Taxation Law Rev1

TAXATION LAW REVIEW
UNIVERSITY OF THE EAST COLLEGE OF LAW
G.R. No. L-17725
February 28, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants.
From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to
pay to plaintiff Republic of the Philippines the sum of P4,802.37 with 6% interest thereon from
the date of the filing of the complaint until fully paid, plus costs, defendant Mambulao Lumber
Company interposed the present appeal.1
The facts of the case are briefly stated in the decision of the trial court, to wit: .
The facts of this case are not contested and may be briefly summarized as follows: (a)
under the first cause of action, for forest charges covering the period from September 10,
1952 to May 24, 1953, defendants admitted that they have a liability of P587.37, which
liability is covered by a bond executed by defendant General Insurance & Surety
Corporation for Mambulao Lumber Company, jointly and severally in character, on July
29, 1953, in favor of herein plaintiff; (b) under the second cause of action, both
defendants admitted a joint and several liability in favor of plaintiff in the sum of
P296.70, also covered by a bond dated November 27, 1953; and (c) under the third
cause of action, both defendants admitted a joint and several liability in favor of plaintiff
for P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities
aggregate to P4,802.37. If the liability of defendants in favor of plaintiff in the amount
already mentioned is admitted, then what is the defense interposed by the defendants?
The defense presented by the defendants is quite unusual in more ways than one. It
appears from Exh. 3 that from July 31, 1948 to December 29, 1956, defendant Mambulao
Lumber Company paid to the Republic of the Philippines P8,200.52 for 'reforestation
charges' and for the period commencing from April 30, 1947 to June 24, 1948, said
defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'.
These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115
which provides that there shall be collected, in addition to the regular forest charges
provided under Section 264 of Commonwealth Act 466 known as the National Internal
Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and
removed from any public forest for commercial purposes. The amount collected shall be
expended by the director of forestry, with the approval of the secretary of agriculture and
commerce, for reforestation and afforestation of watersheds, denuded areas ... and other
public forest lands, which upon investigation, are found needing reforestation or
afforestation .... The total amount of the reforestation charges paid by Mambulao Lumber
Company is P9,127.50, and it is the contention of the defendant Mambulao Lumber
Company that since the Republic of the Philippines has not made use of those
reforestation charges collected from it for reforesting the denuded area of the land
covered by its license, the Republic of the Philippines should refund said amount, or, if it
cannot be refunded, at least it should be compensated with what Mambulao Lumber
Company owed the Republic of the Philippines for reforestation charges. In line with this
thought, defendant Mambulao Lumber Company wrote the director of forestry, on
February 21, 1957 letter Exh. 1, in paragraph 4 of which said defendant requested "that
our account with your bureau be credited with all the reforestation charges that you have
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imposed on us from July 1, 1947 to June 14, 1956, amounting to around P2,988.62 ...".
This letter of defendant Mambulao Lumber Company was answered by the director of
forestry on March 12, 1957, marked Exh. 2, in which the director of forestry quoted an
opinion of the secretary of justice, to the effect that he has no discretion to extend the
time for paying the reforestation charges and also explained why not all denuded areas
are being reforested.
The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendantappellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set
off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from
appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been
used in the reforestation of the area covered by its license, the same is refundable to it or may be
applied in compensation of said sum of P4,802.37 due from it as forest charges.
We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides:
SECTION 1. There shall be collected, in addition to the regular forest charges provided for
under Section two hundred and sixty-four of Commonwealth Act Numbered Four
Hundred Sixty-six, known as the National Internal Revenue Code, the amount of fifty
centavos on each cubic meter of timber for the first and second groups and forty centavos
for the third and fourth groups cut out and removed from any public forest for
commercial purposes. The amount collected shall be expended by the Director of
Forestry, with the approval of the Secretary of Agriculture and Natural Resources
(commerce), for reforestation and afforestation of watersheds, denuded areas and cogon
and open lands within forest reserves, communal forest, national parks, timber lands,
sand dunes, and other public forest lands, which upon investigation, are found needing
reforestation or afforestation, or needing to be under forest cover for the growing of
economic trees for timber, tanning, oils, gums, and other minor forest products or
medicinal plants, or for watersheds protection, or for prevention of erosion and floods
and preparation of necessary plans and estimate of costs and for reconnaisance survey of
public forest lands and for such other expenses as may be deemed necessary for the
proper carrying out of the purposes of this Act.
All revenues collected by virtue of, and pursuant to, the provisions of the preceding
paragraph and from the sale of barks, medical plants and other products derived from
plantations as herein provided shall constitute a fund to be known as Reforestation Fund,
to be expended exclusively in carrying out the purposes provided for under this Act. All
provincial or city treasurers and their deputies shall act as agents of the Director of
Forestry for the collection of the revenues or incomes derived from the provisions of this
Act. (Emphasis supplied.)
Under this provision, it seems quite clear that the amount collected as reforestation charges from
a timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund,
and that the same shall be expended by the Director of Forestry, with the approval of the
Secretary of Agriculture and Natural Resources for the reforestation or afforestation, among
others, of denuded areas which, upon investigation, are found to be needing reforestation or
afforestation. Note that there is nothing in the law which requires that the amount collected as
reforestation charges should be used exclusively for the reforestation of the area covered by the
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license of a licensee or concessionaire, and that if not so used, the same should be refunded to
him. Observe too, that the licensee's area may or may not be reforested at all, depending on
whether the investigation thereof by the Director of Forestry shows that said area needs
reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation
charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him
irrespective of whether the area covered by his license is reforested or not. Said fund, as the law
expressly provides, shall be expended in carrying out the purposes provided for thereunder,
namely, the reforestation or afforestation, among others, of denuded areas needing reforestation
or afforestation.
Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code2 is
applicable, such that the sum of P9,127.50 paid by it as reforestation charges may compensate its
indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we take of
this case, appellant and appellee are not mutually creditors and debtors of each other.
Consequently, the law on compensation is inapplicable. On this point, the trial court correctly
observed: .
Under Article 1278, NCC, compensation should take place when two persons in their
own right are creditors and debtors of each other. With respect to the forest charges
which the defendant Mambulao Lumber Company has paid to the government, they are
in the coffers of the government as taxes collected, and the government does not owe
anything, crystal clear that the Republic of the Philippines and the Mambulao Lumber
Company are not creditors and debtors of each other, because compensation refers to
mutual debts. ..
And the weight of authority is to the effect that internal revenue taxes, such as the forest charges
in question, can be the subject of set-off or compensation.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be setoff under the statutes of set-off, which are construed uniformly, in the light of public
policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the contract or transaction
sued on. ... (80 C.J.S. 73-74. ) .
The general rule, based on grounds of public policy is well-settled that no set-off is
admissible against demands for taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of a duty to, and are the positive
acts of the government, to the making and enforcing of which, the personal consent of
individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax
when called upon by the Collector, because he has a claim against the governmental
body which is not included in the tax levy, it is plain that some legitimate and necessary
expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax
must await and abide the result of a lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion. (47 Am. Jur. 766-767.)
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WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects,
with costs against the defendant-appellant. So ordered.
G.R. No. L-18994
June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price,respondents.
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January
30, 1960, this Court declared as final and executory the order for the payment by the estate of
the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the
Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the
Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate
the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the
judgment. The petition was, however, denied by the court which held that the execution is not
justifiable as the Government is indebted to the estate under administration in the amount of
P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960,
respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo
Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before
Notary Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De
Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to
Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the
sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by
the administratrix Simeona K. Price, as directed in the above note of the President.
Considering these facts, the Court orders that the payment of inheritance taxes in the sum
of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on
July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30,
1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and
payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by
the Government to her without further delay. (Order of August 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and it orders
that the payment of the claim of the Collector of Internal Revenue be deferred until the
Government shall have paid its accounts to the administratrix herein amounting to
P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a
debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment
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of the latter's account to it, specially taking into consideration that the amount due to the
Government draws interests while the credit due to the present state does not accrue any
interest. (Order of September 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim
of the Government against the estate must be denied for lack of merit. The ordinary procedure
by which to settle claims of indebtedness against the estate of a deceased person, as an
inheritance tax, is for the claimant to present a claim before the probate court so that said court
may order the administrator to pay the amount thereof. To such effect is the decision of
this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec.
