fixed charges and depreciation. Gross receipts
become net receipts after certain proper deductions are made from the gross. And in the
use of the words gross receipts, the instant ordinance, of course, precluded plaintiff
from first deducting its costs and expenses of doing business, etc., in arriving at the
higher base figure upon which it must pay the 5% tax under this ordinance. (Emphasis
supplied)
Absent a statutory definition, the term gross receipts is understood in its plain and
ordinary meaning. Words in a statute are taken in their usual and familiar signification,
with due regard to their general and popular use. The Supreme Court of Hawaii held in
Bishop Trust Company v. Burns that -
xxx It is fundamental that in construing or interpreting a statute, in order to ascertain the
intent of the legislature, the language used therein is to be taken in the generally
accepted and usual sense. Courts will presume that the words in a statute were used to
express their meaning in common usage. This principle is equally applicable to a tax
statute. [Citations omitted] (Emphasis supplied)
The Court, likewise, declared that Section 121 of the Tax Code expressly subjects interest
income of banks to the gross receipts tax. Such express inclusion of interest income in
taxable gross receipts creates a presumption that the entire amount of the interest
income, without any deduction, is subject to the gross receipts tax. Indeed, there is a
presumption that receipts of a person engaging in business are subject to the gross
receipts tax. Such presumption may only be overcome by pointing to a specific provision
of law allowing such deduction of the final withholding tax from the taxable gross receipts,
failing which, the claim of deduction has no leg to stand on. Moreover, where such an
exception is claimed, the statute is construed strictly in favor of the taxing authority. The
exemption must be clearly and unambiguously expressed in the statute, and must be
clearly established by the taxpayer claiming the right thereto. Thus, taxation is the rule
and the claimant must show that his demand is within the letter as well as the spirit of the
law.[30]
In this case, there is no law which allows the deduction of 20% final tax from the
respondent banks interest income for the computation of the 5% gross receipts tax. On
the other hand, Section 8(a)(c), Rev. Reg. No. 17-84 provides that interest earned on
Philippine bank deposits and yield from deposit substitutes are included as part of the tax
base upon which the gross receipts tax is imposed. Such earned interest refers to the
gross interest without deduction since the regulations do not provide for any such
deduction. The gross interest, without deduction, is the amount the borrower pays, and
the income the lender earns, for the use by the borrower of the lenders money. The
amount of the final tax plainly covers for the interest earned and is consequently part of
the taxable gross receipt of the lender.[31]
97

The bare fact that the final withholding tax is a special trust fund belonging to the
government and that the respondent bank did not benefit from it while in custody of the
borrower does not justify its exclusion from the computation of interest income. Such
final withholding tax covers for the respondent banks income and is the amount to be
used to pay its tax liability to the government. This tax, along with the creditable
withholding tax, constitutes payment which would extinguish the respondent banks
obligation to the government. The bank can only pay the money it owns, or the money it
is authorized to pay.[32]
In the same vein, the respondent banks reliance on Section 4(e) of Rev. Reg. No. 12-80
and the ruling of the CTA in Asia Bank is misplaced. The Courts discussion in China
Banking Corporation[33] is instructive on this score:
CBC also relies on the Tax Courts ruling in Asia Bank that Section 4(e) of Revenue
Regulations No. 12-80 authorizes the exclusion of the final tax from the banks taxable
gross receipts. Section 4(e) provides that:
Sec. 4. x x x
(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies,
and other non-bank financial intermediaries not performing quasi-banking functions. - The
rates of taxes to be imposed on the gross receipts of such financial institutions shall be
based on all items of income actually received. Mere accrual shall not be considered, but
once payment is received on such accrual or in cases of prepayment, then the amount
actually received shall be included in the tax base of such financial institutions, as
provided hereunder: x x x. (Emphasis supplied by Tax Court)
Section 4(e) states that the gross receipts shall be based on all items of income actually
received. The tax court in Asia Bank concluded that it is but logical to infer that the final
tax, not having been received by petitioner but instead went to the coffers of the
government, should no longer form part of its gross receipts for the purpose of computing
the GRT.
The Tax Court erred glaringly in interpreting Section 4(e) of Revenue Regulations No. 12-
80. Income may be taxable either at the time of its actual receipt or its accrual,
depending on the accounting method of the taxpayer. Section 4(e) merely provides for
an exception to the rule, making interest income taxable for gross receipts tax purposes
only upon actual receipt. Interest is accrued, and not actually received, when the interest
is due and demandable but the borrower has not actually paid and remitted the interest,
whether physically or constructively. Section 4(e) does not exclude accrued interest
income from gross receipts but merely postpones its inclusion until actual payment of the
interest to the lending bank. This is clear when Section 4(e) states that [m]ere accrual
shall not be considered, but once payment is received on such accrual or in case of
prepayment, then the amount actually received shall be included in the tax base of such
financial institutions x x x.
Actual receipt of interest income is not limited to physical receipt. Actual receipt may
either be physical receipt or constructive receipt. When the depository bank withholds the
final tax to pay the tax liability of the lending bank, there is prior to the withholding a
constructive receipt by the lending bank of the amount withheld. From the amount
constructively received by the lending bank, the depository bank deducts the final
withholding tax and remits it to the government for the account of the lending
bank. Thus, the interest income actually received by the lending bank, both physically
and constructively, is the net interest plus the amount withheld as final tax.
The concept of a withholding tax on income obviously and necessarily implies that the
amount of the tax withheld comes from the income earned by the taxpayer. Since the
amount of the tax withheld constitutes income earned by the taxpayer, then that amount
manifestly forms part of the taxpayers gross receipts. Because the amount withheld
belongs to the taxpayer, he can transfer its ownership to the government in payment of
his tax liability. The amount withheld indubitably comes from income of the taxpayer, and
thus forms part of his gross receipts.
The Court went on to explain in that case that far from supporting the petitioners
contention, its ruling in Manila Jockey Club, in fact even buttressed the contention of the
Commissioner. Thus:
CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the final
withholding tax on interest income does not form part of a banks gross receipts because
the final tax is earmarked by regulation for the government. CBCs reliance on the
Manila Jockey Club is misplaced. In this case, the Court stated that Republic Act No. 309
and Executive Order No. 320 apportioned the total amount of the bets in horse races as
follows:
87 % as dividends to holders of winning tickets, 12 % as commission of the Manila
Jockey Club, of which % was assigned to the Board of Races and 5% was distributed as
prizes for owners of winning horses and authorized bonuses for jockeys.
A subsequent law, Republic Act No. 1933 (RA No. 1933), amended the sharing by
ordering the distribution of the bets as follows:
Sec. 19. Distribution of receipts. The total wager funds or gross receipts from the sale
of pari-mutuel tickets shall be apportioned as follows: eighty-seven and one-half per
centum shall be distributed in the form of dividends among the holders of win, place and
show horses, as the case may be, in the regular races; six and one-half per centum shall
be set aside as the commission of the person, racetrack, racing club, or any other entity
conducting the races; five and one-half per centum shall be set aside for the payment of
stakes or prizes for win, place and show horses and authorized bonuses for jockeys; and
one-half per centum shall be paid to a special fund to be used by the Games and
Amusements Board to cover its expenses and such other purposes authorized under this
Act. xxx. (Emphasis supplied)
98

Under the distribution of receipts expressly mandated in Section 19 of RA No. 1933, the
gross receipts apportioned to Manila Jockey Club referred only to its own 6 %
commission. There is no dispute that the 5 % share of the horse-owners and jockeys,
and the % share of the Games and Amusements Board, do not form part of Manila
Jockey Clubs gross receipts. RA No. 1933 took effect on 22 June 1957, three years
before the Court decided Manila Jockey Club on 30 June 1960.
Even under the earlier law, Manila Jockey Club did not own the entire 12 %
commission. Manila Jockey Club owned, and could keep and use, only 7% of the total
bets. Manila Jockey Club merely held in trust the balance of 5 % for the benefit of the
Board of Races and the winning horse-owners and jockeys, the real owners of the 5 1/2
% share.
The Court in Manila Jockey Club quoted with approval the following Opinion of the
Secretary of Justice made prior to RA No. 1933:
There is no question that the Manila Jockey Club, Inc. owns only 7-1/2% [sic] of the bets
registered by the Totalizer. This portion represents its share or commission in the total
amount of money it handles and goes to the funds thereof as its own property which it
may legally disburse for its own purposes. The 5% [sic] does not belong to the club. It is
merely held in trust for distribution as prizes to the owners of winning horses. It is
destined for no other object than the payment of prizes and the club cannot otherwise
appropriate this portion without incurring liability to the owners of winning horses. It can
not be considered as an item of expense because the sum used for the payment of prizes
is not taken from the funds of the club but from a certain portion of the total bets
especially earmarked for that purpose. (Emphasis supplied)
Consequently, the Court ruled that the 5 % balance of the commission, not being
owned by Manila Jockey Club, did not form part of its gross receipts for purposes of the
amusement tax. Manila Jockey Club correctly paid the amusement tax based only on its
own 7% commission under RA No. 309 and Executive Order No. 320.
Manila Jockey Club does not support CBCs contention but rather the Commissioners
position. The Court ruled in Manila Jockey Club that receipts not owned by the Manila
Jockey Club but merely held by it in trust did not form part of Manila Jockey Clubs gross
receipts. Conversely, receipts owned by the Manila Jockey Club would form part of its
gross receipts.[34]
We reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the
5% of gross receipts tax would result in double taxation. In CIR v. Solidbank
Corporation,[35] we ruled, thus:
We have repeatedly said that the two taxes, subject of this litigation, are different from
each other. The basis of their imposition may be the same, but their natures are
different, thus leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only once;
that is, xxx taxing the same person twice by the same jurisdiction for the same thing. It
is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise
described as direct duplicate taxation, the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and they must be of the same kind or
character.
First, the taxes herein are imposed on two different subject matters. The subject matter
of the FWT is the passive income generated in the form of interest on deposits and yield
on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in
the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an
excise rather than a property tax. It is not an income tax, unlike the FWT. In fact, we
have already held that one can be taxed for engaging in business and further taxed
differently for the income derived therefrom. Akin to our ruling in Velilla v. Posadas, these
two taxes are entirely distinct and are assessed under different provisions.
Second, although both taxes are national in scope because they are imposed by the same
taxing authority the national government under the Tax Code and operate within the
same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods
they affect are different. The FWT is deducted and withheld as soon as the income is
earned, and is paid after every calendar quarter in which it is earned. On the other hand,
the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in
which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax
subject to withholding, while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing
authority, within the same jurisdiction, for the same purpose, in different taxing periods,
some of the property in the territory. Subjecting interest income to a 20% FWT and
including it in the computation of the 5% GRT is clearly not double taxation.
IN LIGHT OF THE FOREGOING, the petition is GRANTED. The decision of the Court of
Appeals in CA-G.R. SP No. 52706 and that of the Court of Tax Appeals in CTA Case No.
5415 are SET ASIDE and REVERSED. The CTA is hereby ORDERED to DISMISS the
petition of respondent Bank of Commerce. No costs.
SO ORDERED.
Austria-Martinez, (Acting Chairman), Tinga, and Chico-Nazario, JJ., concur.
Puno, (Chairman), on official leave.
99






THIRD DIVISION


THE CITY OF MANILA, LIBERTY M. TOLEDO, in
her capacity as THE TREASURER OF MANILA and
JOSEPH SANTIAGO, in his capacity as the CHIEF
OF THE LICENSE DIVISION OF CITY OF MANILA,
Petitioners,


- versus -


COCA-COLA BOTTLERS PHILIPPINES, INC.,
Respondent.
G.R. No. 181845


Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.


Promulgated:

August 4, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x


D E C I S I O N
CHICO-NAZARIO, J.:


This case is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Civil Procedure seeking to review and reverse the Decision102[1] dated 18
January 2008 and Resolution103[2] dated 18 February 2008 of the Court of Tax Appeals
en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en banc
dismissed the Petition for Review of herein petitioners City of Manila, Liberty M. Toledo
(Toledo), and Joseph Santiago (Santiago); and affirmed the Resolutions dated 24 May





100

2007,104[3] 8 June 2007,105[4] and 26 July 2007,106[5] of the CTA First Division in
C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of petitioners in said
case for being filed out of time. In its questioned Resolution, the CTA en banc denied the
Motion for Reconsideration of petitioners.

Petitioner City of Manila is a public corporation empowered to collect and assess
business taxes, revenue fees, and permit fees, through its officers, petitioners Toledo and
Santiago, in their capacities as City Treasurer and Chief of the Licensing Division,
respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a
corporation engaged in the business of manufacturing and selling beverages, and which
maintains a sales office in the City of Manila.

The case stemmed from the following facts:

Prior to 25 February 2000, respondent had been paying the City of Manila local







business tax only under Section 14 of Tax Ordinance No. 7794,107[6] being expressly
exempted from the business tax under Section 21 of the same tax ordinance. Pertinent
provisions of Tax Ordinance No. 7794 provide:

Section 14. Tax on Manufacturers, Assemblers and Other
Processors. There is hereby imposed a graduated tax on
manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders of liquors, distilled spirits, and wines or
manufacturers of any article of commerce of whatever kind or nature,
in accordance with any of the following schedule:

x x x x

over P6,500,000.00 up to
P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50%
of 1%
in excess of
P6,500,000.00

x x x x

Section 21. Tax on Businesses Subject to the Excise,
Value-Added or Percentage Taxes under the NIRC. On any of the
following businesses and articles of commerce subject to excise,
value-added or percentage taxes under the National Internal Revenue
Code hereinafter referred to as NIRC, as amended, a tax of FIFTY
PERCENT (50%) of ONE PERCENT (1%) per annum on the gross
sales or receipts of the preceding calendar year is hereby imposed:

(A) On persons who sell goods and services in the
course of trade or business; and those who import goods whether for
business or otherwise; as provided for in Sections 100 to 103 of the
NIRC as administered and determined by the Bureau of Internal
Revenue pursuant to the pertinent provisions of the said Code.

x x x x



101


(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines

x x x x

(8) Coal and coke
(9) Fermented liquor, brewers wholesale price,
excluding the ad valorem tax

x x x x

PROVIDED, that all registered businesses in the City of
Manila that are already paying the aforementioned tax shall be
exempted from payment thereof.


Petitioner City of Manila subsequently approved on 25 February 2000, Tax
Ordinance No. 7988,108[7] amending certain sections of Tax Ordinance No. 7794,
particularly: (1) Section 14, by increasing the tax rates applicable to certain
establishments operating within the territorial jurisdiction of the City of Manila; and (2)
Section 21, by deleting the proviso found therein, which stated that all registered
businesses in the City of Manila that are already paying the aforementioned tax shall be



exempted from payment thereof. Petitioner City of Manila approved only after a year, on
22 February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax
Ordinance No. 7988.

Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null
and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila109[8] (Coca-Cola case)
for the following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of
the provisions of the Local Government Code (LGC) of 1991 and its implementing rules
and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax
Ordinance No. 7988, which did not legally exist.