29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court
to order the sale of personal estate or the sale or mortgage of real property of the
deceased and all debts or expenses of administrator and with the written notice to all the
heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and
Rule 90, section 2. And when sale or mortgage of real estate is to be made, the
regulations contained in Rule 90, section 7, should be complied with.
Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of
the debts and expenses of administration and it is later ascertained that there are such
debts and expenses to be paid, in which case "the court having jurisdiction of the estate
may, by order for that purpose, after hearing, settle the amount of their several liabilities,
and order how much and in what manner each person shall contribute, and may issue
execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4;
Emphasis supplied.) And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate are under the jurisdiction
of the court and such jurisdiction continues until said properties have been distributed among the
heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia
legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize
the properties but to ask the court for an order to require the administrator to pay the amount
due from the estate and required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable is well as fully liquidated. Compensation, therefore,
takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of
the Civil Code, and both debts are extinguished to the concurrent amount, thus:
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ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes
against the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.
G.R. No. L-22369
October 15, 1966
IN THE MATTER OF THE TESTATE ESTATE OF PATRICIO PONFERRADA, deceased.

JOAQUIN CORDERO, administrator-appellee,
vs.
JOSE GONDA, in his capacity as Representative of the Commissioner of Internal
Revenue, claimant-appellant.
On September 18, 1953, a demand by letter was made on Patricio Ponferrada by the Bureau of
Internal Revenue1for the payment of P3,805.88, covering forest charges for the period from
November 2, 1946 to January 29, 1949.2 Ponferrada made a partial payment of
P262.37,3 leaving a balance of P3,543.51.
Ponferrada died on November 25, 1957. In the Testate Estate proceedings,4 Joaquin Cordero
was named Administrator.
On July 29, 1959, the BIR, thru respondent Jose Gonda, filed in the proceedings just mentioned
a claim for the said sum of P3,543.51. The Administrator opposed. Ground: Prescription.5
Upon a stipulation of facts, the probate court, on August 28, 1963, declared that said claim of
P3,543.51 had prescribed.6
BIR now appeals direct to this Court.7
1. Our Tax Code8 provides for two main periods of prescription. The first refers to
assessment,9 the second to the remedies of collection.10 Not concerned with the first, we are with
the second.
That an assessment has here been, made, we do not doubt. By the very fact that, on September
18, 1953, a formal demand was made by the government upon the deceased Patricio Ponferrada
for the payment of forest charges in a definite amount P3,805.88 assessment is deemed to
have been made.11
September 18, 1953 then is a safe starting point for the statutory limitation to commence
collection suit. Here, the court claim was filed on July 29, 1959. From September 18, 1953 to July
29, 1959, a period of 5 years, 10 months and 11 days has passed. The five-year prescriptive
period had thus elapsed. Section 332 (c) of the Tax Code reads:
(c) Where the assessment of any internal-revenue tax has been made within the period of
limitation above prescribed such tax may be collected by distraint or levy or by a
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proceeding in court, but only if begun (1)within five years after the assessment of the tax ,
or (2) prior to the expiration of any period for collection agreed upon in writing by the
Commissioner of Internal Revenue and the taxpayer before the expiration of such fiveyear. The period so agreed upon may be extended by subsequent agreements in
writing made before the expiration of the period previously agreed upon.12
We note the narrowly-confined restriction of time within which a proceeding in court may be
brought: "but only if begun (1) within five years after the assessment of the tax". Implicit in the
words but only is that, unless otherwise authorized by statute, the 5-year period is absolute.
The Code itself recognizes but one exception: If suit is started "prior to the expiration of any
period for collectionagreed upon in writing by the Commissioner of Internal Revenue and the
taxpayer before the expiration of such five-year period" which may be extended by
subsequent written agreements made "before the expiration of the period previously agreed
upon". In Collector of Internal Revenue vs. Pineda, etc., L-14522, May 31, 1961, this Court13 said
in terms equally pertinent here, that: "the only agreement that could have suspended the running
of the prescriptive period for the collection of the tax in question is, . . . a written agreement
between Solano (the taxpayer) and the Collector, entered into before the expiration of the fiveyear prescriptive period, extending the period of limitation prescribed by law (Sec. 332 [c],
N.I.R.C.)." No such written agreement exists here. The original five-year limit governs.
2. Appellant's brief draws our attention to jurisprudence where a taxpayer may not avail of the
limitations statute.14 These cases are inapposite. In Arcache, delay in tax collection was excused
because of "his [taxpayer's] own repeated requests for re-investigation and similarly repeated
requests of extension of time to pay". In Sison, "the taxpayer's petition for reconsideration or
reinvestigation had stopped the running of the five-year limitation period". In Capitol
Subdivision, the pendency of a taxpayer's petition for clarification interrupted said period. None
of these situations obtains here.
The government also urges that partial payment is "acknowledgment of the tax obligation",
hence, a "waiver of the defense of prescription". But partial payment would not prevent the
government from suing the taxpayer. Because, by such act of payment, the government is
not thereby "persuaded to postpone collection to make him feel that the demand was not
unreasonable or that no harrassment or injustice is meant". Which, as stated in Collector vs. Suyoc
Consolidated Mining Co., et al., L-11527, November 25, 1958, is the underlying reason behind
the rule that prescriptive period is arrested by the taxpayer's request for reexamination or
reinvestigation even if he "has not previously waived it [prescription] in writing". And, partial
payment is no waiver "in writing". Particularly is this true here where, out of the claim of
P3,805.88, but P262.27 were paid; and in reference to the other claim of P6,220.65,15 appellee
made a substantial payment of P6,000.00 and acknowledged liability of P220.65.
3. The government leans heavily upon the Barretto case16 to strengthen its claim that the action
had not yet prescribed. Because, this Court there said:
. . . Moreover, as already stated in the decision, forest charges and surcharges
are payments for timber taken from public forests, and they are considered as internal
revenue taxes only in the sense that they are to be collected by the Collector of Internal
Revenue and the regulations for their collection are contained in the National Internal
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Revenue Code. Forest products are obtained under licenses issued by the Government
and forest charges are in a sense contractual in origin. No prescriptive period having been
prescribed by law for this case, Sec. 43 of the Code of Civil Procedure should apply . . . .17
This opinion was planted on the views of the Tax Commission (1939), as follows:
Forest charges, which are not property taxes but rather the price paid for exploiting
national resources, need to be revised18 to make them more in harmony with present-day
conditions in the industry and with public policies.
Forest charges are to be distinguished from taxes. They are, strictly speaking, the price
which the Government charges for the privilege granted to concessionaires to exploit the
public domain, rather than a tax imposed to support the general services of the
government . . . .19
Compelling reasons there are which constrain us to revise the views expressed in
the Barretto case.
By law, forest charges have always been categorized as internal revenue taxes for all purposes.
Our statute books say so.
We start with the Tax Code. Forest charges appear below the heading "TITLE VIII
MISCELLANEOUS TAXES", under Chapter V, along with such others as tax on banks (Chapter I),
taxes on receipts of insurance companies (Chapter II), franchise tax (Chapter III), and amusement
taxes (Chapter IV). And Section 18 of the same Code, includes "charges on forest products" in the
list of those that "are deemed to be national internal revenue taxes", thus:
SEC. 18. Sources of revenue.The following taxes, fees and charges are deemed to be
national internal revenue taxes:
(a) Income tax;
(b) Estate, inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes, fees and charges, namely, taxes on banks and insurance
companies, franchise taxes, taxes on amusements, charges on forest products, fees for
sealing weights and measures, firearms license fees, tobacco inspection fees, and water
rentals. (As amended by Rep. Act No. 1476, approved June 15, 1956.)20
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With the exception of radio registration fees, which were eliminated, the foregoing is a
reproduction in toto of the original Section 18 of the Tax Code approved on June 15, 1939.
Section 1438, Administrative Code of 1917, the law which Section 18 of the Tax Code of 1939
replaced, states in part:
SEC. 1438. Sources of taxes.The following taxes, fees, and charges in the nature of tax
are deemed to be internal revenue taxes:
xxx
xxx
xxx
(f) Charges for forest products.

xxx
xxx
xxx
Section 1438 of the Administrative Code, in turn, proceeded from Section 21, Act 2339 of the
Philippine Legislature known as the Internal Revenue Law of 1914, which provides:
ARTICLE I. Sources of internal revenue.
SEC. 21. Sources of taxes.The following taxes, fees, and charges in the nature of tax are
deemed to be internal-revenue taxes:
xxx
xxx
xxx
(f) Charges for forest products;

xxx
xxx
xxx
Predecessor of this provision is Section 25 of Act 1189, known as the Internal Revenue Law of
1904, which reads:
SEC. 25. The following sources of revenue shall be included in the internal revenue for
the Philippine Islands, and the taxes imposed shall be collected by the Collector of
Internal Revenue . . . and the revenue obtained therefrom shall be devoted to the
support of the several provinces and of the Insular and municipal governments in the
manner in this Act provided:
xxx
xxx
xxx
1. Tax on forestry products.

xxx
4. Now, the law
sources of taxes
"internal-revenue
"internal-revenue
xxx
xxx
on prescription in the Tax Code does not make any distinction at all as to the
to which it is made applicable. Its broad sweep is articulated in the terms
taxes"21 and "any internal-revenue tax".22 Since "charges on forest products" are
taxes", they are within the coverage of the law on prescription of actions to
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collect "internal-revenue taxes" or "any internal-revenue tax". Had the Tax Code intended that
forest charges be outside the operational rule on prescription, that statute should have so
provided. We cannot insert therein any such exception now. Clearly, that is intrusion into the
legislative domain in violation of a definite proscription in the Constitution.
5. Authorities are not wanting to bring home the point that forest charges are in reality internal
revenue taxes, as such subject to the other provisions of internal revenue law. As early as
1918,23 this Court held that forest charges are in the nature of an internal revenue tax on property
["forest products removed from the public forest"] and a distress warrant may be issued thereon.
One month before the Barretto decision came the Lacson case.24 There, this Court made mention
of the observations of the Tax Commission [heretofore textually copied], which recommended
the enactment of the 1939 Internal Revenue Code. However, this Court sustained the views of
the dissenting judge of the Court of Tax Appeals, thus:
. . . There appears to be no legal basis for not considering forest charges as taxes when
respondent considers them as taxes under Republic Act No. 304, as amended, thus
enabling holders of backpay certificates to pay forest charges out of their backpay (B.I.R.
ruling, November 22, 1955, Ex. B), and as internal revenue tax under Chapter II, Title IX,
of the Revenue Code, so as to authorize collection of said charges by distraint and levy
(Op. Atty. Gen., Oct. 27, 1922). The argument that forest charges are not taxes because
they are the price paid for the sale by the Government of forest products overlooks the
fact that some forest charges are impose on forest products cut and removed from
unregistered private lands. (See Sec. 266, Revenue Code). The Government cannot sell
forest products which it does not own. From this it may be inferred that forest charges
are not in reality the price paid for the sale by the Government of forest products; they
are essentially taxes for the privilege of cutting and removing forest products . . . They
stand on the same footing as the mining taxes imposed under Title VII of the Revenue
Code . . . .25
Even the Chairman of the 1939 Tax Commission later on (November 20, 1939), in a decision he
rendered as Secretary of Finance, in the case of the Dulagan Mining Interests Co., Inc.,
covering forest charges, adverted to the ruling in the Hongkong and Shanghai Banking
Corporation case, supra. He applied Section 1588 of the Administrative Code and declared that
every internal revenue tax which includes forest charges is a lien on the property for which
that tax is imposed.26
51 Am. Jur. p. 1072 is authority for the statement that:
Taxes which, although imposed under statutes containing many variations as to their
precise phraseology, are directed generally against the production, or severance from the
soil, of such natural resources astimber, oil, natural gas, ores, or the like, and are normally
measured according to the quantity or value of the articles produced or severed, are
usually, although not invariably, regarded as excise rather than property taxes.27
The view that forest charges are much like ad valorem taxes in mining, finds jurisprudential
support. In Cebu Portland Cement Company vs. Commissioner of Internal Revenue, L-18649,
February 27, 1965, we said that thisad valorem tax (on minerals used for cement) "is a tax not on
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the minerals, but upon the privilege of severing or extracting the same from the earth, the
government's right to exact the said impost springing from the Regalian theory of State
ownership of its natural resources".28 So saying, this Court there applied Section 306,29 under the
Administrative Provisions [of the Tax Code] which include prescription of actions for tax
collection.
In another case,30 upon the premise that forest charges "are in the coffers of the government as
taxes collected", the pronouncement was that internal revenue taxes cannot be the subject of
compensation: Reason: government and taxpayer "are not mutually creditors and debtors of
each other" under Article 1278 of the Civil Code and a "claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off." This decision inferentially takes forest
charges out of the Barretto rule, because they are taxes not "in a sense contractual in origin."
The thoughts expressed in the authorities just cited funnel down to one idea: forest charges are
internal revenue taxes, whether one labels them taxes on property, or excise taxes, i.e., taxes
upon the privilege of cutting and carting away timber and forest products. And they fall under
the philosophy of taxation to support the general services of government. They go into the
general fund.31
6. The provisions on prescription fall under Title IX, entitled General Administrative Provisions.
This title applies to all taxes, fees, and charges collected under the Code. In this title's first
provision (Section 305), injunction is unavailing to a forest concessionaire "to restrain the
collection of any national internal-revenue tax, fee, or chargeimposed by this Code". By Section
306, the concessionaire, may only sue for tax refunds within two years from the date of
payment.32 Section 316 defines the "civil remedies for the collection of internal revenue taxes,
fees, orcharges" to be distraint and levy, and judicial action.33
In Section 337, the forest concessionaire34 like all other taxpayers is obligated to preserve
his books of account for a period of five years "from the date of the last entry in each book."
Why? Because the government is given a like period of five years within which to make
assessment. If forest charges were "in a sense contractual in origin", then the concessionaire should
be required to keep his accounting records not for five years only, but for ten years, to jibe with
the 10-year prescriptive period in the Civil Code.35
In sum, here is the situation of a man called upon to pay forest charges. Applicable to him are the
Tax Code provisions on distraint and levy; the two-year period for refund; the prohibition
against injunction; the duty to keep his books for five years. But, if we were to adhere to
the Barretto decision, then the law on prescription in the Code of Civil Procedure [now Art.
1144, Civil Code]36 must have to be scissored and pasted over Sections 331 and 332 of the Tax
Code. Uniformity in the application of the Tax Code provisions would suggest that we veer
away from this view.
7. Our stand is even fortified by the facts set forth in the Barretto case. Assessment was not there
based on a return. The judgment on prescription therein was grounded on fraud. Because, from
an examination of the books, it was found that "many purchases of logs were without invoices
and sales under declared". The "deficiencies amounting to fraud were discovered" in 1953. And
applying the provisions of the Code of Civil Procedure, it was there declared that the period for
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prescription should be reckoned" from 1953. But the situation presented in said case is precisely
covered by Section 332(a) of the Tax Code, which reads:
(a) In the case of a false or fraudulent 37 return with intent to evade tax or of a failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of such
tax may be begun without assessment, at any time within ten years after the discovery of
the falsity, fraud, or omission.38
Our conclusion, therefore, is that the overwhelming implication from the text of the Tax Code
leaves no other reasonable construction except that: Forest charges come within the compass of
the prescriptive periods set forth therein.