However, before the Court could declare Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 null and void, petitioner City of Manila assessed respondent on the
basis of Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax
ordinances, for deficiency local business taxes, penalties, and interest, in the total amount
of P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a
protest with petitioner Toledo on the ground that the said assessment amounted to
double taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of Tax
Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner
Toledo did not respond to the protest of respondent.

Consequently, respondent filed with the Regional Trial Court (RTC) of Manila,
Branch 47, an action for the cancellation of the assessment against respondent for
business taxes, which was docketed as Civil Case No. 03-107088.



102


On 14 July 2006, the RTC rendered a Decision110[9] dismissing Civil Case No.
03-107088. The RTC ruled that the business taxes imposed upon the respondent under
Sections 14 and 21 of Tax Ordinance No. 7988, as amended, were not of the same kind or
character; therefore, there was no double taxation. The RTC, though, in an Order111[10]
dated 16 November 2006, granted the Motion for Reconsideration of respondent, decreed
the cancellation and withdrawal of the assessment against the latter, and barred
petitioners from further imposing/assessing local business taxes against respondent under
Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7988 and Tax
Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in conformity with
the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 were declared null and void. The Motion for Reconsideration of
petitioners was denied by the RTC in an Order112[11] dated 4 April 2007. Petitioners
received a copy of the 4 April 2007 Order of the RTC, denying their Motion for
Reconsideration of the 16 November 2006 Order of the same court, on 20 April 2007.

On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to
File Petition for Review, praying for a 15-day extension or until 20 May 2007 within which
to file their Petition. The Motion for Extension of petitioners was docketed as C.T.A. AC







No. 31, raffled to the CTA First Division.

Again, on 18 May 2007, petitioners filed, through registered mail, a Second
Motion for Extension of Time to File a Petition for Review, praying for another 10-day
extension, or until 30 May 2007, within which to file their Petition.

On 24 May 2007, however, the CTA First Division already issued a Resolution
dismissing C.T.A. AC No. 31 for failure of petitioners to timely file their Petition for Review
on 20 May 2007.

Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners
filed their Petition for Review therewith on 30 May 2007 via registered mail. On 8 June
2007, the CTA First Division issued another Resolution, reiterating the dismissal of the
Petition for Review of petitioners.

Petitioners moved for the reconsideration of the foregoing Resolutions dated 24
May 2007 and 8 June 2007, but their motion was denied by the CTA First Division in a
Resolution dated 26 July 2007. The CTA First Division reasoned that the Petition for
Review of petitioners was not only filed out of time -- it also failed to comply with the
provisions of Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised Rules of the
CTA.

Petitioners thereafter filed a Petition for Review before the CTA en banc,
docketed as C.T.A. EB No. 307, arguing that the CTA First Division erred in dismissing
103

their Petition for Review in C.T.A. AC No. 31 for being filed out of time, without
considering the merits of their Petition.

The CTA en banc rendered its Decision on 18 January 2008, dismissing the
Petition for Review of petitioners and affirming the Resolutions dated 24 May 2007, 8 June
2007, and 26 July 2007 of the CTA First Division. The CTA en banc similarly denied the
Motion for Reconsideration of petitioners in a Resolution dated 18 February 2008.

Hence, the present Petition, where petitioners raise the following issues:

I. WHETHER OR NOT PETITIONERS
SUBSTANTIALLY COMPLIED WITH THE REGLEMENTARY
PERIOD TO TIMELY APPEAL THE CASE FOR REVIEW
BEFORE THE [CTA DIVISION].

II. WHETHER OR NOT THE RULING OF
THIS COURT IN THE EARLIER [COCA-COLA CASE] IS
DOCTRINAL AND CONTROLLING IN THE INSTANT CASE.

III. WHETHER OR NOT PETITIONER CITY
OF MANILA CAN STILL ASSESS TAXES UNDER [SECTIONS]
14 AND 21 OF [TAX ORDINANCE NO. 7794, AS AMENDED].

IV. WHETHER OR NOT THE ENFORCEMENT
OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794, AS
AMENDED] CONSTITUTES DOUBLE TAXATION.


Petitioners assert that Section 1, Rule 7113[12] of the Revised Rules of the CTA


refers to certain provisions of the Rules of Court, such as Rule 42 of the latter, and makes
them applicable to the tax court. Petitioners then cannot be faulted in relying on the
provisions of Section 1, Rule 42114[13] of the Rules of Court as regards the period for
filing a Petition for Review with the CTA in division. Section 1, Rule 42 of the Rules of
Court provides for a 15-day period, reckoned from receipt of the adverse decision of the
trial court, within which to file a Petition for Review with the Court of Appeals. The same
rule allows an additional 15-day period within which to file such a Petition; and, only for
the most compelling reasons, another extension period not to exceed 15 days. Petitioners
received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC, denying their
Motion for Reconsideration of the 16 November 2006 Order of the same court. On 4 May
2007, believing that they only had 15 days to file a Petition for Review with the CTA in
division, petitioners moved for a 15-day extension, or until 20 May 2007, within which to
file said Petition. Prior to the lapse of their first extension period, or on 18 May 2007,
petitioners again moved for a 10-day extension, or until 30 May 2007, within which to file
their Petition for Review. Thus, when petitioners filed their Petition for Review with the
CTA First Division on 30 May 2007, the same was filed well within the reglementary period
for doing so.

Petitioners argue in the alternative that even assuming that Section 3(a), Rule
8115[14] of the Revised Rules of the CTA governs the period for filing a Petition for
Review with the CTA in division, still, their Petition for Review was filed within the
reglementary period. Petitioners call attention to the fact that prior to the lapse of the 30-






104

day period for filing a Petition for Review under Section 3(a), Rule 8 of the Revised Rules
of the CTA, they had already moved for a 10-day extension, or until 30 May 2007, within
which to file their Petition. Petitioners claim that there was sufficient justification in equity
for the grant of the 10-day extension they requested, as the primordial consideration
should be the substantive, and not the procedural, aspect of the case. Moreover, Section
3(a), Rule 8 of the Revised Rules of the CTA, is silent as to whether the 30-day period for
filing a Petition for Review with the CTA in division may be extended or not.

Petitioners also contend that the Coca-Cola case is not determinative of the
issues in the present case because the issue of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 is not the lis mota herein. The Coca-Cola case is not doctrinal and
cannot be considered as the law of the case.

Petitioners further insist that notwithstanding the declaration of nullity of Tax
Ordinance No. 7988 and Tax Ordinance No. 8011, Tax Ordinance No. 7794 remains a
valid piece of local legislation. The nullity of Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 does not effectively bar petitioners from imposing local business taxes upon
respondent under Sections 14 and 21 of Tax Ordinance No. 7794, as they were read prior
to their being amended by the foregoing null and void tax ordinances.

Petitioners finally maintain that imposing upon respondent local business taxes
under both Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute direct
double taxation. Section 143 of the LGC gives municipal, as well as city governments, the
power to impose business taxes, to wit:

SECTION 143. Tax on Business. The municipality may
impose taxes on the following businesses:

(a) On manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers, and compounders of liquors,
distilled spirits, and wines or manufacturers of any article of
commerce of whatever kind or nature, in accordance with the
following schedule:

x x x x

(b) On wholesalers, distributors, or dealers in any
article of commerce of whatever kind or nature in accordance with
the following schedule:

x x x x

(c) On exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or retailers of essential
commodities enumerated hereunder at a rate not exceeding one-half
(1/2) of the rates prescribed under subsections (a), (b) and (d) of this
Section:

x x x x

Provided, however, That barangays shall have the exclusive
power to levy taxes, as provided under Section 152 hereof, on gross
sales or receipts of the preceding calendar year of Fifty thousand
pesos (P50,000.00) or less, in the case of cities, and Thirty thousand
pesos (P30,000) or less, in the case of municipalities.

(e) On contractors and other independent
contractors, in accordance with the following schedule:

x x x x

(f) On banks and other financial institutions, at a
rate not exceeding fifty percent (50%) of one percent (1%) on the
gross receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property and profit from
exchange or sale of property, insurance premium.

(g) On peddlers engaged in the sale of any merchandise or
article of commerce, at a rate not exceeding Fifty pesos (P50.00) per
peddler annually.

(h) On any business, not otherwise specified in the
preceding paragraphs, which the sanggunian concerned may deem
proper to tax: Provided, That on any business subject to the excise,
105

value-added or percentage tax under the National Internal Revenue
Code, as amended, the rate of tax shall not exceed two percent (2%)
of gross sales or receipts of the preceding calendar year.


Section 14 of Tax Ordinance No. 7794 imposes local business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC. On the other hand, the local business tax under
Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and services
in the course of trade or business, and those importing goods for business or otherwise,
who, pursuant to Section 143(h) of the LGC, are subject to excise tax, value-added tax
(VAT), or percentage tax under the National Internal Revenue Code (NIRC). Thus, there
can be no double taxation when respondent is being taxed under both Sections 14 and 21
of Tax Ordinance No. 7794, for under the first, it is being taxed as a manufacturer; while
under the second, it is being taxed as a person selling goods in the course of trade or
business subject to excise, VAT, or percentage tax.

The Court first addresses the issue raised by petitioners concerning the period
within which to file with the CTA a Petition for Review from an adverse decision or ruling
of the RTC.

The period to appeal the decision or ruling of the RTC to the CTA via a Petition
for Review is specifically governed by Section 11 of Republic Act No. 9282,116[15] and
Section 3(a), Rule 8 of the Revised Rules of the CTA.




Section 11 of Republic Act No. 9282 provides:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of
Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner
of Customs, the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the Central Board of
Assessment Appeals or the Regional Trial Courts may file an Appeal
with the CTA within thirty (30) days after the receipt of such decision
or ruling or after the expiration of the period fixed by law for action
as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a
procedure analogous to that provided for under Rule 42 of the 1997
Rules of Civil Procedure with the CTA within thirty (30) days from the
receipt of the decision or ruling or in the case of inaction as herein
provided, from the expiration of the period fixed by law to act
thereon. x x x. (Emphasis supplied.)


Section 3(a), Rule 8 of the Revised Rules of the CTA states:

SEC 3. Who may appeal; period to file petition. (a) A
party adversely affected by a decision, ruling or the inaction of the
Commissioner of Internal Revenue on disputed assessments or claims
for refund of internal revenue taxes, or by a decision or ruling of the
Commissioner of Customs, the Secretary of Finance, the Secretary of
Trade and Industry, the Secretary of Agriculture, or a Regional Trial
Court in the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty days after receipt of a
copy of such decision or ruling, or expiration of the period fixed by
law for the Commissioner of Internal Revenue to act on the disputed
assessments. x x x. (Emphasis supplied.)


It is crystal clear from the afore-quoted provisions that to appeal an adverse
106

decision or ruling of the RTC to the CTA, the taxpayer must file a Petition for Review with
the CTA within 30 days from receipt of said adverse decision or ruling of the RTC.

It is also true that the same provisions are silent as to whether such 30-day
period can be extended or not. However, Section 11 of Republic Act No. 9282 does state
that the Petition for Review shall be filed with the CTA following the procedure analogous
to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 42117[16] of the
Revised Rules of Civil Procedure provides that the Petition for Review of an adverse
judgment or final order of the RTC must be filed with the Court of Appeals within: (1) the
original 15-day period from receipt of the judgment or final order to be appealed; (2) an
extended period of 15 days from the lapse of the original period; and (3) only for the
most compelling reasons, another extended period not to exceed 15 days from the lapse
of the first extended period.

Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure,
the 30-day original period for filing a Petition for Review with the CTA under Section 11 of
Republic Act No. 9282, as implemented by Section 3(a), Rule 8 of the Revised Rules of the
CTA, may be extended for a period of 15 days. No further extension shall be allowed
thereafter, except only for the most compelling reasons, in which case the extended
period shall not exceed 15 days.

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that
the 30-day period within which to file the Petition for Review with the CTA may, indeed,
be extended, thus:




Being suppletory to R.A. 9282, the 1997 Rules of Civil
Procedure allow an additional period of fifteen (15) days for the
movant to file a Petition for Review, upon Motion, and payment of the
full amount of the docket fees. A further extension of fifteen (15)
days may be granted on compelling reasons in accordance with the
provision of Section 1, Rule 42 of the 1997 Rules of Civil Procedure x
x x.118[17]


In this case, the CTA First Division did indeed err in finding that petitioners
failed to file their Petition for Review in C.T.A. AC No. 31 within the reglementary period.

From 20 April 2007, the date petitioners received a copy of the 4 April 2007
Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006
Order, petitioners had 30 days, or until 20 May 2007, within which to file their Petition for
Review with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007
grounded on their belief that the reglementary period for filing their Petition for Review
with the CTA was to expire on 5 May 2007, thus, compelling them to seek an extension of
15 days, or until 20 May 2007, to file said Petition was unnecessary and superfluous.
Even without said Motion for Extension, petitioners could file their Petition for Review until
20 May 2007, as it was still within the 30-day reglementary period provided for under
Section 11 of Republic Act No. 9282; and implemented by Section 3(a), Rule 8 of the
Revised Rules of the CTA.

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the
lapse of the 30-day reglementary period on 20 May 2007, in which they prayed for



107

another extended period of 10 days, or until 30 May 2007, to file their Petition for Review
was, in reality, only the first Motion for Extension of petitioners. The CTA First Division
should have granted the same, as it was sanctioned by the rules of procedure. In fact,
petitioners were only praying for a 10-day extension, five days less than the 15-day
extended period allowed by the rules. Thus, when petitioners filed via registered mail
their Petition for Review in C.T.A. AC No. 31 on 30 May 2007, they were able to comply
with the reglementary period for filing such a petition.

Nevertheless, there were other reasons for which the CTA First Division
dismissed the Petition for Review of petitioners in C.T.A. AC No. 31; i.e., petitioners failed
to conform to Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the
CTA. The Court sustains the CTA First Division in this regard.

Section 4, Rule 5 of the Revised Rules of the CTA requires that:

SEC. 4. Number of copies. The parties shall file eleven
signed copies of every paper for cases before the Court en banc and
six signed copies for cases before a Division of the Court in addition
to the signed original copy, except as otherwise directed by the Court.
Papers to be filed in more than one case shall include one additional
copy for each additional case. (Emphasis supplied.)


Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:

SEC. 2. Petition for review; contents. The petition for
review shall contain allegations showing the jurisdiction of the Court,
a concise statement of the complete facts and a summary statement
of the issues involved in the case, as well as the reasons relied upon
for the review of the challenged decision. The petition shall be
verified and must contain a certification against forum shopping as
provided in Section 3, Rule 46 of the Rules of Court. A clearly legible
duplicate original or certified true copy of the decision appealed from
shall be attached to the petition. (Emphasis supplied.)


The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of
the Revised Rules of the CTA, which provides:

SECTION 1. Applicability of the Rules of Court on
procedure in the Court of Appeals, exception. The procedure in the
Court en banc or in Divisions in original or in appealed cases shall be
the same as those in petitions for review and appeals before the
Court of Appeals pursuant to the applicable provisions of Rules 42,
43, 44, and 46 of the Rules of Court, except as otherwise provided for
in these Rules. (Emphasis supplied.)