The net result still is: From September 18, 1953 (when demand for payment was made) to July
29, 1953 (when court claim was filed), more than five (5) years have elapsed. By the terms of
Article 332(c) of the Tax Code,supra, action to collect has prescribed.
Upon the premises, the judgment appealed from is affirmed. No costs. So ordered.
G.R. No. L-25299
July 29, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ITOGON-SUYOC MINES, INC., and THE COURT OF TAX APPEALS, respondents.
The question presented for determination in this petition for the review of a decision of the
Court of Tax Appeals, one that is of first impression, would not have arisen had respondent
Itogon-Suyoc Mines, Inc., the taxpayer involved, duly paid in full its liability according to its
income tax return for the fiscal year 1960-61. Instead, it deducted right away the amount
represented by claim for refund filed eight (8) months back, for the previous year's income tax,
for which it was not liable at all, so it alleged, as it suffered a loss instead, a claim subsequently
favorably acted on by petitioner Commissioner of Internal Revenue but after the date of such
payment of the 1960-1961 tax. Accordingly, an interest in the amount of P1,512.83 was charged
by petitioner Commissioner of Internal Revenue on the sum withheld on the ground that no
deduction on such refund should be allowed before its approval. When the matter was taken up
before the Court of Tax Appeals, the above assessment representing interest was set aside in the
decision of September 30, 1965. That is the decision now an appeal by petitioner Commissioner
of Internal Revenue. We sustain the Court of Tax Appeals.
Respondent Itogon-Suyoc Mines, Inc., a mining corporation duly organized and existing in
accordance with the laws of the Philippines, filed on January 13, 1961, its income tax return for
the fiscal year 1959-1960. It declared a taxable income of P114,368.04 and a tax due thereon
amounting to P26,310.41, for which it paid on the same day, the amount of P13,155.20 as the
first installment of the income tax due. On May 17, 1961, petitioner filed an amended income tax
return, reporting therein a net loss of P331,707.33. It thus sought a refund from the
Commissioner of Internal Revenue, now the petitioner.
On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the
fiscal year 1960-1961, setting forth its income tax liability to the tune of P97,345.00, but
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deducting the amount of P13,155.20 representing alleged tax credit for overpayment of the
preceding fiscal year 1959-1960. 0n December 18, 1962, petitioner Commissioner of Internal
Revenue assessed against the respondent the amount of P1,512.83 as 1% monthly interest on the
aforesaid amount of P13,155.20 from January 16, 1962 to December 31, 1962. The basis for such
an assessment was the absence of legal right to deduct said amount before the refund or tax
credit thereof was approved by petitioner Commissioner of Internal Revenue. 1
Such an assessment was contested by respondent before the Court of Tax Appeals. As already
noted, it prevailed. The decision of September 30, 1965, now on appeal, explains why. Thus:
"Respondent assessed against the petitioner the amount of P1,512.83 as 1% monthly interest on
the sum of P13,155.20 from January 16, 1962 to December 31, 1962 on the ground that
petitioner had no legal right to deduct the said amount from its income tax liability for the fiscal
year 1960-1961 until the refund or tax credit thereof has been approved by respondent. As
aforestated, petitioner paid the amount of P13,155.20 as first installment on its reported income
tax liability for the fiscal year 1959-1960. But, it turned out that instead of deriving a net gain, it
sustained a net loss during the said fiscal year. Accordingly, it filed an amended income tax return
and a claim for the refund of the sum of P13,155.20, which sum it subsequently, deducted from
its income tax liability for the succeeding fiscal year 1960-1961. The overpayment for the fiscal
year 1959-1960 and the deduction of the overpaid amount from its 1960-1961 tax liability are not
denied by respondent. In this circumstance, we find it unfair and unjust for the Commissioner to
exact an interest on the said sum of P13,155.20, which, after all, was paid to and received by the
government even before the incidence of the tax in question." 2
That is the question before us in this petition for review by the Commissioner of Internal
Revenue. He argues that the Court of Tax Appeals should not have absolved respondent
corporation "from liability to pay the sum of P1,512.83 as 1% monthly interest for delinquency in
the payment of income tax for the fiscal year 1960-1961." 3As noted at the outset, we find such
contention far from persuasive.
It could not be error for the Court of Tax Appeals, considering the admitted fact of
overpayment, entitling respondent to refund, to hold that petitioner should not repose an
interest on the aforesaid sum of P13,155.20 "which after all was paid to and received by the
government even before the incidence of the tax in question." It would be, according to the
Court of Tax Appeals, "unfair and unjust" to do so. We agree but we go farther. The imposition
of such an interest by petitioner is not supported by law.
The National Internal Revenue Code provides that interest upon the amount determined as a
deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner of
Internal Revenue at the specified.4 It is made clear, however, in an earlier provision found in the
same section that if in any preceding year, the taxpayer was entitled to a refund of any amount
due as tax, such amount, if not yet refunded, may be deducted from the tax to be paid. 5
There is no question respondent was entitled to a refund. Instead of waiting for the sum involved
to be delivered to it, it deducted the said amount from the tax that it had to pay. That it had a
right to do according to the law. It is true a doubt could have arisen due to the fact that as of the
time such a deduction was made, the Commissioner of Internal Revenue had not as yet approved
such a refund. It is an admitted fact though that respondent was clearly entitled to it, and
petitioner did not allege otherwise. Nor could he do so. Under all the circumstances disclosed
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therefore, the applicability of the legal provision allowing such a deduction from the amount of
the tax to be paid cannot be disputed.
This conclusion is in accordance with the principle announced in Castro v. Collector of Internal
Revenue. 6 While the case is not directly in point, it yields an implication that makes even more
formidable the case for respondent taxpayer. As there held, the imposition of the monthly
interest was considered as not constituting a penalty "but a just compensation to the state for the
delay in paying the tax, and for the concomitant use by the taxpayer of funds that rightfully
should be in the government's hands ...."
What is therefore sought to be avoided is for the taxpayer to make use of funds that should have
been paid to the government. Here, in view of the overpayment for the fiscal year 1959-1960,
the sum of P13,155.20 had already formed part of the public funds. It cannot be said, therefore,
that respondent taxpayer was guilty of any delay enabling it to utilize a sum of money that
should have been in the government treasury.
How then, as a matter of pure law, even if we lay to one side the demands of fairness and
justice, which to the Court of Tax Appeals seem to be uppermost, can its decision be overturned?
Accordingly, we find no valid ground for this appeal.
WHEREFORE, the decision of September 30, 1965 of the Court of Tax Appeals is affirmed.
Without pronouncement as to costs.
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the
Intermediate Appellate Court, to set aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public
auction to Ho Fernandez and ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with
an area of about 328 square meters, is described and covered by Transfer Certificate of Title No.
4739 (37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to
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Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to
satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition
for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No.
4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through
his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez
by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both
annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing
the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer
Certificate of Title in favor of the defendant Ho Fernandez over
the parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of
P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW
IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX
DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS
INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS
ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED
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THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977
TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS
ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF
P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO
SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY
WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE
THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations
that his property was sold at public auction without notice to him and that the price paid for the
property was shockingly inadequate, amounting to fraud and deprivation without due process of
law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in
his petition upon himself. While we commiserate with him at the loss of his property, the law
and the facts militate against the grant of his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land
was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation
of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in
their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278,
Civil Code). The circumstances of the case do not satisfy the requirements provided by Article
1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the same
time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there
can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The collection of a tax cannot await
the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or compensation. We stated that:
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A claim for taxes is not such a debt, demand, contract or judgment as is allowed
to be set-off under the statutes of set-off, which are construed uniformly, in the
light of public policy, to exclude the remedy in an action or any indebtedness of
the state or municipality to one who is liable to the state or municipality for taxes.
Neither are they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on
grounds of public policy is well-settled that no set-off admissible against demands
for taxes levied for general or local governmental purposes. The reason on which
the general rule is based, is that taxes are not in the nature of contracts between
the party and party but grow out of duty to, and are the positive acts of the
government to the making and enforcing of which, the personal consent of
individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because
he has a claim against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes can not be the subject of compensation: Reason: government and
taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil
Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off."
There are other factors which compel us to rule against the petitioner. The tax was due to the
city government while the expropriation was effected by the national government. Moreover,
the amount of P4,116.00 paid by the national government for the 125 square meter portion of
his lot was deposited with the Philippine National Bank long before the sale at public auction of
his remaining property. Notice of the deposit dated September 28, 1977 was received by the
petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about
the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy
matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus
aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown later,
he claimed that he pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of property for tax delinquency was
followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof
therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for
Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the
burden of proof to show that there was compliance with all the prescribed requisites for a tax
sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
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xxx xxx xxx

... [D]ue process of law to be followed in tax proceedings must be established by
proof and thegeneral rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving
a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v.
Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative
proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have
been complied with, the petitioner can not, however, deny that he did receive the notice for the
auction sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not
properly notified of the auction sale. Surprisingly, however, he admitted in his
testimony that he received the letter dated November 21, 1977 (Exhibit "I") as
shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not
present on December 5, 1977 the date of the auction sale because he went to
Iligan City. As long as there was substantial compliance with the requirements of
the notice, the validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho
Fernandez notified you that the property in question shall be sold
at public auction to the highest bidder on December 5, 1977
pursuant to Sec. 74 of PD 464. Will you tell the Court whether you
received the original of this letter?
A. I just signed it because I was not able to read the same. It was
just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to
court assailing the validity of the auction sale loses its force.
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Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross
inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v.
Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.).
See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged
gross inadequacy of price is not material when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for
the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold
are unconscionable considering the wide divergence between their assessed values
and the amounts for which they had been actually sold. However, while in
ordinary sales for reasons of equity a transaction may be invalidated on the
ground of inadequacy of price, or when such inadequacy shocks one's conscience
as to justify the courts to interfere, such does not follow when the law gives to the
owner the right to redeem, as when a sale is made at public auction, upon the
theory that the lesser the price the easier it is for the owner to effect the
redemption. And so it was aptly said: "When there is the right to redeem,
inadequacy of price should not be material, because the judgment debtor may
reacquire the property or also sell his right to redeem and thus recover the loss he
claims to have suffered by reason of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et
al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is
stated as follows: "where land is sold for taxes, the inadequacy of the price given
is not a valid objection to the sale." This rule arises from necessity, for, if a fair
price for the land were essential to the sale, it would be useless to offer the
property. Indeed, it is notorious that the prices habitually paid by purchasers at
tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v.
Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267
P. 555):
Like most cases of this character there is here a certain element of hardship from
which we would be glad to relieve, but do so would unsettle long-established
rules and lead to uncertainty and difficulty in the collection of taxes which are the
life blood of the state. We are convinced that the present rules are just, and that
they bring hardship only to those who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated
in value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated
the expropriation of adjoining areas, real estate values have gone up in the area. However, the
price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate,
the foregoing reasons which answer the petitioner's claims lead us to deny the petition.
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And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are
no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for
14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of
sale without reading it which, if true, is still an act of inexplicable negligence. He did not
withdraw from the expropriation payment deposited with the Philippine National Bank an
amount sufficient to pay for the back taxes. The petitioner did not pay attention to another
notice sent by the City Treasurer on November 3, 1978, during the period of redemption,
regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the
purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in
his attempt to regain the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The
decision of the respondent court is affirmed.
G.R. No. L-35238 April 21, 1989
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
HON. JUDGE VICENTE G. ERICTA and SAMPAGUITA PICTURES, INC., respondents.
This case has to do with the so-called "back pay certificates" issued by the Philippine Government
in the aftermath of the Pacific War, pursuant to Republic Act No. 304, as amended by Republic
Act No. 800. These enactments generally recognized the right of persons who at the outbreak of
the war were employed in the classified and unclassified civil service as well as in governmentowned or controlled corporations, and those who had served in the free local civil governments
organized for purposes of resistance against the invaders, to salaries, wages, emoluments, per
diems, not received by them by reason of the war. The Treasurer of the Philippines was
empowered to receive applications for back pay and to issue in favor of the applicants certificates
of indebtedness redeemable by the Government within ten years for the amounts determined to
be justly due them.
It appears that in relation to its business of producing motion pictures, Sampaguita Pictures, Inc.,
hereafter simply Sampaguita, came to incur an obligation for percentage, withholding and
amusement taxes in the amount of P10,268.41 in favor of the Republic of the Philippines. 1 In
satisfaction thereof, and of another obligation of the same nature due from Vera-Perez
Corporation, Sampaguita Pictures, Inc. tendered and delivered to the Office of the Municipal
Treasurer of Bocaue, Bulacan, on June 9, 1961, sixteen (16) back pay negotiable certificates of
indebtedness in the aggregate sum of P16,763.60, which had earlier been negotiated to them by
the original holders thereof, and official receipts therefor were duly issued. 2
Thirteen (13) days later, however, the Assistant Regional Director of the BIR wrote to Vera-Perez
Corporation (his letter is dated June 22, 1961) advising that the acceptance of the Negotiable
Certificates of Indebtedness in payment of amusement, percentage and withholding taxes (in the
total sum of P16,753.50) was erroneous and the payment was invalid, because actually said
certificates were "not acceptable as payments of internal revenue taxes in accordance with the
provisions of .. General Circular No. V-289 dated May 8, 1959." Request was thus made for the
payment of the tax liabilities in cash. 3 Evidently neither corporations responded one way or the
other to this letter. Anyway, the next letter adverted to by the Government is that dated August
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18, 1967, written by the Acting Deputy Commissioner of Internal Revenue to both Sampaguita
and Vera-Perez Corporation. 4 That letter gave the corporations "a last 15-day period within
which to pay the said amount of P16,763.50 in cash or certified check." Again, no acceptable
response seems to have been made by the corporations. So on June 9, 1969, eight (8) years to
the day when the negotiable certificates of indebtedness were accepted in payment of taxes by
the Municipal Treasurer at Bocaue, Bulacan, the Solicitor General brought suit in behalf of the
Republic of the Philippines in relation thereto. 5 The case was docketed as Civil Case No. Q13270 of the Court of First Instance at Quezon City, and assigned to Branch XVIII thereof, then
presided over by herein respondent, Hon. Vicente G. Ericta. 6
The Solicitor General's complaint 7 impleaded only Sampaguita as defendant. Why he excluded
the other corporation is not disclosed by the record. In his complaint he alleged that Sampaguita's
essayed payment was void since it was "not the original holder of the .. certificates .. but .. only a
mere assignee thereof," and tinder the law," only original holders of back pay certificates .. are
allowed to use the same in payment of their own taxes," invoking this Court's decision to that
effect in de Borja v. Gella 8 promulgated on July 31, 1963.
Sampaguita's answer admitted the basic facts, but asserted that the plaintiffs cause of action had
already prescribed; that the tender of the certificates in 1961 had been "made in absolute good
faith," "prior to the promulgation of the decision .. (in) de Borja vs. Vicente Gella et al. on July
31, 1963;" that the certificates "having duly matured .. in the year 1958, (and) plaintiff .. (being
then) already duty bound to redeem them and pay for their value," Sampaguita and the Republic
became "mutual creditors and debtors of each other for the amount of P10,268.41" with the
result that their obligations were extinguished by legal compensation." These averments
were inter alia reproduced and set up also as a counterclaim, with the additional plea that "in the
remote possibility that ..(it [Sampaguita 1) be still required .. to pay plaintiff the amount of
P10,268.41 for alleged unpaid taxes, the plaintiff be ordered to pay the defendant the same
amount of Pl 0,268.41 representing the face value of the negotiable certificates of indebtedness."