As found by the CTA First Division and affirmed by the CTA en banc, the
Petition for Review filed by petitioners via registered mail on 30 May 2007 consisted only
of one copy and all the attachments thereto, including the Decision dated 14 July 2006;
and that the assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil
Case No. 03-107088 were mere machine copies. Evidently, petitioners did not comply at
all with the requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of
the Revised Rules of the CTA. Although the Revised Rules of the CTA do not provide for
the consequence of such non-compliance, Section 3, Rule 42 of the Rules of Court may be
applied suppletorily, as allowed by Section 1, Rule 7 of the Revised Rules of the CTA.
Section 3, Rule 42 of the Rules of Court reads:

SEC. 3. Effect of failure to comply with requirements.
The failure of the petitioner to comply with any of the foregoing
requirements regarding the payment of the docket and other lawful
fees, the deposit for costs, proof of service of the petition, and the
contents of and the documents which should accompany the petition
108

shall be sufficient ground for the dismissal thereof. (Emphasis
supplied.)


True, petitioners subsequently submitted certified copies of the Decision dated
14 July 2006 and assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in
Civil Case No. 03-107088, but a closer examination of the stamp on said documents
reveals that they were prepared and certified only on 14 August 2007, about two months
and a half after the filing of the Petition for Review by petitioners.

Petitioners never offered an explanation for their non-compliance with Section 4
of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. Hence, although the
Court had, in previous instances, relaxed the application of rules of procedure, it cannot
do so in this case for lack of any justification.

Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC
No. 31 should have been given due course by the CTA First Division, it is still dismissible
for lack of merit.

Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable
to the instant case. The pivotal issue raised therein was whether Tax Ordinance No. 7988
and Tax Ordinance No. 8011 were null and void, which this Court resolved in the
affirmative. Tax Ordinance No. 7988 was declared by the Secretary of the Department of
Justice (DOJ) as null and void and without legal effect due to the failure of herein
petitioner City of Manila to satisfy the requirement under the law that said ordinance be
published for three consecutive days. Petitioner City of Manila never appealed said
declaration of the DOJ Secretary; thus, it attained finality after the lapse of the period for
appeal of the same. The passage of Tax Ordinance No. 8011, amending Tax Ordinance
No. 7988, did not cure the defects of the latter, which, in any way, did not legally exist.

By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 are null and void and without any legal effect. Therefore, respondent cannot be
taxed and assessed under the amendatory laws--Tax Ordinance No. 7988 and Tax
Ordinance No. 8011.

Petitioners insist that even with the declaration of nullity of Tax Ordinance No.
7988 and Tax Ordinance No. 8011, respondent could still be made liable for local business
taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally
read, without the amendment by the null and void tax ordinances.

Emphasis must be given to the fact that prior to the passage of Tax Ordinance
No. 7988 and Tax Ordinance No. 8011 by petitioner City of Manila, petitioners subjected
and assessed respondent only for the local business tax under Section 14 of Tax
Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear
and unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that all
registered business in the City of Manila that are already paying the aforementioned tax
shall be exempted from payment thereof. The aforementioned tax referred to in said
proviso refers to local business tax. Stated differently, Section 21 of Tax Ordinance No.
7794 exempts from the payment of the local business tax imposed by said section,
businesses that are already paying such tax under other sections of the same tax
ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance No.
7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners
began assessing respondent for the local business tax under Section 21 of Tax Ordinance
No. 7794, as amended.

109

The Court easily infers from the foregoing circumstances that petitioners
themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011,
respondent was exempt from the local business tax under Section 21 of Tax Ordinance
No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in
Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No.
8011 before they assessed respondent for the local business tax under said section. Yet,
with the pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988
and Tax Ordinance No. 8011 were null and void and without legal effect, then Section 21
of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso,
is back in effect. Accordingly, respondent should not have been subjected to the local
business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters
of 2000, given its exemption therefrom since it was already paying the local business tax
under Section 14 of the same ordinance.

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax
Ordinance No. 7794, to their own detriment. Said exempting proviso was precisely
included in said section so as to avoid double taxation.

Double taxation means taxing the same property twice when it should be taxed
only once; that is, taxing the same person twice by the same jurisdiction for the same
thing. It is obnoxious when the taxpayer is taxed twice, when it should be but
once. Otherwise described as direct duplicate taxation, the two taxes must be imposed
on the same subject matter, for the same purpose, by the same taxing authority, within
the same jurisdiction, during the same taxing period; and the taxes must be of the same
kind or character.119[18]




Using the aforementioned test, the Court finds that there is indeed double
taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax
Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the
privilege of doing business in the City of Manila; (2) for the same purpose to make
persons conducting business within the City of Manila contribute to city revenues; (3) by
the same taxing authority petitioner City of Manila; (4) within the same taxing
jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing
periods per calendar year; and (6) of the same kind or character a local business tax
imposed on gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections
14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the
LGC, the very source of the power of municipalities and cities to impose a local business
tax, and to which any local business tax imposed by petitioner City of Manila must
conform. It is apparent from a perusal thereof that when a municipality or city has
already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines,
and any other article of commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers, etc. to a business tax
under Section 143(h) of the same Code. Section 143(h) may be imposed only on
businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and
that are not otherwise specified in preceding paragraphs. In the same way, businesses
such as respondents, already subject to a local business tax under Section 14 of Tax
Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be
made liable for local business tax under Section 21 of the same Tax Ordinance [which is
based on Section 143(h) of the LGC].

WHEREFORE, premises considered, the instant Petition for Review on Certiorari
is hereby DENIED. No costs.
110


SO ORDERED.




MINITA V. CHICO-NAZARIO
Associate Justice




FIRST DIVISION
[G.R. No. 148191. November 25, 2003]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SOLIDBANK
CORPORATION, respondent.
D E C I S I O N
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks from passive income are subject to a twenty
percent final withholding tax (20% FWT). This tax is withheld at source and is thus not
actually and physically received by the banks, because it is paid directly to the
government by the entities from which the banks derived the income. Apart from the
20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is
imposed by the Tax Code on their gross receipts, including the passive income.
Since the 20% FWT is constructively received by the banks and forms part of their gross
receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount
withheld is paid to the government on their behalf, in satisfaction of their withholding
taxes. That they do not actually receive the amount does not alter the fact that it is
remitted for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this
country, this 20 percent portion of the passive income of banks would actually be paid
to the banks and then remitted by them to the government in payment of their income
tax. The institution of the withholding tax system does not alter the fact that the 20
percent portion of their passive income constitutes part of their actual earnings, except
that it is paid directly to the government on their behalf in satisfaction of the 20 percent
final income tax due on their passive incomes.
The Case
Before us is a Petition for Review120[1] under Rule 45 of the Rules of Court, seeking to
annul the July 18, 2000 Decision121[2] and the May 8, 2001 Resolution122[3] of the
Court of Appeals123[4] (CA) in CA-GR SP No. 54599. The decretal portion of the assailed
Decision reads as follows:
WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax
Appeals.124[5]










111

The challenged Resolution denied petitioners Motion for Reconsideration.
The Facts
Quoting petitioner, the CA125[6] summarized the facts of this case as follows:
For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax
Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total
amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum
of P73,734,584.60, broken down as follows:
Period Covered Gross Receipts Gross Receipts Tax
January to March 1994 P 188,406,061.95 P 9,420,303.10
April to June 1994 370,913,832.70
18,545,691.63
July to September 1994 481,501,838.98
24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98
Total P 1,474,691,693.44 P
73,734,584.60
[Respondent] alleges that the total gross receipts in the amount of P1,474,691,693.44
included the sum of P350,807,875.15 representing gross receipts from passive income
which was already subjected to 20% final withholding tax.
On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No.
4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue[,] wherein it
was held that the 20% final withholding tax on [a] banks interest income should not form
part of its taxable gross receipts for purposes of computing the gross receipts tax.
On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed
with the Bureau of Internal Revenue [BIR] a letter-request for the refund or issuance of
[a] tax credit certificate in the aggregate amount of P3,508,078.75, representing allegedly
overpaid gross receipts tax for the year 1995, computed as follows:




Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] P
350,807,875.15
Multiply by Final Tax rate
20%
20% Final Tax Withheld at Source P
70,161,575.03
Multiply by [Gross Receipts Tax] rate
5%
Overpaid [Gross Receipts Tax] P 3,508,078.75
Without waiting for an action from the [petitioner], [respondent] on the same day filed
[a] petition for review [with the Court of Tax Appeals] in order to toll the running of the
two-year prescriptive period to judicially claim for the refund of [any] overpaid internal
revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also National Internal
Revenue Code] x x x.
x x x x x x x x x
After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its
decision ordering x x x petitioner to refund in favor of x x x respondent the reduced
amount of P1,555,749.65 as overpaid [gross receipts tax] for the year 1995. The legal
issue x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q. Saga
dissenting, on the strength of its earlier pronouncement in x x x Asian Bank Corporation
vs. Commissioner of Internal Revenue x x x, wherein it was held that the 20% [final
withholding tax] on [a] banks interest income should not form part of its taxable gross
receipts for purposes of computing the [gross receipts tax].126[7]
Ruling of the CA
The CA held that the 20% FWT on a banks interest income did not form part of the
taxable gross receipts in computing the 5% GRT, because the FWT was not actually
received by the bank but was directly remitted to the government. The appellate court
curtly said that while the Tax Code does not specifically state any exemption, x x x the
statute must receive a sensible construction such as will give effect to the legislative
intention, and so as to avoid an unjust or absurd conclusion.127[8]





112

Hence, this appeal.128[9]
Issue
Petitioner raises this lone issue for our consideration:
Whether or not the 20% final withholding tax on [a] banks interest income forms part of
the taxable gross receipts in computing the 5% gross receipts tax.129[10]
The Courts Ruling
The Petition is meritorious.
Sole Issue:
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondents interest income was not
actually received by respondent because it was remitted directly to the government, the
fact that the amount redounded to the banks benefit makes it part of the taxable gross
receipts in computing the 5% GRT. Respondent, on the other hand, maintains that the
CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised recently in China
Banking Corporation v. CA,130[11] where this Court held that the amount of interest
income withheld in payment of the 20% FWT forms part of gross receipts in computing
for the GRT on banks.
The FWT and the GRT:







Two Different Taxes
The 5% GRT is imposed by Section 119131[12] of the Tax Code,132[13] which provides:
SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be collected
a tax on gross receipts derived from sources within the Philippines by all banks and non-
bank financial intermediaries in accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as well as
income from financial leasing, on the basis of remaining maturities of instruments from
which such receipts are derived.
Short-term maturity not in excess of two (2) years5%
Medium-term maturity over two (2) years
but not exceeding four (4) years....3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
(b) On dividends...0%
(c) On royalties, rentals of property, real or
personal, profits from exchange and all other items
treated as gross income under Section 28133[14] of
this
Code...............................................................
.....5%
Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pretermination, then the maturity period shall be reckoned to end as of
the date of pretermination for purposes of classifying the transaction as short, medium or
long term and the correct rate of tax shall be applied accordingly.







113

Nothing in this Code shall preclude the Commissioner from imposing the same tax herein
provided on persons performing similar banking activities.
The 5% GRT134[15] is included under Title V. Other Percentage Taxes of the Tax Code
and is not subject to withholding. The banks and non-bank financial intermediaries liable
therefor shall, under Section 125(a)(1),135[16] file quarterly returns on the amount of
gross receipts and pay the taxes due thereon within twenty (20)136[17] days after the
end of each taxable quarter.
The 20% FWT,137[18] on the other hand, falls under Section 24(e)(1)138[19] of Title II.
Tax on Income. It is a tax on passive income, deducted and withheld at source by the
payor-corporation and/or person as withholding agent pursuant to Section 50,139[20] and
paid in the same manner and subject to the same conditions as provided for in Section
51.140[21]














A perusal of these provisions clearly shows that two types of taxes are involved in the
present controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is
an income tax. As a bank, petitioner is covered by both taxes.
A percentage tax is a national tax measured by a certain percentage of the gross selling
price or gross value in money of goods sold, bartered or imported; or of the gross receipts
or earnings derived by any person engaged in the sale of services.141[22] It is not
subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the gross
income realized in a taxable year.142[23] It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is
imposed; the payor, a separate entity, acts as no more than an agent of the government
for the collection of the tax in order to ensure its payment. Obviously, this amount that is
used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax
base.143[24] These proceeds are either actual or constructive. Both parties herein agree
that there is no actual receipt by the bank of the amount withheld. What needs to be
determined is if there is constructive receipt thereof. Since the payee -- not the payor --
is the real taxpayer, the rule on constructive receipt can be easily rationalized, if not made
clearly manifest.144[25]
Constructive Receipt
Versus Actual Receipt










114

Applying Section 7 of Revenue Regulations (RR) No. 17-84,145[26] petitioner contends
that there is constructive receipt of the interest on deposits and yield on deposit
substitutes.146[27] Respondent, however, claims that even if there is, it is Section 4(e)
of RR 12-80147[28] that nevertheless governs the situation.
Section 7 of RR 17-84 states:
SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes.
(a) The interest earned on Philippine Currency bank deposits and yield from deposit
substitutes subjected to the withholding taxes in accordance with these regulations need
not be included in the gross income in computing the depositors/investors income tax
liability in accordance with the provision of Section 29(b),148[29] (c)149[30] and (d) of
the National Internal Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes
declared for purposes of imposing the withholding taxes in accordance with these
regulations shall be allowed as interest expense deductible for purposes of computing
taxable net income of the payor.











(c) If the recipient of the above-mentioned items of income are financial
institutions, the same shall be included as part of the tax base upon which the gross
receipt[s] tax is imposed.
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on
the gross receipts of banks, non-bank financial intermediaries, financing companies, and
other non-bank financial intermediaries not performing quasi-banking activities shall be
based on all items of income actually received. This provision reads:
SEC. 4. x x x x x x x x x
(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies,
and other non-bank financial intermediaries not performing quasi-banking activities. The
rates of tax to be imposed on the gross receipts of such financial institutions shall be
based on all items of income actually received. Mere accrual shall not be considered, but
once payment is received on such accrual or in cases of prepayment, then the amount
actually received shall be included in the tax base of such financial institutions, as
provided hereunder x x x.
Respondent argues that the above-quoted provision is plain and clear: since there is no
actual receipt, the FWT is not to be included in the tax base for computing the GRT.
There is supposedly no pecuniary benefit or advantage accruing to the bank from the
FWT, because the income is subjected to a tax burden immediately upon receipt through
the withholding process. Moreover, the earlier RR 12-80 covered matters not falling
under the later RR 17-84.150[31]
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive
possession provided in Articles 531 and 532 of our Civil Code.
Under Article 531:151[32]





115

Possession is acquired by the material occupation of a thing or the exercise of a right, or
by the fact that it is subject to the action of our will, or by the proper acts and legal
formalities established for acquiring such right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy it, by his legal
representative, by his agent, or by any person without any power whatever; but in the
last case, the possession shall not be considered as acquired until the person in whose
name the act of possession was executed has ratified the same, without prejudice to the
juridical consequences of negotiorum gestio in a proper case.152[33]
The last means of acquiring possession under Article 531 refers to juridical acts -- the
acquisition of possession by sufficient title to which the law gives the force of acts of
possession.153[34] Respondent argues that only items of income actually received
should be included in its gross receipts. It claims that since the amount had already been
withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of
possession is through the proper acts and legal formalities established therefor. The
withholding process is one such act. There may not be actual receipt of the income
withheld; however, as provided for in Article 532, possession by any person without any
power whatsoever shall be considered as acquired when ratified by the person in whose
name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding
agent of the government, because the taxpayer ratifies the very act of possession for the
government. There is thus constructive receipt. The processes of bookkeeping and
accounting for interest on deposits and yield on deposit substitutes that are subjected to
FWT are indeed -- for legal purposes -- tantamount to delivery, receipt or
remittance.154[35] Besides, respondent itself admits that its income is subjected to a tax







burden immediately upon receipt, although it claims that it derives no pecuniary benefit
or advantage through the withholding process. There being constructive receipt of such
income -- part of which is withheld -- RR 17-84 applies, and that income is included as
part of the tax base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively
received.
In general, rules and regulations issued by administrative or executive officers pursuant to
the procedure or authority conferred by law upon the administrative agency have the
force and effect, or partake of the nature, of a statute.155[36] The reason is that
statutes express the policies, purposes, objectives, remedies and sanctions intended by
the legislature in general terms. The details and manner of carrying them out are
oftentimes left to the administrative agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the revenue regulations,
upon recommendation of the BIR commissioner. These regulations are the consequences
of a delegated power to issue legal provisions that have the effect of law.156[37]
A revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed. Even if the courts may not be in agreement with its stated
policy or innate wisdom, it is nonetheless valid, provided that its scope is within the
statutory authority or standard granted by the legislature.157[38] Specifically, the
regulation must (1) be germane to the object and purpose of the law;158[39] (2) not









116

contradict, but conform to, the standards the law prescribes;159[40] and (3) be issued for
the sole purpose of carrying into effect the general provisions of our tax laws.160[41]
In the present case, there is no question about the regularity in the performance of official
duty. What needs to be determined is whether RR 12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a
regulation -- usually in its repealing clause -- that another regulation, identified by its
number or title, is repealed. All others are implied repeals.161[42] An example of the
latter is a general provision that predicates the intended repeal on a substantial conflict
between the existing and the prior regulations.162[43]
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that
are inconsistent with the provisions of the said RR are thereby repealed. This declaration
proceeds on the premise that RR 17-84 clearly reveals such an intention on the part of the
Department of Finance. Otherwise, later RRs are to be construed as a continuation of,
and not a substitute for, earlier RRs; and will continue to speak, so far as the subject
matter is the same, from the time of the first promulgation.163[44]
There are two well-settled categories of implied repeals: (1) in case the provisions are in
irreconcilable conflict, the later regulation, to the extent of the conflict, constitutes an











implied repeal of an earlier one; and (2) if the later regulation covers the whole subject of an
earlier one and is clearly intended as a substitute, it will similarly operate as a repeal of the earlier
one.164[45] There is no implied repeal of an earlier RR by the mere fact that its subject matter is
related to a later RR, which may simply be a cumulation or continuation of the earlier one.165[46]
Where a part of an earlier regulation embracing the same subject as a later one may not
be enforced without nullifying the pertinent provision of the latter, the earlier regulation is
deemed impliedly amended or modified to the extent of the repugnancy.166[47] The
unaffected provisions or portions of the earlier regulation remain in force, while its
omitted portions are deemed repealed.167[48] An exception therein that is amended by
its subsequent elimination shall now cease to be so and instead be included within the
scope of the general rule.168[49]
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received
shall be included in the tax base for computing the GRT, but Section 7(c) of the later RR
17-84 makes no such distinction and provides that all interests earned shall be included.
The exception having been eliminated, the clear intent is that the later RR 17-84 includes
the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest that
the administrative agency intended them. As a regulation is presumed to have been











117

made with deliberation and full knowledge of all existing rules on the subject, it may
reasonably be concluded that its promulgation was not intended to interfere with or
abrogate any earlier rule relating to the same subject, unless it is either repugnant to or
fully inclusive of the subject matter of an earlier one, or unless the reason for the earlier
one is beyond peradventure removed.169[50] Every effort must be exerted to make all
regulations stand -- and a later rule will not operate as a repeal of an earlier one, if by any
reasonable construction, the two can be reconciled.170[51]
RR 12-80 imposes the GRT only on all items of income actually received, as opposed to
their mere accrual, while RR 17-84 includes all interest income in computing the GRT. RR
12-80 is superseded by the later rule, because Section 4(e) thereof is not restated in RR
17-84. Clearly therefore, as petitioner correctly states, this particular provision was
impliedly repealed when the later regulations took effect.171[52]
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondents reliance on Section 4(e)
of RR 12-80 is misplaced and deceptive. The accrual referred to therein should not be
equated with the determination of the amount to be used as tax base in computing the
GRT. Such accrual merely refers to an accounting method that recognizes income as
earned although not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept of constructive possession or receipt as
earlier discussed. Petitioner correctly points out that income that is merely accrued --
earned, but not yet received -- does not form part of the taxable gross receipts; income
that has been received, albeit constructively, does.172[53]









The word actually, used confusingly in Section 4(e), will be clearer if removed entirely.
Besides, if actually is that important, accrual should have been eliminated for being a
mere surplusage. The inclusion of accrual stresses the fact that Section 4(e) does not
distinguish between actual and constructive receipt. It merely focuses on the method of
accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayers right
thereto becomes fixed and definite, even though it may not be actually received until a
later year; while a deduction for a liability is to be accrued or incurred and taken when the
liability becomes fixed and certain, even though it may not be actually paid until
later.173[54]
Under any system of accounting, no duty or liability to pay an income tax upon a
transaction arises until the taxable year in which the event constituting the condition
precedent occurs.174[55] The liability to pay a tax may thus arise at a certain time and
the tax paid within another given time.175[56]
In reconciling these two regulations, the earlier one includes in the tax base for GRT all
income, whether actually or constructively received, while the later one includes
specifically interest income. In computing the income tax liability, the only exception cited
in the later regulations is the exclusion from gross income of interest income, which is
already subjected to withholding. This exception, however, refers to a different tax
altogether. To extend mischievously such exception to the GRT will certainly lead to
results not contemplated by the legislators and the administrative body promulgating the
regulations.
Manila Jockey Club
Inapplicable







118

In Commissioner of Internal Revenue v. Manila Jockey Club,176[57] we held that the term
gross receipts shall not include money which, although delivered, has been especially
earmarked by law or regulation for some person other than the taxpayer.177[58]
To begin, we have to nuance the definition of gross receipts178[59] to determine what it
is exactly. In this regard, we note that US cases have persuasive effect in our jurisdiction,
because Philippine income tax law is patterned after its US counterpart.179[60]
[G]ross receipts with respect to any period means the sum of: (a) The total amount
received or accrued during such period from the sale, exchange, or other disposition of x
x x other property of a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of its trade or business, and (b) The
gross income, attributable to a trade or business, regularly carried on by the taxpayer,
received or accrued during such period x x x.180[61]
x x x [B]y gross earnings from operations x x x was intended all operations xxx including
incidental, subordinate, and subsidiary operations, as well as principal operations.181[62]












When we speak of the gross earnings of a person or corporation, we mean the entire
earnings or receipts of such person or corporation from the business or operations to
which we refer.182[63]
From these cases, gross receipts183[64] refer to the total, as opposed to the net,
income.184[65] These are therefore the total receipts before any deduction185[66] for
the expenses of management.186[67] Websters New International Dictionary, in fact,
defines gross as whole or entire.
Statutes taxing the gross receipts, earnings, or income of particular corporations are
found in many jurisdictions.187[68] Tax thereon is generally held to be within the power














119

of a state to impose; or constitutional, unless it interferes with interstate commerce or
violates the requirement as to uniformity of taxation.188[69]
Moreover, we have emphasized that the BIR has consistently ruled that gross receipts
does not admit of any deduction.189[70] Following the principle of legislative approval by
reenactment,190[71] this interpretation has been adopted by the legislature throughout
the various reenactments of then Section 119 of the Tax Code.191[72]
Given that a tax is imposed upon total receipts and not upon net earnings,192[73] shall
the income withheld be included in the tax base upon which such tax is imposed? In
other words, shall interest income constructively received still be included in the tax base
for computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not the same as
withholding. Amounts earmarked do not form part of gross receipts, because, although
delivered or received, these are by law or regulation reserved for some person other than
the taxpayer. On the contrary, amounts withheld form part of gross receipts, because
these are in constructive possession and not subject to any reservation, the withholding
agent being merely a conduit in the collection process.











The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys
amounts that never became the property of the race track.193[74] Unlike these amounts,
the interest income that had been withheld for the government became property of the
financial institutions upon constructive possession thereof. Possession was indeed
acquired, since it was ratified by the financial institutions in whose name the act of
possession had been executed. The money indeed belonged to the taxpayers; merely
holding it in trust was not enough.194[75]
The government subsequently becomes the owner of the money when the financial
institutions pay the FWT to extinguish their obligation to the government. As this Court
has held before, this is the consideration for the transfer of ownership of the FWT from
these institutions to the government.195[76] It is ownership that determines whether
interest income forms part of taxable gross receipts.196[77] Being originally owned by
these financial institutions as part of their interest income, the FWT should form part of
their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is
different from a percentage tax liability. Commissioner of Internal Revenue v. Tours
Specialists, Inc. aptly held thus:197[78]











120

x x x [G]ross receipts subject to tax under the Tax Code do not include monies or
receipts entrusted to the taxpayer which do not belong to them and do not redound to the
taxpayers benefit; and it is not necessary that there must be a law or regulation which
would exempt such monies and receipts within the meaning of gross receipts under the
Tax Code.198[79]
In the construction and interpretation of tax statutes and of statutes in general, the
primary consideration is to ascertain and give effect to the intention of the
legislature.199[80] We ought to impute to the lawmaking body the intent to obey the
constitutional mandate, as long as its enactments fairly admit of such
construction.200[81] In fact, x x x no tax can be levied without express authority of
law, but the statutes are to receive a reasonable construction with a view to carrying out
their purpose and intent.201[82]
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first
imposes an income tax; the second, a percentage tax. The legislature clearly intended
two different taxes. The FWT is a tax on passive income, while the GRT is on
business.202[83] The withholding of one is not equivalent to the payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd











Taxing the people and their property is essential to the very existence of government.
Certainly, one of the highest attributes of sovereignty is the power of taxation,203[84]
which may legitimately be exercised on the objects to which it is applicable to the utmost
extent as the government may choose.204[85] Being an incident of sovereignty, such
power is coextensive with that to which it is an incident.205[86] The interest on deposits
and yield on deposit substitutes of financial institutions, on the one hand, and their
business as such, on the other, are the two objects over which the State has chosen to
extend its sovereign power. Those not so chosen are, upon the soundest principles,
exempt from taxation.206[87]
While courts will not enlarge by construction the governments power of taxation,207[88]
neither will they place upon tax laws so loose a construction as to permit evasions, merely
on the basis of fanciful and insubstantial distinctions.208[89] When the legislature
imposes a tax on income and another on business, the imposition must be respected. The
Tax Code should be so construed, if need be, as to avoid empty declarations or
possibilities of crafty tax evasion schemes. We have consistently ruled thus:













121

x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to
carry on its operations, and it is of the utmost importance that the modes adopted to
enforce the collection of the taxes levied should be summary and interfered with as little
as possible. x x x.209[90]
Any delay in the proceedings of the officers, upon whom the duty is devolved of
collecting the taxes, may derange the operations of government, and thereby cause
serious detriment to the public.210[91]
No government could exist if all litigants were permitted to delay the collection of its
taxes.211[92]
A taxing act will be construed, and the intent and meaning of the legislature ascertained,
from its language.212[93] Its clarity and implied intent must exist to uphold the taxes as
against a taxpayer in whose favor doubts will be resolved.213[94] No such doubts exist
with respect to the Tax Code, because the income and percentage taxes we have cited
earlier have been imposed in clear and express language for that purpose.214[95]












This Court has steadfastly adhered to the doctrine that its first and fundamental duty is
the application of the law according to its express terms -- construction and interpretation
being called for only when such literal application is impossible or inadequate without
them.215[96] In Quijano v. Development Bank of the Philippines,216[97] we stressed as
follows:
No process of interpretation or construction need be resorted to where a provision of law
peremptorily calls for application. 217[98]
A literal application of any part of a statute is to be rejected if it will operate unjustly, lead
to absurd results, or contradict the evident meaning of the statute taken as a
whole.218[99] Unlike the CA, we find that the literal application of the aforesaid sections
of the Tax Code and its implementing regulations does not operate unjustly or contradict
the evident meaning of the statute taken as a whole. Neither does it lead to absurd
results. Indeed, our courts are not to give words meanings that would lead to absurd or
unreasonable consequences.219[100] We have repeatedly held thus:












122

x x x [S]tatutes should receive a sensible construction, such as will give effect to the
legislative intention and so as to avoid an unjust or an absurd conclusion.220[101]
While it is true that the contemporaneous construction placed upon a statute by
executive officers whose duty is to enforce it should be given great weight by the courts,
still if such construction is so erroneous, x x x the same must be declared as null and
void.221[102]
It does not even matter that the CTA, like in China Banking Corporation,222[103] relied
erroneously on Manila Jockey Club. Under our tax system, the CTA acts as a highly
specialized body specifically created for the purpose of reviewing tax cases.223[104]
Because of its recognized expertise, its findings of fact will ordinarily not be reviewed,
absent any showing of gross error or abuse on its part.224[105] Such findings are
binding on the Court and, absent strong reasons for us to delve into facts, only questions
of law are open for determination.225[106]













Respondent claims that it is entitled to a refund on the basis of excess GRT payments.
We disagree.
Tax refunds are in the nature of tax exemptions.226[107] Such exemptions are strictly
construed against the taxpayer, being highly disfavored227[108] and almost said to be
odious to the law. Hence, those who claim to be exempt from the payment of a
particular tax must do so under clear and unmistakable terms found in the statute. They
must be able to point to some positive provision, not merely a vague implication,228[109]
of the law creating that right.229[110]
The right of taxation will not be surrendered, except in words too plain to be mistaken.
The reason is that the State cannot strip itself of this highest attribute of sovereignty -- its
most essential power of taxation -- by vague or ambiguous language. Since tax refunds
are in the nature of tax exemptions, these are deemed to be in derogation of sovereign
authority and to be construed strictissimi juris against the person or entity claiming the
exemption.230[111]
No less than our 1987 Constitution provides for the mechanism for granting tax
exemptions.231[112] They certainly cannot be granted by implication or mere












123

administrative regulation. Thus, when an exemption is claimed, it must indubitably be
shown to exist, for every presumption is against it,232[113] and a well-founded doubt is
fatal to the claim.233[114] In the instant case, respondent has not been able to
satisfactorily show that its FWT on interest income is exempt from the GRT. Like China
Banking Corporation, its argument creates a tax exemption where none exists.234[115]
No exemptions are normally allowed when a GRT is imposed. It is precisely designed to
maintain simplicity in the tax collection effort of the government and to assure its steady
source of revenue even during an economic slump.235[116]
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different from
each other. The basis of their imposition may be the same, but their natures are
different, thus leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only once;
that is, x x x taxing the same person twice by the same jurisdiction for the same
thing.236[117] It is obnoxious when the taxpayer is taxed twice, when it should be but











once.237[118] Otherwise described as direct duplicate taxation,238[119] the two taxes must
be imposed on the same subject matter, for the same purpose, by the same taxing authority,
within the same jurisdiction, during the same taxing period; and they must be of the same kind
or character.239[120]
First, the taxes herein are imposed on two different subject matters. The subject matter
of the FWT is the passive income generated in the form of interest on deposits and yield
on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in
the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an
excise240[121] rather than a property tax.241[122] It is not an income tax, unlike the
FWT. In fact, we have already held that one can be taxed for engaging in business and
further taxed differently for the income derived therefrom.242[123] Akin to our ruling in














124

Velilla v. Posadas,243[124] these two taxes are entirely distinct and are assessed under
different provisions.
Second, although both taxes are national in scope because they are imposed by the same
taxing authority -- the national government under the Tax Code -- and operate within the
same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods
they affect are different. The FWT is deducted and withheld as soon as the income is
earned, and is paid after every calendar quarter in which it is earned. On the other hand,
the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in
which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax
subject to withholding, while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing
authority, within the same jurisdiction, for the same purpose, in different taxing periods,
some of the property in the territory.244[125] Subjecting interest income to a 20% FWT
and including it in the computation of the 5% GRT is clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court
of Appeals are hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.






