On December 29, 1971, judgment was rendered by the Trial Judge "dismissing both the
complaint and the counterclaim without pronouncement as to costs." 9 His Honor held that
delivery of the back pay certificates by Sampaguita had not produced the effect of payment in
view of the doctrine in Borja v. Gella 10 that "the right to use backpay certificates of indebtedness
in the settlement of taxes is given only to original holders and not to mere assignees thereof;" this
notwithstanding, Sampaguita, as assignee of the certificates of indebtedness, had "succeeded to
the original rights of the holders thereof," and was therefore authorized to demand payment by
the Republic of the indebtedness thereby represented; and while there was "opinion that (legal)
compensation cannot take place against the Republic with respect to taxes, fees, duties and
similar forced contributions due to it (Civil Code, Volume IV, p. 349, Tolentino; Gasperi 204; 2
Von Tuhr Obligaciones, p. 165), there could be no gainsaying the proposition that, under the
facts, Sampaguita was entitled to judgment upon its counterclaim for the payment by the
Republic of its indebtedness in virtue of the back pay certificates in question, with the "ultimate
result .. that the claim and counter-claim of the plaintiff and the defendant, respectively will
offset each other."
The Solicitor General presented a motion of reconsideration. When this was denied, he appealed
to this Court by certiorari positing reversible legal error on the part of respondent Judge in
holding that (1) the Republic's claim is offset by Sampaguita's counterclaim, and (2) the negotiable
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certificates of indebtedness in question were "long overdue and redeemable." The petitioner's
postulations are untenable.
1. The Trial Court ruled that the taxes sought to be collected by the Republic from
Sampaguita were still unpaid, its tender of the certificates of indebtedness in
question not constituting payment; hence, it ought properly to be sentenced to
pay the taxes. It also ruled that even assuming the contrary, legal compensation as
a mode of extinguishing an obligation to pay taxes was nonetheless unavailing
against the government, conformably with de Borja v. Gella.
On the other hand, according to the Trial Court, at least as of date of judgment, more than 10
years from June 18, 1958, the date when, as expressly stated in the certificates of indebtedness,
the same were redeemable, the obligation thereby evidenced was unquestionably already due
and payable; hence, Sampaguita was entitled to a judgment against the Republic for the payment
of the face value of the certificates, the same having already been presented and surrendered
within the said period of ten years (on June 9, 1961) to the Treasurer of the Philippines (thru the
Municipal Treasurer of Bocaue, Bulacan ) 11 This is correct. In other words, even if as the Solicitor
General points out, "there is no certainty when the certificates are actually redeemable" because
the law say "that they are redeemable .. within ten years from the date of issuance " 12 there can
be no question that after the lapse of ten (10) years from the declared date of redeemability,
payment of the indebtedness was already exigible The Trial Court was saying in effect that while
judgment should be rendered in favor of the Republic against Sampaguita for unpaid taxes in the
amount of P10,268.41, judgment ought at the same time to issue for Sampaguita commanding
payment to it by the Republic of the same sum, representing the face value of the certificates of
indebtedness assigned to it and for recovery of which it had specifically prayed in its
counterclaim.
2. What has just been said confutes the petitioner's second argument that
redemption of the certificates of indebtedness was not yet demandable of it
because "there is no certainty when the certificates are actually redeemable, within
the meaning of the law." It is true that, as the Solicitor General contends, "the law
does not say that they are redeemable from its approval on June 18, 1958 but
'within ten years from the date of issuance' of the certificates, " 13 the ineludible
ineluctable fact is that more than ten (10) years have already elapsed since their
issuance and demand for payment had been made within said 10-year period. It is
useless to quibble about the precise time "within ten years" when an obligation
becomes demandable, when that period of ten years has already expired.
Whatever inexactitude might inhere in the phrase, "within ten years," as fixing the
time of exibility of the obligation in question, there can be no debate about the
proposition that the obligation became due and demandable after ten years. It
would be absurd and unfair to sanction the theory subsumed in the Republic's
petition that its obligation was not demandable within ten years because of
inexactitude yet became time-barred upon the lapse of that self-same period.
WHEREFORE, the petition is DENIED, and the judgment subject thereof, being in accord with the
facts and the law, is AFFIRMED in toto. No costs.
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[G.R. Nos. 28508-9. July 7, 1989.]

ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), Petitioner, v.
THE COMMISSIONER OF INTERNAL REVENUE, Respondent.
SYLLABUS
1. STATUTORY CONSTRUCTION; LEGISLATIVE HISTORY OF AN ACT RESORTED TO ONLY
WHERE THE LANGUAGE OF THE STATUTE IS AMBIGUOUS. Only in extremely doubtful
matters of interpretation does the legislative history of an act of Congress become important. As
a matter of fact, there may be no resort to the legislative history of the enactment of a statute,
the language of which is plain and unambiguous, since such legislative history may only be
resorted to for the purpose of solving doubt, not for the purpose of creating it. [50 Am. Jur.
328.]
2. TAXATION; REPUBLIC ACT NO. 2009, MARGIN FEE; NOT A TAX BUT AN EXACTION.
A margin fee is not a tax but an exaction designed to curb the excessive demands upon our
international reserve. (Caltex [Phil.] Inc. v. Acting Commissioner of Customs, 22 SCRA 779;
Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, 14 SCRA 630).
3. ID.; ID.; AN EXERCISE OF POLICE POWER. The margin fee under Republic Act No. 2009
was imposed by the State in the exercise of its police power and not the power of taxation.
4. ID.; ID.; NOT A DEDUCTIBLE EXPENSE; REASON. The fees were paid for the remittance
by ESSO as part of the profits to the head office in the United States. Such remittance was an
expenditure necessary and proper for the conduct of its corporate affairs. As stated in the Lopez
case, the margin fees are not expenses in connection with the production or earning of
petitioners incomes in the Philippines. They were expenses incurred in the disposition of said
incomes; expenses for the remittance of funds after they have already been earned by petitioners
branch in the Philippines for the disposal of its Head Office in New York which is already another
distinct
and
separate
income
taxpayer.
5. ID.; NATIONAL INTERNAL REVENUE CODE; INCOME TAX ON BUSINESS; CONDITIONS
FOR DEDUCTIBILITY OF EXPENSE. We come, then, to the statutory test of deductibility
where it is axiomatic that to be deductible as a business expense, three conditions are imposed,
namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within
the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In
addition, not only must the taxpayer meet the business test, he must substantially prove by
evidence or records the deductions claimed under the law, otherwise, the same will be
disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and
necessary does not justify its deduction. (Atlas Consolidated Mining and Development
Corporation
v.
Commissioner
of
Internal
Revenue,
102
SCRA
246)
6. ID.; ID.; CLAIMS FOR DEDUCTIONS, A MATTER OF LEGISLATIVE GRACE AND
CONSTRUED STRICTLY AGAINST THE TAXPAYER. The paramount rule is that claims for
deductions are a matter of legislative grace and do not turn on mere equitable considerations. . .
. The taxpayer in every instance has the burden of justifying the allowance of any deduction
claimed.
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On appeal before us is the decision of the Court of Tax Appeals 1 denying petitioners claims for
refund of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA
Cases No. 1251 and 1558 respectively.
I
In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as part of its
ordinary and necessary business expenses, the amount it had spent for drilling and exploration of
its petroleum concessions. This claim was disallowed by the respondent Commissioner of Internal
Revenue on the ground that the expenses should be capitalized and might be written off as a loss
only when a "dry hole" should result. ESSO then filed an amended return where it asked for the
refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also
claimed as ordinary and necessary expenses in the same return was the amount of P340,822.04,
representing margin fees it had paid to the Central Bank on its profit remittances to its New York
head
office.
On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed
deduction for the margin fees paid.