THIRD DIVISION

COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,



G.R. No. 177279

Present:

CARPIO MORALES, J.,
125

- versus - Chairperson,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

HON. RAUL M. GONZALEZ, Secretary
of Justice, L. M. CAMUS
ENGINEERING CORPORATION
(represented by LUIS M. CAMUS and
LINO D. MENDOZA),
Respondents.

Promulgated:

October 13, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision245[1] dated October 31, 2006 and
Resolution246[2] dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 93387




which affirmed the Resolution247[3] dated December 13, 2005 of respondent Secretary of
Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of the National Internal
Revenue Code of 1997 (NIRC).
The facts as culled from the records:
Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000
issued by then Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue
Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and
Aurelio Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud
Division (TFD), National Office, conducted a fraud investigation for all internal revenue
taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering
Corporation (LMCEC) for the taxable years 1997, 1998 and 1999.248[4] The audit and
investigation against LMCEC was precipitated by the information provided by an
informer that LMCEC had substantial underdeclared income for the said period. For
failure to comply with the subpoena duces tecum issued in connection with the tax fraud
investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR)
against LMCEC on January 19, 2001 for violation of Section 266 of the NIRC (I.S. No. 00-956
of the Office of the City Prosecutor of Quezon City).249[5]








126

Based on data obtained from an informer and various clients of LMCEC,250[6]
it was discovered that LMCEC filed fraudulent tax returns with substantial
underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus
assessed the company of total deficiency taxes amounting to P430,958,005.90 (income
tax - P318,606,380.19 and value-added tax [VAT] - P112,351,625.71) covering the said
period. The Preliminary Assessment Notice (PAN) was received by LMCEC on February
22, 2001.251[7]
LMCECs alleged underdeclared income was summarized by petitioner as
follows:
Year Income
Per ITR
Income
Per Investigation

Undeclared

Income
Percentage of
Underdeclaration
1997 96,638,540.00 283,412,140.84 186,733,600.84 193.30%
1998 86,793,913.00 236,863,236.81 150,069,323.81 172.90%
1999 88,287,792.00 251,507,903.13 163,220,111.13 184.90%252[8]
In view of the above findings, assessment notices together with a formal letter
of demand dated August 7, 2002 were sent to LMCEC through personal service on
October 1, 2002.253[9] Since the company and its representatives refused to receive the








said notices and demand letter, the revenue officers resorted to constructive
service254[10] in accordance with Section 3, Revenue Regulations (RR) No. 12-
99255[11].
On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno,
Jr., referred to the Secretary of Justice for preliminary investigation its complaint against
LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in their capacities
as President and Comptroller, respectively. The case was docketed as I.S. No. 2003-774.
In the Joint Affidavit executed by the revenue officers who conducted the tax fraud
investigation, it was alleged that despite the receipt of the final assessment notice and
formal demand letter on October 1, 2002, LMCEC failed and refused to pay the deficiency
tax assessment in the total amount of P630,164,631.61, inclusive of increments, which
had become final and executory as a result of the said taxpayers failure to file a protest
thereon within the thirty (30)-day reglementary period.256[12]
Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC
cannot be held liable whatsoever for the alleged tax deficiency which had become due and
demandable. Considering that the complaint and its annexes all showed that the suit is a
simple civil action for collection and not a tax evasion case, the Department of Justice
(DOJ) is not the proper forum for BIRs complaint. They also assail as invalid the








127

assessment notices which bear no serial numbers and should be shown to have been
validly served by an Affidavit of Constructive Service executed and sworn to by the
revenue officers who served the same. As stated in LMCECs letter-protest dated
December 12, 2002 addressed to Revenue District Officer (RDO) Clavelina S. Nacar of RD
No. 40, Cubao, Quezon City, the company had already undergone a series of routine
examinations for the years 1997, 1998 and 1999; under the NIRC, only one examination
of the books of accounts is allowed per taxable year.257[13]
LMCEC further averred that it had availed of the Bureaus Tax Amnesty
Programs (Economic Recovery Assistance Payment [ERAP] Program and the Voluntary
Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability was terminated
and closed under Letter of Termination258[14] dated June 1, 1999 issued by petitioner
and signed by the Chief of the Assessment Division.259[15] LMCEC claimed it made
payments of income tax, VAT and expanded withholding tax (EWT), as follows:
TAXABLE
YEAR
AMOUNT OF TAXES
PAID
1997 Termination Letter Under
Letter of Authority No.
174600 Dated November 4,
1998
EWT - P 6,000.00
VAT -
540,605.02
IT -
3,000.00







1998 ERAP Program pursuant
to RR #2-99
WC -
38,404.55
VAT -
61,635.40
1999 VAP Program pursuant
to RR #8-2001
IT -
878,495.28
VAT -
1,324,317.00260[16]

LMCEC argued that petitioner is now estopped from further taking any action
against it and its corporate officers concerning the taxable years 1997 to 1999. With the
grant of immunity from audit from the companys availment of ERAP and VAP, which have
a feature of a tax amnesty, the element of fraud is negated the moment the Bureau
accepts the offer of compromise or payment of taxes by the taxpayer. The act of the
revenue officers in finding justification under Section 6(B) of the NIRC (Best Evidence
Obtainable) is misplaced and unavailing because they were not able to open the books of
the company for the second time, after the routine examination, issuance of termination
letter and the availment of ERAP and VAP. LMCEC thus maintained that unless there is a
prior determination of fraud supported by documents not yet incorporated in the docket of
the case, petitioner cannot just issue LAs without first terminating those previously issued.
It emphasized the fact that the BIR officers who filed and signed the Affidavit-Complaint
in this case were the same ones who appeared as complainants in an earlier case filed
against Camus for his alleged failure to obey summons in violation of Section 5
punishable under Section 266 of the NIRC of 1997 (I.S. No. 00-956 of the Office of the
City Prosecutor of Quezon City). After preliminary investigation, said case was dismissed
for lack of probable cause in a Resolution issued by the Investigating Prosecutor on May
2, 2001.261[17]




128

LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN
issued by petitioner for having no basis in fact and law. However, until now the said
protest remains unresolved. As to the alleged informant who purportedly supplied the
confidential information, LMCEC believes that such person is fictitious and his true
identity and personality could not be produced. Hence, this case is another form of
harassment against the company as what had been found by the Office of the City
Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both have
something to do with the audit/examination of LMCEC for taxable years 1997, 1998 and
1999 pursuant to LA No. 00009361.262[18]
In the Joint Reply-Affidavit executed by the Bureaus revenue officers, petitioner
disagreed with the contention of LMCEC that the complaint filed is not criminal in nature,
pointing out that LMCEC and its officers Camus and Mendoza were being charged for the
criminal offenses defined and penalized under Sections 254 (Attempt to Evade or Defeat
Tax) and 255 (Willful Failure to Pay Tax) of the NIRC. This finds support in Section 205 of
the same Code which provides for administrative (distraint, levy, fine, forfeiture, lien, etc.)
and judicial (criminal or civil action) remedies in order to enforce collection of taxes. Both
remedies may be pursued either independently or simultaneously. In this case, the BIR
decided to simultaneously pursue both remedies and thus aside from this criminal action,
the Bureau also initiated administrative proceedings against LMCEC.263[19]
On the lack of control number in the assessment notice, petitioner explained
that such is a mere office requirement in the Assessment Service for the purpose of
internal control and monitoring; hence, the unnumbered assessment notices should not






be interpreted as irregular or anomalous. Petitioner stressed that LMCEC already lost its
right to file a protest letter after the lapse of the thirty (30)-day reglementary period.
LMCECs protest-letter dated December 12, 2002 to RDO Clavelina S. Nacar, RD No. 40,
Cubao, Quezon City was actually filed only on December 16, 2002, which was disregarded
by the petitioner for being filed out of time. Even assuming for the sake of argument that
the assessment notices were invalid, petitioner contended that such could not affect the
present criminal action,264[20] citing the ruling in the landmark case of Ungab v. Cusi,
Jr.265[21]
As to the Letter of Termination signed by Ruth Vivian G. Gandia of the
Assessment Division, Revenue Region No. 7, Quezon City, petitioner pointed out that
LMCEC failed to mention that the undated Certification issued by RDO Pablo C. Cabreros,
Jr. of RD No. 40, Cubao, Quezon City stated that the report of the 1997 Internal Revenue
taxes of LMCEC had already been submitted for review and approval of higher authorities.
LMCEC also cannot claim as excuse from the reopening of its books of accounts the
previous investigations and examinations. Under Section 235 (a), an exception was
provided in the rule on once a year audit examination in case of fraud, irregularity or
mistakes, as determined by the Commissioner. Petitioner explained that the distinction
between a Regular Audit Examination and Tax Fraud Audit Examination lies in the fact
that the former is conducted by the district offices of the Bureaus Regional Offices, the
authority emanating from the Regional Director, while the latter is conducted by the TFD





129

of the National Office only when instances of fraud had been determined by the
petitioner.266[22]
Petitioner further asserted that LMCECs claim that it was granted immunity
from audit when it availed of the VAP and ERAP programs is misleading. LMCEC failed to
state that its availment of ERAP under RR No. 2-99 is not a grant of absolute immunity
from audit and investigation, aside from the fact that said program was only for income
tax and did not cover VAT and withholding tax for the taxable year 1998. As for LMCECS
availment of VAP in 1999 under RR No. 8-2001 dated August 1, 2001 as amended by RR
No. 10-2001 dated September 3, 2001, the company failed to state that it covers only
income tax and VAT, and did not include withholding tax. However, LMCEC is not actually
entitled to the benefits of VAP under Section 1 (1.1 and 1.2) of RR No. 10-2001. As to
the principle of estoppel invoked by LMCEC, estoppel clearly does not lie against the BIR
as this involved the exercise of an inherent power by the government to collect
taxes.267[23]
Petitioner also pointed out that LMCECs assertion correlating this case with I.S.
No. 00-956 is misleading because said case involves another violation and offense
(Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the failure of
LMCEC to submit or present its books of accounts and other accounting records for
examination despite the issuance of subpoena duces tecum against Camus in his capacity
as President of LMCEC. While indeed a Resolution was issued by Asst. City Prosecutor
Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is still on appeal and
pending resolution by the DOJ. The determination of probable cause in said case is





confined to the issue of whether there was already a violation of the NIRC by Camus in
not complying with the subpoena duces tecum issued by the BIR.268[24]
Petitioner contended that precisely the reason for the issuance to the TFD of LA
No. 00009361 by the Commissioner is because the latter agreed with the findings of the
investigating revenue officers that fraud exists in this case. In the conduct of their
investigation, the revenue officers observed the proper procedure under Revenue
Memorandum Order (RMO) No. 49-2000 wherein it is required that before the issuance of a
Letter of Authority against a particular taxpayer, a preliminary investigation should first be
conducted to determine if a prima facie case for tax fraud exists. As to the allegedly
unresolved protest filed on April 20, 2001 by LMCEC over the PAN, this has been disregarded
by the Bureau for being pro forma and having been filed beyond the 15-day reglementary
period. A subsequent letter dated April 20, 2001 was filed with the TFD and signed by a
certain Juan Ventigan. However, this was disregarded and considered a mere scrap of paper
since the said signatory had not shown any prior authorization to represent LMCEC. Even
assuming said protest letter was validly filed on behalf of the company, the issuance of a
Formal Demand Letter and Assessment Notice through constructive service on October 1,
2002 is deemed an implied denial of the said protest. Lastly, the details regarding the
informer being confidential, such information is entitled to some degree of protection,
including the identity of the informant against LMCEC.269[25]
In their Joint Rejoinder-Affidavit,270[26] Camus and Mendoza reiterated their
argument that the identity of the alleged informant is crucial to determine if he/she is






130

qualified under Section 282 of the NIRC. Moreover, there was no assessment that has
already become final, the validity of its issuance and service has been put in issue being
anomalous, irregular and oppressive. It is contended that for criminal prosecution to
proceed before assessment, there must be a prima facie showing of a willful attempt to
evade taxes. As to LMCECs availment of the VAP and ERAP programs, the certificate of
immunity from audit issued to it by the BIR is plain and simple, but petitioner is now
saying it has the right to renege with impunity from its undertaking. Though petitioner
deems LMCEC not qualified to avail of the benefits of VAP, it must be noted that if it is
true that at the time the petitioner filed I.S. No. 00-956 sometime in January 2001 it had
already in its custody that Confidential Information No. 29-2000 dated July 7, 2000,
these revenue officers could have rightly filed the instant case and would not resort to
filing said criminal complaint for refusal to comply with a subpoena duces tecum.
On September 22, 2003, the Chief State Prosecutor issued a Resolution271[27]
finding no sufficient evidence to establish probable cause against respondents LMCEC,
Camus and Mendoza. It was held that since the payments were made by LMCEC under
ERAP and VAP pursuant to the provisions of RR Nos. 2-99 and 8-2001 which were offered
to taxpayers by the BIR itself, the latter is now in estoppel to insist on the criminal
prosecution of the respondent taxpayer. The voluntary payments made thereunder are in
the nature of a tax amnesty. The unnumbered assessment notices were found highly
irregular and thus their validity is suspect; if the amounts indicated therein were collected,
it is uncertain how these will be accounted for and if it would go to the coffers of the
government or elsewhere. On the required prior determination of fraud, the Chief State
Prosecutor declared that the Office of the City Prosecutor in I.S. No. 00-956 has already
squarely ruled that (1) there was no prior determination of fraud, (2) there was
indiscriminate issuance of LAs, and (3) the complaint was more of harassment. In view
of such findings, any ensuing LA is thus defective and allowing the collection on the




assailed assessment notices would already be in the context of a fishing expedition or
witch-hunting. Consequently, there is nothing to speak of regarding the finality of
assessment notices in the aggregate amount of P630,164,631.61.
Petitioner filed a motion for reconsideration which was denied by the Chief State
Prosecutor.272[28]
Petitioner appealed to respondent Secretary of Justice but the latter denied its
petition for review under Resolution dated December 13, 2005.273[29]
The Secretary of Justice found that petitioners claim that there is yet no finality
as to LMCECs payment of its 1997 taxes since the audit report was still pending review by
higher authorities, is unsubstantiated and misplaced. It was noted that the Termination
Letter issued by the Commissioner on June 1, 1999 is explicit that the matter is
considered closed. As for taxable year 1998, respondent Secretary stated that the record
shows that LMCEC paid VAT and withholding tax in the amount of P61,635.40 and
P38,404.55, respectively. This eventually gave rise to the issuance of a certificate of
immunity from audit for 1998 by the Office of the Commissioner of Internal Revenue. For
taxable year 1999, respondent Secretary found that pursuant to earlier LA No. 38633
dated July 4, 2000, LMCECs 1999 tax liabilities were still pending investigation for which
reason LMCEC assailed the subsequent issuance of LA No. 00009361 dated August 25,
2000 calling for a similar investigation of its alleged 1999 tax deficiencies when no final
determination has yet been arrived on the earlier LA No. 38633.274[30]






131

On the allegation of fraud, respondent Secretary ruled that petitioner failed to
establish the existence of the following circumstances indicating fraud in the settlement of
LMCECs tax liabilities: (1) there must be intentional and substantial understatement of tax
liability by the taxpayer; (2) there must be intentional and substantial overstatement of
deductions or exemptions; and (3) recurrence of the foregoing circumstances. First,
petitioner miserably failed to explain why the assessment notices were unnumbered;
second, the claim that the tax fraud investigation was precipitated by an alleged
informant has not been corroborated nor was it clearly established, hence there is no
other conclusion but that the Bureau engaged in a fishing expedition; and furthermore,
petitioners course of action is contrary to Section 235 of the NIRC allowing only once in a
given taxable year such examination and inspection of the taxpayers books of accounts
and other accounting records. There was no convincing proof presented by petitioner to
show that the case of LMCEC falls under the exceptions provided in Section 235.
Respondent Secretary duly considered the issuance of Certificate of Immunity from Audit
and Letter of Termination dated June 1, 1999 issued to LMCEC.275[31]
Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the
Secretary of Justice found petitioner to have engaged in forum shopping in view of the
fact that while there is still pending an appeal from the Resolution of the City Prosecutor
of Quezon City in said case, petitioner hurriedly filed the instant case, which not only
involved the same parties but also similar substantial issues (the joint complaint-affidavit
also alleged the issuance of LA No. 00009361 dated August 25, 2000). Clearly, the
evidence of litis pendentia is present. Finally, respondent Secretary noted that if indeed
LMCEC committed fraud in the settlement of its tax liabilities, then at the outset, it should
have been discovered by the agents of petitioner, and consequently petitioner should not
have issued the Letter of Termination and the Certificate of Immunity From Audit.




Petitioner thus should have been more circumspect in the issuance of said
documents.276[32]
Its motion for reconsideration having been denied, petitioner challenged the
ruling of respondent Secretary via a certiorari petition in the CA.
On October 31, 2006, the CA rendered the assailed decision277[33] denying the
petition and concurred with the findings and conclusions of respondent Secretary.
Petitioners motion for reconsideration was likewise denied by the appellate court.278[34]
It appears that entry of judgment was issued by the CA stating that its October 31, 2006
Decision attained finality on March 25, 2007.279[35] However, the said entry of judgment
was set aside upon manifestation by the petitioner that it has filed a petition for review
before this Court subsequent to its receipt of the Resolution dated March 6, 2007 denying
petitioners motion for reconsideration on March 20, 2007.280[36]











132

The petition is anchored on the following grounds:
I.
The Honorable Court of Appeals erroneously sustained the findings of
the Secretary of Justice who gravely abused his discretion by
dismissing the complaint based on grounds which are not even
elements of the offenses charged.
II.
The Honorable Court of Appeals erroneously sustained the findings of
the Secretary of Justice who gravely abused his discretion by
dismissing petitioners evidence, contrary to law.
III.
The Honorable Court of Appeals erroneously sustained the findings of
the Secretary of Justice who gravely abused his discretion by
inquiring into the validity of a Final Assessment Notice which has
become final, executory and demandable pursuant to Section 228 of
the Tax Code of 1997 for failure of private respondent to file a protest
against the same.281[37]
The core issue to be resolved is whether LMCEC and its corporate officers may
be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255
(Willful Failure to Supply Correct and Accurate Information and Pay Tax).
Petitioner filed the criminal complaint against the private respondents for
violation of the following provisions of the NIRC, as amended:
SEC. 254. Attempt to Evade or Defeat Tax. Any person
who willfully attempts in any manner to evade or defeat any tax
imposed under this Code or the payment thereof shall, in addition to
other penalties provided by law, upon conviction thereof, be punished
by a fine of not less than Thirty thousand pesos (P30,000) but not
more than One hundred thousand pesos (P100,000) and suffer



imprisonment of not less than two (2) years but not more than four
(4) years: Provided, That the conviction or acquittal obtained under
this Section shall not be a bar to the filing of a civil suit for the
collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and
Accurate Information, Pay Tax, Withhold and Remit Tax and Refund
Excess Taxes Withheld on Compensation. Any person required
under this Code or by rules and regulations promulgated thereunder
to pay any tax, make a return, keep any record, or supply any correct
and accurate information, who willfully fails to pay such tax, make
such return, keep such record, or supply such correct and accurate
information, or withhold or remit taxes withheld, or refund excess
taxes withheld on compensations at the time or times required by law
or rules and regulations shall, in addition to other penalties provided
by law, upon conviction thereof, be punished by a fine of not less
than Ten thousand pesos (P10,000) and suffer imprisonment of not
less than one (1) year but not more than ten (10) years.

x x x x (Emphasis supplied.)
Respondent Secretary concurred with the Chief State Prosecutors conclusion
that there is insufficient evidence to establish probable cause to charge private
respondents under the above provisions, based on the following findings: (1) the tax
deficiencies of LMCEC for taxable years 1997, 1998 and 1999 have all been settled or
terminated, as in fact LMCEC was issued a Certificate of Immunity and Letter of
Termination, and availed of the ERAP and VAP programs; (2) there was no prior
determination of the existence of fraud; (3) the assessment notices are unnumbered,
hence irregular and suspect; (4) the books of accounts and other accounting records may
be subject to audit examination only once in a given taxable year and there is no proof
that the case falls under the exceptions provided in Section 235 of the NIRC; and (5)
petitioner committed forum shopping when it filed the instant case even as the earlier
criminal complaint (I.S. No. 00-956) dismissed by the City Prosecutor of Quezon City was
still pending appeal.
Petitioner argues that with the finality of the assessment due to failure of the
private respondents to challenge the same in accordance with Section 228 of the NIRC,
respondent Secretary has no jurisdiction and authority to inquire into its validity.
133

Respondent taxpayer is thereby allowed to do indirectly what it cannot do directly to
raise a collateral attack on the assessment when even a direct challenge of the same is
legally barred. The rationale for dismissing the complaint on the ground of lack of control
number in the assessment notice likewise betrays a lack of awareness of tax laws and
jurisprudence, such circumstance not being an element of the offense. Worse, the final,
conclusive and undisputable evidence detailing a crime under our taxation laws is swept
under the rug so easily on mere conspiracy theories imputed on persons who are not even
the subject of the complaint.
We grant the petition.
There is no dispute that prior to the filing of the complaint with the DOJ, the
report on the tax fraud investigation conducted on LMCEC disclosed that it made
substantial underdeclarations in its income tax returns for 1997, 1998 and 1999. Pursuant
to RR No. 12-99,282[38] a PAN was sent to and received by LMCEC on February 22, 2001
wherein it was notified of the proposed assessment of deficiency taxes amounting to
P430,958,005.90 (income tax - P318,606,380.19 and VAT - P112,351,625.71) covering
taxable years 1997, 1998 and 1999.283[39] In response to said PAN, LMCEC sent a
letter-protest to the TFD, which denied the same on April 12, 2001 for lack of legal and
factual basis and also for having been filed beyond the 15-day reglementary
period.284[40]







As mentioned in the PAN, the revenue officers were not given the opportunity
to examine LMCECs books of accounts and other accounting records because its officers
failed to comply with the subpoena duces tecum earlier issued, to verify its alleged
underdeclarations of income reported by the Bureaus informant under Section 282 of the
NIRC. Hence, a criminal complaint was filed by the Bureau against private respondents
for violation of Section 266 which provides:
SEC. 266. Failure to Obey Summons. Any person who,
being duly summoned to appear to testify, or to appear and produce
books of accounts, records, memoranda, or other papers, or to
furnish information as required under the pertinent provisions of this
Code, neglects to appear or to produce such books of accounts,
records, memoranda, or other papers, or to furnish such information,
shall, upon conviction, be punished by a fine of not less than Five
thousand pesos (P5,000) but not more than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year but
not more than two (2) years.
It is clear that I.S. No. 00-956 involves a separate offense and hence litis
pendentia is not present considering that the outcome of I.S. No. 00-956 is not
determinative of the issue as to whether probable cause exists to charge the private
respondents with the crimes of attempt to evade or defeat tax and willful failure to supply
correct and accurate information and pay tax defined and penalized under Sections 254
and 255, respectively. For the crime of tax evasion in particular, compliance by the
taxpayer with such subpoena, if any had been issued, is irrelevant. As we held in Ungab
v. Cusi, Jr.,285[41] [t]he crime is complete when the [taxpayer] has x x x knowingly and
willfully filed [a] fraudulent [return] with intent to evade and defeat x x x the tax. Thus,
respondent Secretary erred in holding that petitioner committed forum shopping when it
filed the present criminal complaint during the pendency of its appeal from the City
Prosecutors dismissal of I.S. No. 00-956 involving the act of disobedience to the
summons in the course of the preliminary investigation on LMCECs correct tax liabilities
for taxable years 1997, 1998 and 1999.



134

In the Details of Discrepancies attached as Annex B of the PAN,286[42] private
respondents were already notified that inasmuch as the revenue officers were not given
the opportunity to examine LMCECs books of accounts, accounting records and other
documents, said revenue officers gathered information from third parties. Such procedure
is authorized under Section 5 of the NIRC, which provides:
SEC. 5. Power of the Commissioner to Obtain Information,
and to Summon, Examine, and Take Testimony of Persons. In
ascertaining the correctness of any return, or in making a return
when none has been made, or in determining the liability of any
person for any internal revenue tax, or in collecting any such liability,
or in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record or other data which
may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than
the person whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned or -controlled
corporations, any information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of
taxpayers, and the names, addresses, and financial statements of
corporations, mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint accounts,
associations, joint ventures or consortia and registered partnerships,
and their members;
(C) To summon the person liable for tax or required to file a
return, or any officer or employee of such person, or any person
having possession, custody, or care of the books of accounts and
other accounting records containing entries relating to the business of
the person liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a time and
place specified in the summons and to produce such books, papers,
records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under
oath, as may be relevant or material to such inquiry; x x x



x x x x (Emphasis supplied.)
Private respondents assertions regarding the qualifications of the informer of
the Bureau deserve scant consideration. We have held that the lack of consent of the
taxpayer under investigation does not imply that the BIR obtained the information from
third parties illegally or that the information received is false or malicious. Nor does the
lack of consent preclude the BIR from assessing deficiency taxes on the taxpayer based
on the documents.287[43] In the same vein, herein private respondents cannot be
allowed to escape criminal prosecution under Sections 254 and 255 of the NIRC by mere
imputation of a fictitious or disqualified informant under Section 282 simply because
other than disclosure of the official registry number of the third party informer, the
Bureau insisted on maintaining the confidentiality of the identity and personal
circumstances of said informer.
Subsequently, petitioner sent to LMCEC by constructive service allowed under
Section 3 of RR No. 12-99, assessment notice and formal demand informing the said
taxpayer of the law and the facts on which the assessment is made, as required by
Section 228 of the NIRC. Respondent Secretary, however, fully concurred with private
respondents contention that the assessment notices were invalid for being unnumbered
and the tax liabilities therein stated have already been settled and/or terminated.
We do not agree.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to
respond to a Pre-Assessment Notice (PAN) within the prescribed
period of time, or whose reply to the PAN was found to be without
merit. The Notice of Assessment shall inform the [t]axpayer of this
fact, and that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course.



135

The formal letter of demand calling for payment of the taxpayers
deficiency tax or taxes shall state the fact, the law, rules and
regulations or jurisprudence on which the assessment is based,
otherwise the formal letter of demand and the notice of assessment
shall be void.288[44]
As it is, the formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should inform the
taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal letter
of demand and the notice of assessment shall be void if the former failed to state the fact,
the law, rules and regulations or jurisprudence on which the assessment is based, which is
a mandatory requirement under Section 228 of the NIRC.
Section 228 of the NIRC provides that the taxpayer shall be informed in writing
of the law and the facts on which the assessment is made. Otherwise, the assessment is
void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was
enacted. Section 3.1.4 of the revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment Notice.
The formal letter of demand and assessment notice shall be issued by
the Commissioner or his duly authorized representative. The letter of
demand calling for payment of the taxpayers deficiency tax or taxes
shall state the facts, the law, rules and regulations, or jurisprudence
on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent
to the taxpayer only by registered mail or by personal delivery. x x
x.289[45] (Emphasis supplied.)





The Formal Letter of Demand dated August 7, 2002 contains not only a detailed
computation of LMCECs tax deficiencies but also details of the specified discrepancies,
explaining the legal and factual bases of the assessment. It also reiterated that in the
absence of accounting records and other documents necessary for the proper
determination of the companys internal revenue tax liabilities, the investigating revenue
officers resorted to the Best Evidence Obtainable as provided in Section 6(B) of the
NIRC (third party information) and in accordance with the procedure laid down in RMC
No. 23-2000 dated November 27, 2000. Annex A of the Formal Letter of Demand thus
stated:
Thus, to verify the validity of the information previously
provided by the informant, the assigned revenue officers resorted to
third party information. Pursuant to Section 5(B) of the NIRC of
1997, access letters requesting for information and the submission of
certain documents (i.e., Certificate of Income Tax Withheld at Source
and/or Alphabetical List showing the income payments made to L.M.
Camus Engineering Corporation for the taxable years 1997 to 1999)
were sent to the various clients of the subject corporation, including
but not limited to the following:
1. Ayala Land Inc.
2. Filinvest Alabang Inc.
3. D.M. Consunji, Inc.
4. SM Prime Holdings, Inc.
5. Alabang Commercial Corporation
6. Philam Properties Corporation
7. SM Investments, Inc.
8. Shoemart, Inc.
9. Philippine Securities Corporation
10. Makati Development Corporation
From the documents gathered and the data obtained therein,
the substantial underdeclaration as defined under Section 248(B) of
the NIRC of 1997 by your corporation of its income had been
confirmed. x x x x290[46] (Emphasis supplied.)