In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in the
amount of P367,994.00, plus 18% interest thereon of P66,238.92 for the period from April 18,
1961 to April 18, 1964, for a total of P434,232.92. The deficiency arose from the disallowance of
the margin fees of P1,226,647.72 paid by ESSO to the Central Bank on its profit remittances to its
New York head office.
ESSO settled this deficiency assessment on August 10, 1964, by applying the tax credit of
P221,033.00 representing its overpayment on its income tax for 1959 and paying under protest
the additional amount of P213,201.92. On August 13, 1964, it claimed the refund of P39,787.94
as overpayment on the interest on its deficiency income tax. It argued that the 18% interest
should have been imposed not on the total deficiency of P367,944.00 but only on the amount
of P146,961.00, the difference between the total deficiency and its tax credit of P221,033.00.
This claim was denied by the CIR, who insisted on charging the 18% interest on the entire
amount of the deficiency tax. On May 4, 1965, the CIR also denied the claims of ESSO for refund
of the overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid to the
Central Bank could not be considered taxes or allowed as deductible business expenses.
ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, contending that the
margin fees were deductible from gross income either as a tax or as an ordinary and necessary
business expense. It also claimed an overpayment of its tax by P434,232.92 in 1960, for the same
reason. Additionally, ESSO argued that even if the amount paid as margin fees were not legally
deductible, there was still an overpayment by P39,787.94 for 1960, representing excess interest.
After trial, the CTA denied petitioners claim for refund of P102,246.00 for 1959 and
P434,234.92 for 1960 but sustained its claim for P39,787.94 as excess interest. This portion of
the decision was appealed by the CIR but was affirmed by this Court in Commissioner of Internal
Revenue v. ESSO, G.R. No. L-28502-03, promulgated on April 18, 1989. ESSO for its part
appealed the CTA decision denying its claims for the refund of the margin fees P102,246.00 for
1959 and P434,234.92 for 1960. That is the issue now before us.
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II
The first question we must settle is whether R.A. 2009, entitled An Act to Authorize the Central
Bank of the Philippines to Establish a Margin Over Banks Selling Rates of Foreign Exchange, is a
police measure or a revenue measure. If it is a revenue measure, the margin fees paid by the
petitioner to the Central Bank on its profit remittances to its New York head office should be
deductible from ESSOs gross income under Sec. 30(c) of the National Internal Revenue Code.
This provides that all taxes paid or accrued during or within the taxable year and which are
related to the taxpayers trade, business or profession are deductible from gross income.
The petitioner maintains that margin fees are taxes and cites the background and legislative
history of the Margin Fee Law showing that R.A. 2609 was nothing less than a revival of the 17%
excise tax on foreign exchange imposed by R.A. 601. This was a revenue measure formally
proposed by President Carlos P. Garcia to Congress as part of, and in order to balance, the
budget for 1959-1960. It was enacted by Congress as such and, significantly, properly originated
in the House of Representatives. During its two and a half years of existence, the measure was
one of the major sources of revenue used to finance the ordinary operating expenditures of the
government. It was, moreover, payable out of the General Fund.
On the claimed legislative intent, the Court of Tax Appeals, quoting established principles,
pointed out that
We are not unmindful of the rule that opinions expressed in debates, actual proceedings of the
legislature, steps taken in the enactment of a law, or the history of the passage of the law through
the legislature, may be resorted to as an aid in the interpretation of a statute which is ambiguous
or of doubtful meaning. The courts may take into consideration the facts leading up to, confident
with, and in any way connected with, the passage of the act, in order that they may properly
interpret the legislative intent. But it is also well-settled jurisprudence that only in extremely
doubtful matters of interpretation does the legislative history of an act of Congress become
important. As a matter of fact, there may be no resort to the legislative history of the enactment
of a statute, the language of which is plain and unambiguous, since such legislative history may
only be resorted to for the purpose of solving doubt, not for the purpose of creating it. [50 Am.
Jur. 328.]
Apart from the above consideration, there are at least two cases where we have held that a
margin fee is not a tax but an exaction designed to curb the excessive demands upon our
international reserve.
In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose
P. Bengzon.
A margin levy on foreign exchange is a form of exchange control or restriction designed to
discourage imports and encourage exports, and ultimately, `curtail any excessive demand upon
the international reserve in order to stabilize the currency. Originally adopted to cope with
balance of payment pressures, exchange restrictions have come to serve various purposes, such as
limiting non-essential imports, protecting domestic industry and when combined with the use
of multiple currency rates providing a source of revenue to the government, and are in many
developing countries regarded as a more or less inevitable concomitant of their economic
Page 25 of 49
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development programs. The different measures of exchange control or restriction cover different
phases of foreign exchange transactions, i.e., in quantitative restriction, the control is on the
amount of foreign exchange allowable. In the case of the margin levy, the immediate impact is
on the rate of foreign exchange; in fact, its main function is to control the exchange rate without
changing the par value of the peso as fixed in the Bretton Woods Agreement Act. For a member
nation is not supposed to alter its exchange rate (at par value) to correct a merely temporary
disequilibrium in its balance of payments. By its nature, the margin levy is part of the rate of
exchange as fixed by the government.
As to the contention that the margin levy is a tax on the purchase of foreign exchange and hence
should not form part of the exchange rate, suffice it to state that We have already held the
contrary for the reason that a tax is levied to provide revenue for government operations, while
the proceeds of the margin fee are applied to strengthen our countrys international reserves.
Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, 3 the
same idea was expressed, though in connection with a different levy, through Justice J.B.L. Reyes
Neither do we find merit in the argument that the 20% retention of exporters foreign exchange
constitutes an export tax. A tax is a levy for the purpose of providing revenue for government
operations, while the proceeds of the 20% retention, as we have seen, are applied to strengthen
the Central Banks international reserve.
We conclude then that the margin fee was imposed by the State in the exercise of its police
power and not the power of taxation.
Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless be considered
necessary and ordinary business expenses and therefore still deductible from its gross income. The
fees were paid for the remittance by ESSO as part of the profits to the head office in the United
States. Such remittance was an expenditure necessary and proper for the conduct of its corporate
affairs.
The applicable provision is Section 30(a) of the National Internal Revenue Code reading as
follows
SEC. 30. Deductions from gross income. In computing net income there shall be allowed as
deductions
(a) Expenses
(1) In general. All the ordinary and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; traveling expenses while away from home
in the pursuit of a trade or business; and rentals or other payments required to be made as a
condition to the continued use or possession, for the purpose of the trade or business, of
property to which the taxpayer has not taken or is not taking title or in which he has no equity.
(2) Expenses allowable to non-resident alien individuals and foreign corporations. In the case
of a non-resident alien individual or a foreign corporation, the expenses deductible are the
necessary expenses paid or incurred in carrying on any business or trade conducted within the
Page 26 of 49
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Philippines
exclusively.
In the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of

Internal Revenue, 4 the Court laid down the rules on the deductibility of business expenses, thus
The principle is recognized that when a taxpayer claims a deduction, he must point to some
specific provision of the statute in which that deduction is authorized and must be able to prove
that he is entitled to the deduction which the law allows. As previously adverted to, the law
allowing expenses as deduction from gross income for purposes of the income tax is Section
30(a) (1) of the National Internal Revenue which allows a deduction of all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business.
An item of expenditure, in order to be deductible under this section of the statute, must fall
squarely within its language.
We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as
a business expense, three conditions are imposed, namely: (1) the expense must be ordinary and
necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or
incurred in carrying on a trade or business. In addition, not only must the taxpayer meet the
business test, he must substantially prove by evidence or records the deductions claimed under
the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an item
of expense is ordinary and necessary does not justify its deduction.
While it is true that there is a number of decisions in the United States delving on the
interpretation of the terms ordinary and necessary, as used in the federal tax laws, no adequate
or satisfactory definition of those terms is possible. Similarly, this Court has never attempted to
define with precision the terms ordinary and necessary. There are however, certain guiding
principles worthy of serious consideration in the proper adjudication of conflicting claims.