136

In the same letter, Assistant Commissioner Percival T. Salazar informed private
respondents that the estimated tax liabilities arising from LMCECs underdeclaration
amounted to P186,773,600.84 in 1997, P150,069,323.81 in 1998 and P163,220,111.13 in
1999. These figures confirmed that the non-declaration by LMCEC for the taxable years
1997, 1998 and 1999 of an amount exceeding 30% income291[47] declared in its return
is considered a substantial underdeclaration of income, which constituted prima facie
evidence of false or fraudulent return under Section 248(B)292[48] of the NIRC, as
amended.293[49]
On the alleged settlement of the assessed tax deficiencies by private
respondents, respondent Secretary found the latters claim as meritorious on the basis of
the Certificate of Immunity From Audit issued on December 6, 1999 pursuant to RR No. 2-
99 and Letter of Termination dated June 1, 1999 issued by Revenue Region No. 7 Chief of
Assessment Division Ruth Vivian G. Gandia. Petitioner, however, clarified that the
certificate of immunity from audit covered only income tax for the year 1997 and does not
include VAT and withholding taxes, while the Letter of Termination involved tax liabilities
for taxable year 1997 (EWT, VAT and income taxes) but which was submitted for review
of higher authorities as per the Certification of RD No. 40 District Officer Pablo C.
Cabreros, Jr.294[50] For 1999, private respondents supposedly availed of the VAP
pursuant to RR No. 8-2001.








RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that
considering the scarcity of financial and human resources as well as the time constraints
within which the Bureau has to clean the Bureaus backlog of unaudited tax returns in
order to keep updated and be focused with the most current accounts in preparation for
the full implementation of a computerized tax administration, the said revenue regulation
was issued providing for last priority in audit and investigation of tax returns to
accomplish the said objective without, however, compromising the revenue collection
that would have been generated from audit and enforcement activities. The program
named as Economic Recovery Assistance Payment (ERAP) Program granted immunity
from audit and investigation of income tax, VAT and percentage tax returns for 1998. It
expressly excluded withholding tax returns (whether for income, VAT, or percentage tax
purposes). Since such immunity from audit and investigation does not preclude the
collection of revenues generated from audit and enforcement activities, it follows that the
Bureau is likewise not barred from collecting any tax deficiency discovered as a result of
tax fraud investigations. Respondent Secretarys opinion that RR No. 2-99 contains the
feature of a tax amnesty is thus misplaced.
Tax amnesty is a general pardon to taxpayers who want to start a clean tax
slate. It also gives the government a chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax case.295[51] Even assuming
arguendo that the issuance of RR No. 2-99 is in the nature of tax amnesty, it bears noting
that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and
if granted by statute, the terms of the amnesty like that of a tax exemption must be
construed strictly against the taxpayer and liberally in favor of the taxing
authority.296[52]





137

For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as
amended by RR No. 10-2001, through payment supposedly made in October 29, 2001
before the said program ended on October 31, 2001, did not amount to settlement of its
assessed tax deficiencies for the period 1997 to 1999, nor immunity from prosecution for
filing fraudulent return and attempt to evade or defeat tax. As correctly asserted by
petitioner, from the express terms of the aforesaid revenue regulations, LMCEC is not
qualified to avail of the VAP granting taxpayers the privilege of last priority in the audit
and investigation of all internal revenue taxes for the taxable year 2000 and all prior years
under certain conditions, considering that first, it was issued a PAN on February 19, 2001,
and second, it was the subject of investigation as a result of verified information filed by a
Tax Informer under Section 282 of the NIRC duly recorded in the BIR Official Registry as
Confidential Information (CI) No. 29-2000297[53] even prior to the issuance of the PAN.
Section 1 of RR No. 8-2001 provides:
SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including estates and trusts,
liable to pay any of the above-cited internal revenue taxes for the
above specified period/s who, due to inadvertence or otherwise,
erroneously paid his internal revenue tax liabilities or failed to file tax
return/pay taxes may avail of the Voluntary Assessment Program
(VAP), except those falling under any of the following instances:
1.1 Those covered by a Preliminary Assessment Notice
(PAN), Final Assessment Notice (FAN), or Collection Letter issued on
or before July 31, 2001; or
1.2 Persons under investigation as a result of verified
information filed by a Tax Informer under Section 282 of the Tax
Code of 1997, duly processed and recorded in the BIR Official
Registry Book on or before July 31, 2001;




1.3 Tax fraud cases already filed and pending in courts for
adjudication; and
x x x x (Emphasis supplied.)
Moreover, private respondents cannot invoke LMCECs availment of VAP to
foreclose any subsequent audit of its account books and other accounting records in view
of the strong finding of underdeclaration in LMCECs payment of correct income tax
liability by more than 30% as supported by the written report of the TFD detailing the
facts and the law on which such finding is based, pursuant to the tax fraud investigation
authorized by petitioner under LA No. 00009361. This conclusion finds support in Section
2 of RR No. 8-2001 as amended by RR No. 10-2001 provides:
SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE
VAP. A taxpayer who has availed of the VAP shall not be audited
except upon authorization and approval of the Commissioner of
Internal Revenue when there is strong evidence or finding of
understatement in the payment of taxpayers correct tax liability by
more than thirty percent (30%) as supported by a written report of
the appropriate office detailing the facts and the law on which such
finding is based: Provided, however, that any VAP payment should be
allowed as tax credit against the deficiency tax due, if any, in case the
concerned taxpayer has been subjected to tax audit.
x x x x
Given the explicit conditions for the grant of immunity from audit under RR No.
2-99, RR No. 8-2001 and RR No. 10-2001, we hold that respondent Secretary gravely
erred in declaring that petitioner is now estopped from assessing any tax deficiency
against LMCEC after issuance of the aforementioned documents of immunity from
audit/investigation and settlement of tax liabilities. It is axiomatic that the State can
never be in estoppel, and this is particularly true in matters involving taxation. The errors
of certain administrative officers should never be allowed to jeopardize the governments
financial position.298[54]



138

Respondent Secretarys other ground for assailing the course of action taken by
petitioner in proceeding with the audit and investigation of LMCEC -- the alleged violation
of the general rule in Section 235 of the NIRC allowing the examination and inspection of
taxpayers books of accounts and other accounting records only once in a taxable year --
is likewise untenable. As correctly pointed out by petitioner, the discovery of substantial
underdeclarations of income by LMCEC for taxable years 1997, 1998 and 1999 upon
verified information provided by an informer under Section 282 of the NIRC, as well as
the necessity of obtaining information from third parties to ascertain the correctness of
the return filed or evaluation of tax compliance in collecting taxes (as a result of the
disobedience to the summons issued by the Bureau against the private respondents), are
circumstances warranting exception from the general rule in Section 235.299[55]
As already stated, the substantial underdeclared income in the returns filed by
LMCEC for 1997, 1998 and 1999 in amounts equivalent to more than 30% (the
computation in the final assessment notice showed underdeclarations of almost 200%)
constitutes prima facie evidence of fraudulent return under Section 248(B) of the NIRC.
Prior to the issuance of the preliminary and final notices of assessment, the revenue
officers conducted a preliminary investigation on the information and documents showing
substantial understatement of LMCECs tax liabilities which were provided by the Informer,
following the procedure under RMO No. 15-95.300[56] Based on the prima facie finding
of the existence of fraud, petitioner issued LA No. 00009361 for the TFD to conduct a
formal fraud investigation of LMCEC.301[57] Consequently, respondent Secretarys ruling







that the filing of criminal complaint for violation of Sections 254 and 255 of the NIRC
cannot prosper because of lack of prior determination of the existence of fraud, is bereft
of factual basis and contradicted by the evidence on record.
Tax assessments by tax examiners are presumed correct and made in good
faith, and all presumptions are in favor of the correctness of a tax assessment unless
proven otherwise.302[58] We have held that a taxpayers failure to file a petition for
review with the Court of Tax Appeals within the statutory period rendered the disputed
assessment final, executory and demandable, thereby precluding it from interposing the
defenses of legality or validity of the assessment and prescription of the Governments
right to assess.303[59] Indeed, any objection against the assessment should have been
pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on
protests on assessments of internal revenue taxes.304[60]
Records bear out that the assessment notice and Formal Letter of Demand
dated August 7, 2002 were duly served on LMCEC on October 1, 2002. Private
respondents did not file a motion for reconsideration of the said assessment notice and
formal demand; neither did they appeal to the Court of Tax Appeals. Section 228 of the
NIRC305[61] provides the remedy to dispute a tax assessment within a certain period of









139

time. It states that an assessment may be protested by filing a request for reconsideration or
reinvestigation within 30 days from receipt of the assessment by the taxpayer. No such
administrative protest was filed by private respondents seeking reconsideration of the August
7, 2002 assessment notice and formal letter of demand. Private respondents cannot
belatedly assail the said assessment, which they allowed to lapse into finality, by raising
issues as to its validity and correctness during the preliminary investigation after the BIR has
referred the matter for prosecution under Sections 254 and 255 of the NIRC.
As we held in Marcos II v. Court of Appeals306[62]:
It is not the Department of Justice which is the government
agency tasked to determine the amount of taxes due upon the
subject estate, but the Bureau of Internal Revenue, whose
determinations and assessments are presumed correct and made in
good faith. The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official
duties, an assessment will not be disturbed. Even an assessment
based on estimates is prima facie valid and lawful where it does not
appear to have been arrived at arbitrarily or capriciously. The burden
of proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment. x x
x.
Moreover, these objections to the assessments should have
been raised, considering the ample remedies afforded the taxpayer by
the Tax Code, with the Bureau of Internal Revenue and the Court of
Tax Appeals, as described earlier, and cannot be raised now via
Petition for Certiorari, under the pretext of grave abuse of discretion.
The course of action taken by the petitioner reflects his disregard or
even repugnance of the established institutions for governance in the
scheme of a well-ordered society. The subject tax assessments
having become final, executory and enforceable, the same can no
longer be contested by means of a disguised protest. In the main,
Certiorari may not be used as a substitute for a lost appeal or
remedy. This judicial policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of government.
(Emphasis supplied.)



The determination of probable cause is part of the discretion granted to the
investigating prosecutor and ultimately, the Secretary of Justice. However, this Court and
the CA possess the power to review findings of prosecutors in preliminary investigations.
Although policy considerations call for the widest latitude of deference to the prosecutors
findings, courts should never shirk from exercising their power, when the circumstances
warrant, to determine whether the prosecutors findings are supported by the facts, or by
the law. In so doing, courts do not act as prosecutors but as organs of the judiciary,
exercising their mandate under the Constitution, relevant statutes, and remedial rules to
settle cases and controversies.307[63] Clearly, the power of the Secretary of Justice to
review does not preclude this Court and the CA from intervening and exercising our own
powers of review with respect to the DOJs findings, such as in the exceptional case in
which grave abuse of discretion is committed, as when a clear sufficiency or insufficiency
of evidence to support a finding of probable cause is ignored.308[64]
WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006
and Resolution dated March 6, 2007 of the Court of Appeals in CA-G.R. SP No. 93387 are
hereby REVERSED and SET ASIDE. The Secretary of Justice is hereby DIRECTED to order
the Chief State Prosecutor to file before the Regional Trial Court of Quezon City, National
Capital Judicial Region, the corresponding Information against L. M. Camus Engineering
Corporation, represented by its President Luis M. Camus and Comptroller Lino D.
Mendoza, for Violation of Sections 254 and 255 of the National Internal Revenue Code of
1997.
No costs.
SO ORDERED.





140



MARTIN S. VILLARAMA, JR.
Associate Justice










Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-61632 August 16, 1983
WESTERN MINOLCO CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,
respondents.
Raul Correa and Cenon Sorreta for petitioner.
The Solicitor General for respondents.

GUTIERREZ JR., J.:
This is a petition for review on certiorari of a Court of Tax Appeal's decision denying the
petitioner's claim for the refund of P1,317,801.03, representing Money market transaction
taxes which the petitioner paid from June 3, 1977 to August 5, 1977, and the resolution
denying its motion for reconsideration.
Petitioner is a domestic corporation engaged in mining, particularly copper concentrates
for export mined from mineral lands in Atok and Kibungan, Benguet.
In October 1972, upon application for tax exemption filed with the Bureau of Mines, the
petitioner was granted Certificate of Qualification for Tax Exemption No. 34.
On December 24, 1976, the petitioner was also granted by the Securities and Exchange
Commission, under Certificate of Renewal No. R-1056, authority to borrow money and
issue commercial papers. Pursuant to this authority, the petitioner borrowed funds from
several financial institutions from June, 1977 to October 1977 and paid the corresponding
35% transaction tax due thereon in the amount of P1,317,801.03, The tax was paid
pursuant to Section 210 (b) of the National Internal Revenue Code of 1977.
On February 16, 1978, the petitioner applied for the refund of the P1,317,801.03 alleging
that it was not liable to pay the 35% transaction tax under its Certificate of Qualification
for Tax Exemption No. 34 issued by the Secretary of Agriculture and Natural Resources,
and pursuant to Section 79-A of Commonwealth Act No. 137, otherwise known as The
Mining Act and Presidential Decree No. 463, the Mineral Resources Development Decree
of 1974, as implemented by Consolidated Mines Administrative Order of the Secretary of
Natural Resources dated May 17, 1974.
On February 19, 1979, the respondent Commissioner of internal Revenue denied the
petitioner's claim for refund.
On May 29, 1979, the petitioner filed a petition for review with the respondent Court of
Tax Appeals. On August 28, 1979, the Commissioner of Internal Revenue filed his answer
alleging inter alia that:
xxx xxx xxx
141

(a) The 35% transaction tax is actually a tax on the interest earnings
of the lender who is actually the taxpayer on whose income, the tax is
imposed;
(b) Petitioner did not pay the 35", transaction tax in its own behalf, as
this liability has been fully shifted to and paid for the account of the
lender:
(c) Petitioner merely acted as withholding agent in paying
(d) the 35% transaction tax based on the gross interest income of the
(e) lender;
(d) Petitioner's exemption from taxes granted under Sections 52 and
53 of Presidential Decree No. 463 relates to importations of
machineries, tools and equipment to be used in the mining operations
and taxes on mining claims, improvement thereon and mineral
products, whereas the 35% transaction tax is levied on transactions
pertaining to commercial papers issued in the primary money market
as principal instruments; in other words, Sections 52 and 53 of P.D.
463 do not apply to this case of petitioner.
After due hearing but before the respondent court could render its decision, the petitioner
filed a pleading entitled "Request for Judicial Notice and Request for Admission" alleging
that the subject tax was paid in the nature of a business tax, that petitioner's claim for
refund is based on its exemption from business taxes, and that its exemption is protected
by existing tax exemptions granted it under the mining law.
On January 29, 1982, the respondent court denied the petitioner's "Request for Judicial
Notice and Request for Admission. "
On May 21, 1982, the respondent court rendered its decision dismissing the petition for
review for lack of merit.
The petitioner raised the following assignments of errors:
Assignment of error No. 1
THAT THE TAX COURT ERRONEOUSLY CONCLUDED BY SUPPORTING
RESPONDENT COMMISSIONER'S CONTENTION THAT THE 35%
TRANSACTION TAX ON COMMERCIAL PAPER (INVOLVED IN THIS
CASE) IS AN INCOME TAX IMPOSED UPON THE INTEREST EARNINGS
OF THE MONEY LENDER WHO (ACCORDING TO THE TAX COURT) IS
ACTUALLY THE TAX PAYER ON WHOSE INCOME THE 35r7(, TAX IS
IMPOSED.
Assignment of Error No. 2
THAT THE TAX COURT ERRED IN THAT ITS CONCLUSIONS
CONTRAVENE THE MANDATES IN SAID P.D. No. 1154 (particularly
SEC. 2 OF WHICH) AMENDING SECTION 291b) OF THE 1977
REVENUE CODE BY EXCLUDING FROM GROSS INCOME' THE
'INTEREST EARNED ON COMMERCIAL PAPER ISSUED IN THE
PRIMARY MARKET (WHICH) SHALL NOT BE INCLUDED IN THE
DETERMINATION OF GROSS INCOME OF THE LENDER FOR
PURPOSES OF INCOME TAXATION
Assignment of Error No. 3
THAT THE TAX COURT ERRED IN CONFUSING TWO DISTINCT AND
SEPARATE ASPECTS OF THE TAXATION AND THE PERSONS OF THE
TAX PAYER AS IF THEY ARE ONE AND THE SAME PERSON, WHEN
THE LAW TREATS THEM AS TOTALLY DISTINCT AND SEPARATE
PERSONS AND ASPECTS THEREOF.-NAMELY: (A) THE INCIDENCE OF
THE TAX AND THE PERSON LEGALLY LIABLE FOR THE TAX; AND THE
(B) 'ACTUAL PAYOR' OR 'RESULTING PAYOR' OF THE 35, of
TRANSACTION TAX.
Assignment of Error No. 4
THAT THE TAX COURT ERRED IN RULING THAT THE 35%
TRANSACTION TAX IS AN INCOME TAX FROM WHICH MINOLCO IS
NOT EXEMPT AND NOT A BUSINESS TAX.
Assignment of Error No. 5
THAT THE TAX COURT ERRED IN CONFUSING THE 'INCIDENT OF
THE TAX AND THE ACTUAL PAYOR' OR 'RESULTING PAYOR' OF THE
35% TRANSACTION TAX; THAT CONFUSION OF THE TWO SEPARATE
PERSONS HAS RESULTED INTO THE ERRONEOUS CONCLUSION
THAT THE 35% TRANSACTION TAX IS AN INCOME TAX IMPOSED
UPON THE INTEREST EARNED BY THE MONEY LENDER INVOLVED IN
THE ISSUANCE OF THE COMMERCIAL PAPER UPON WHICH
INTEREST INCOME IS PAID OR COLLECTED: THAT THIS ERROR HAS
RESULTED IN RESPONDENT COMMISSIONER'S AND SHE TAX
COURT'S) VIEW THAT PETITIONER MINOLCO IS A WITHHOLDING
AGENT IN RESPECT OF THE INCOME TAX DUE TO BE WITHHELD ON
INTEREST INCOME OF MONEY LENDER.
142

Assignm
ent of
Error
No.6
THAT THE TAX COURT ERRED IN FAILING TO RECOGNIZE THAT
PETITIONER MINOLCO IS A QUALIFIED MINING LESSEE AND
DEVELOPER UNDER THE MINING LAW (C.A. No. t37, As Amended),
AND UNDER THE MINERAL RESOURCES DEVELOPMENT DECREE OF
1974 (P.D. No. 463, As Amended); THAT AS SUCH PETITIONER IS
EXEMPTED FROM ALL TAXES (EXEMPT INCOME TAX) PURSUANT TO
THE LAW AND THE IMPLEMENTING REGULATIONS THEREOF
(CONSOLIDATED MINES ADMINISTRATIVE ORDER, DATED AND
EFFECTIVE MAY 17,1975); FURTHER, THAT THE TAX COURT HAS
ERRONEOUSLY RULED TO IMPOSE THE INCOME TAX UPON
MINOLCO WHICH IS BASED ON SECTION 24 OF THE REVENUE CODE
AND MAY NOT BE THE SUBJECT OF THE LITIGATION AS PART OF
PETITIONER'S APPEAL BEFORE THE TAX COURT.
Assignment of Error No. 7
THAT RESPONDENT I HAVE FAILED TO CONSIDER THE 'WHEREAS
CLAUSES OF THE ENABLING ACT IMPOSING THE 35%
TRANSACTION TAX LAW (P.D. No. 1154) IN THE APPLICATION OF
THE LAW, TOGETHER WITH THE IMPLEMENTING REGULATIONS
THEREOF AS WELL AS THE 'WHEREAS CLAUSES OF THE REPEALING
LAW (P.D. No. 1739) WHICH RECOGNIZES PETITIONER'S RIGHT OF
RELIEF AGAINST THE TRANSACTION TAX (SEE PEOPLE VS.
PURISIMA, I,-42050-66; NOV. 20,1978; 86 SCRA 542).
The errors raised by the petitioner are grounded on one main issue, whether or not the
petitioner is exempt from the 35% transaction tax.
We find the alleged errors without merit.
The petitioner claims exemption from the 35% transaction tax on the basis of the
following statutory provisions:
(1) Sec. 1 of Republic Act No. 3823, amending Commonwealth Act
No. 137, otherwise known as the Mining Act" which reads:
Sec. 1. There is hereby inserted after Section
seventy-nine, Chapter VI of the Mining Act, a
new section which shall read as follows:
Sec. 79-A. However, new mines, and old mines
which resume operation, when certified to as
such by the Secretary of Agriculture and Natural
Resources upon the recommendation of the
Director of Mines, shall be granted five years
complete tax exemptions, except income tax,
from the time of its actual bona fide orders for
equipment for commercial production.
If any of the tax-exempt articles acquired under
this provision are sold, transferred or otherwise
disposed of within a period of five years from
such tax-exempt acquisition, all taxes and duties
which would have been due at the time of such
acquisition shall become due and payable,
together with all interests and surcharges, and
which amount shall constitute a lien on these
properties.
(2) Sec. I of Presidential Decree No. 237, amending the Tax Code, which reads:
Section 1. The last paragraph of Section One
hundred ninety of Commonwealth Act Numbered
Four hundred sixty-six, otherwise known as the
'National Internal Revenue Code' is further
amended to read as follows:
Sec. 190. Compensating Tax.
xxx xxx xxx
The provisions of existing laws to the contrary notwithstanding
exemption from this tax shall be limited to the following:
xxx xxx xxx
4. Machineries, equipment,
tools for production, plants
to convert mineral ores into
saleable form, spare parts,
supplies, materials,
accessories, explosives,
chemicals, and transportation
and communication facilities
imported by and for the use
of new mines and old mines
which resume operations,
143

when certified, to as such by
the Secretary of Agriculture
and Natural Resources upon
the recommendation of the
Director of Mines, for a
period ending five (5) years
frorn the first date of actual
commercial production of
saleable mineral products:
Provided That such articles
are not locally available in
reasonable quantity quality
and price and are necessary
or incidental in the proper
operation of the mine:
xxx xxx xxx
(3) Sec. 1 of P. D. No. 238, further amending the Tax Code, which reads:
Section 1. Section One hundred five of Republic
Act Numbered Nineteen hundred and thirty-
seven, otherwise known as the 'Tariff and
Customs Code of the Philippines,' is further
amended by inserting two new paragraphs '(u)
and '(v)' therein after paragraph '(t)' thereof
which shall read as follows:
Sec. 105. Conditionally-Free Importations
xxx xxx xxx
... Machineries, equipment, tools for production, plants to convert
mineral ores into saleable form, spare parts, supplies, materials,
accessories, explosives, chemicals, and transportation and
communication facilities imported by and for the use of new mines
and old mines which resume operations, when certified to as such by
the Secretary of Agriculture and Natural Resources upon the
recommendation of the Director of Mines, for a period ending five (5)
years from the first date of actual commercial production of saleable
mineral product; Provided That such articles are not locally available
in reasonable quantity, quality and price and are necessary or
incidental in the proper operation of the mine.
(4) Secs. 52 and 53 of Presidential Decree No. 463, amending Section 79-A,
Commonwealth Act No. 137, which read:
Sec. 52. Power to Levy Taxes on Mines. Mining
Operations and Mineral Products. Any law to
the contrary notwithstanding, no province, city,
municipality, barrio or municipal district shall levy
and collect taxes, fees, rentals, royalties or
charges of any kind whatsoever on mines, mining
claims, mineral products, or on any operation,
process or activity connected therewith.
Sec. 53. Tax Exemptions. Machineries
equipment, tools for production, plants to convert
mineral ores into saleable form, spare parts,
supplies, materials, accessories, explosives,
chemicals and transportation and communication
facilities imported by and for the use of new
mines and old mines which resume operation,
when certified as such by the Secretary upon
recommendation of the Director, are exempt
from the payment of customs duties and all taxes
except income tax for a period starting from
exploration and ending five (5) years from the
first date of actual commercial .production of
saleable mineral products: Provided, That such
articles are not locally available in reasonable
quantity, quality and price and are necessary or
incidental in the proper operation of the mine.
xxx xxx xxx
All mining claims, improvements thereon and
mineral products derived therefrom shall likewise
be exempt from the payment of all taxes, except
income tax, for the same period provided for in
the first paragraph of this section.
xxx xxx xxx
The statutory provisions on tax exemptions clearly exclude the 35% transaction tax.
Section 1 of Presidential Decree No. 237 on Compensating Tax, Section I of P.D. No. 238
on Conditionally Free Importations, and Section 53 of P.D. No. 463 all refer to tax
exemptions for importations of machineries, tools for production, plants to convert mineral
ores into saleable form, spare parts, supplies, materials, accessories, explosives, chemicals
and transportation and communication facilities, to be used in mining operations. Section
53 of P.D. No. 463 likewise refers to tax exemptions for mining claims and improvements
thereon, and mineral products, except income tax. The petitioner's Certificate of
Qualification for Tax Exemption No. 34 exempts "... from payment of all taxes except
income tax, payable by him in the conduct of his business and in the importation of
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machineries, spare parts and or equipment listed in the stamped "Annex I " which are
considered to be indispensable in the operation and will be used by said operator lessee
exclusively in the mineral land mentioned above.
Clearly, the transaction tax of P1,317,801.03 paid by the petitioner was not actually
imposed upon it in the conduct of its mining business or in the importation of machinery,
spare parts and or equipment listed in the stamped "ANNEX I" of its certificate of
qualification for tax exemption and which are indespensable in the operation and used
exclusively on petitioner's mineral land.
Petitioner submits that inasmuch as taxes in general constitute allowable deductions from
gross income in the determination of taxable net income, the 35% transaction tax is a
business tax and not an income tax because the Revenue Code itself classifies it as
"Business Tax" under Title V, and that P. D. No. 1154 expressly states that the transaction
tax shall be allowed as a deductible item for purposes of determining the borrower's
taxable income.
The petitioner's contentions deserve scant consideration, The 35%, transaction tax is
imposed on interest income from commercial papers issued in the primary money market.
Being a tax on interest, it is a tax on income.
As correctly ruled by the respondent Court of Tax Appeals:
Accordingly, we need not and do not think it necessary to discuss
further the nature of the transaction tax more than to say that the
incipient scheme in the issuance of Letter of Instructions No. 340 on
November 24, 1975 (O.G. Dec. 15, 1975), i.e., to achieve operational
simplicity and effective administration in capturing the interest-income
'windfall' from money market operations as a new source of revenue
has lost none of its animating principle in parturition of amendatory
Presidential decree No. 1154, now Section 210(b) of the Tax Code.
The tax thus imposed is actually a tax on interest earrings of the
lenders or placers who are actually the taxpayer,, in whose income is
imposed. Thus, "the borrower withholds the tax of 35% from the
interest he would have to pay the lender so that he (borrower) can
pay the 35% of the interest to the Government." (President Marcos,
Times Journal, June 17, 1977 cited in Respondent's Memorandum p.
6) ... Suffice it to state that the broad concensus of fiscal and
monetary authorities is that "even if nominally, the borrower is made
to pay the tax, actually the tax is on the interest earning of the
immediate and an prior lenders/placers of the money ... (Rollo, pp.
36-37)
The 35% transaction tax is an income tax on interest earnings to the lenders or placers
The latter are actually the taxpayers. Therefore, the tax cannot be a tax imposed upon
petitioner. In other words, the petitioner who borrowed funds from several financial
institutions by issuing commercial papers merely withheld the 35% transaction tax before
paying to the financial institutions the interests earned by them and later remitted the
same to the respondent Commissioner of Internal Revenue. The tax could have been
collected by a different procedure but the statute chose this method. Whatever collecting
procedure is adopted does not change the nature of the tax.
Furthermore, whether or not certain taxes are on income is not necessarily determined by
their deductibility or non-deductibility from gross income. As correctly observed by the
Solicitor General, income in the form of dividends, capital gains on real property pursuant
to Batas Pambansa Blg, 37, shares of stock pursuant to Presidential Decree 1739, and
interests on savings in bank accounts, for instance, are incomes, yet they are not
includible in the gross income when income taxes are paid because these are subject to
final withholding taxes.
The petitioner also submits that the 35% transaction tax is a business tax because it is
imposed under Title V, entitled -,Taxes on Business" and classified specially under Chapter
II, entitled "Tax on Business."
The location of the 35%, tax in the Tax Code does not necessarily determine its nature,
Again, we agree with the Solicitor General that the legislative body must have realized
later that. the subject tax was inappropriately included among the taxes on business
because Section 210 of the Tax Code has been repealed by Presidential Decree No. 1739,
which now imposes a tax of 20% on interests from deposits and yields from deposit
substitutes such as commercial papers issued in the primary market as principal
instrument and provides for them in Section 24(cc) under Chapter III, Tax on
Corporations, Title II-Income. Tax.
Petitioner Western Minolco Corporation has failed to justify its claimed exemption from the
35,7c, transaction tax. The decision of the Commissioner of Internal Revenue denying the
petitioner's claim for refund is affirmed. It bears repeating that the law looks with disfavor
on tax exemptions and he who would seek to be thus privileged must justify it by words
too plain to be mistaken and too categorical to be misinterpreted.
(Commissioner of Internal Revenue U. P. J Kiener Company Ltd, International
Construction Corporation et al., L,-24754, July 18, 1975, 65 SCRA 142).
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the
respondent Court of Tax Appeals is AFFIRMED: In toto. SO ORDERED.





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