Ordinarily, an expense will be considered `necessary, where the expenditure is appropriate and
helpful in the development of the taxpayers business. It is ordinary when it connotes a
payment which is normal in relation to the business of the taxpayer and the surrounding
circumstances. The term ordinary does not require that the payments be habitual or normal in
the sense that the same taxpayer will have to make them often; the payment may be unique or
non-recurring to the particular taxpayer affected.
There is thus no hard and fast rule on the matter. The right to a deduction depends in each case
on the particular facts and the relation of the payment to the type of business in which the
taxpayer is engaged. The intention of the taxpayer often may be the controlling fact in making
the determination. Assuming that the expenditure is ordinary and necessary in the operation of
the taxpayers business, the answer to the question as to whether the expenditure is an allowable
deduction as a business expense must be determined from the nature of the expenditure itself,
which in turn depends on the extent and permanency of the work accomplished by the
expenditure.
In the light of the above explanation, we hold that the Court of Tax Appeals did not err when it
held on this issue as follows
Considering the foregoing test of what constitutes an ordinary and necessary deductible expense,
it may be asked: Were the margin fees paid by petitioner on its profit remittances to its Head
Office in New York appropriate and helpful in the taxpayers business in the Philippines? Were
Page 27 of 49
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the margin fees incurred for purposes proper to the conduct of the affairs of petitioners branch
in the Philippines? Or were the margin fees incurred for the purpose of realizing a profit or of
minimizing a loss in the Philippines? Obviously not. As stated in the Lopez case, the margin fees
are not expenses in connection with the production or earning of petitioners incomes in the
Philippines. They were expenses incurred in the disposition of said incomes; expenses for the
remittance of funds after they have already been earned by petitioners branch in the Philippines
for the disposal of its Head Office in New York which is already another distinct and separate
income taxpayer.
Since the margin fees in question were incurred for the remittance of finds to petitioners Head
Office in New York, which is a separate and distinct income taxpayer from the branch in the
Philippines, for its disposal abroad, it can never be said therefore that the margin fees were
appropriate and helpful in the development of petitioners business in the Philippines exclusively
or were incurred for purposes proper to the conduct of the affairs of petitioners branch in the
Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the
Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct
of the corporate affairs of Standard Vacuum Oil Company in New York, but certainly not in the
Philippines.
ESSO has not shown that the remittance to the head office of part of its profits was made in
furtherance of its own trade or business. The petitioner merely presumed that all corporate
expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra
vires. This is error. The public respondent is correct when it asserts that "the paramount rule is
that claims for deductions are a matter of legislative grace and do not turn on mere equitable
considerations . . . The taxpayer in every instance has the burden of justifying the allowance of
any deduction claimed." 5
It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot
now claim this as an ordinary and necessary expense paid or incurred in carrying on its own
trade or business.
WHEREFORE, the decision of the Court of Tax Appeals denying the petitioners claims for refund
of P102,246.00 for 1959 and P434,234.92 for 1960, is AFFIRMED, with costs against the
petitioner.
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME
C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.
This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the
authority of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement
from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's
decision denying its claims for recovery of financing charges from the Fund and reimbursement of
Page 28 of 49
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underrecovery arising from sales to the National Power Corporation, Atlas Consolidated Mining
and Development Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER),
preventing it from exercising the right to offset its remittances against its reimbursement vis-avis the OPSF and disallowing its claims which are still pending resolution before the Office of
Energy Affairs (OEA) and the Department of Finance (DOF).
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty
(30) days from receipt of a copy thereof. The certiorarireferred to is the special civil action
for certiorari under Rule 65 of the Rules of Court. 4
Considering, however, that the allegations that the COA acted with: (a) total lack of jurisdiction
in completely ignoring and showing absolutely no respect for the findings and rulings of the
administrator of the fund itself and in disallowing a claim which is still pending resolution at the
OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" 5 in declaring
that petitioner cannot avail of the right to offset any amount that it may be required under the
law to remit to the OPSF against any amount that it may receive by way of reimbursement
therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court, and,
considering further the importance of the issues raised, the error in the designation of the remedy
pursued will, in this instance, be excused.
The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.)
No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as
follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization Fund may be sourced from any of
the following:
a) Any increase in the tax collection from ad valorem tax or
customs duty imposed on petroleum products subject to tax under
this Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the
Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to
augment the resources of the Fund through an appropriate Order
that may be issued by the Board of Energy requiring payment by
persons or companies engaged in the business of importing,
manufacturing and/or marketing petroleum products;
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d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and
petroleum products is less than the peso costs computed using the
reference foreign exchange rate as fixed by the Board of Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude oil
and imported petroleum products resulting from exchange rate
adjustment and/or increase in world market prices of crude oil;
2) To reimburse the oil companies for possible cost under-recovery
incurred as a result of the reduction of domestic prices of
petroleum products. The magnitude of the underrecovery, if any,
shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:
i. Reduction in oil company take as directed by the
Board of Energy without the corresponding
reduction in the landed cost of oil inventories in the
possession of the oil companies at the time of the
price change;
ii. Reduction in internal ad valorem taxes as a result
of
foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of
Energy.
The material operative facts of this case, as gathered from the pleadings of the parties, are not
disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred
to as Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted
for the years 1986 and 1988, of the additional tax on petroleum products authorized under the
aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to
P335,037,649.00 and informing it that, pending such remittance, all of its claims for
reimbursement from the OPSF shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification
with the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:
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1986
1987
1988 719,412,254.00;
P233,190,916.00
335,065,650.00
directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from
receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected
against outstanding claims in 1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release of its
reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs since
June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting
of pre-audit of government transactions of national government agencies and governmentowned or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the
reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to
forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit
action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal
for the payment of the collections and the recovery of claims, since the outright payment of the
sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the
OPSF will cause a very serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement acceptable to COA to facilitate
monitoring of payments and reimbursements will be administered
by the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA, P1.287
billion as payment to OPSF, similarly OEA will deliver to Caltex the
same amount in cash reimbursement from OPSF.
(3) The COA audit will commence immediately and will be
conducted expeditiously.
(4) The review of current claims (1989) will be conducted
expeditiously to preclude further accumulation of reimbursement
from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921
accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances
and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:
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This pertains to the within separate requests of Mr. Manuel A. Estrella, President,
Petron Corporation, and Mr. Francis Ablan, President and Managing Director,
Caltex (Philippines) Inc., for reconsideration of this Commission's adverse action
embodied in its letters dated February 2, 1989 and March 9, 1989, the former
directing immediate remittance to the Oil Price Stabilization Fund of collections
made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987,
and the latter reiterating the same directive but further advising the firms to desist
from offsetting collections against their claims with the notice that "this
Commission will hold in abeyance the audit of all . . . claims for reimbursement
from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy
Regulatory Board, the aforenamed oil companies were allowed to offset the
amounts due to the Oil Price Stabilization Fund against their outstanding claims
from the said Fund for the calendar years 1987 and 1988, pending with the then
Ministry of Energy, the government entity charged with administering the OPSF.
This Commission, however, expressing serious doubts as to the propriety of the
offsetting of all types of reimbursements from the OPSF against all categories of
remittances, advised these oil companies that such offsetting was bereft of legal
basis. Aggrieved thereby, these companies now seek reconsideration and in
support thereof clearly manifest their intent to make arrangements for the
remittance to the Office of Energy Affairs of the amount of collections equivalent
to what has been previously offset, provided that this Commission authorizes the
Office of Energy Affairs to prepare the corresponding checks representing
reimbursement from the OPSF. It is alleged that the implementation of such an
arrangement, whereby the remittance of collections due to the OPSF and the
reimbursement of claims from the Fund shall be made within a period of not
more than one week from each other, will benefit the Fund and not unduly
jeopardize the continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this
Commission perceives no further objectionable feature in the proposed
arrangement, provided that 15% of whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same to be answerable for
suspensions or disallowances, errors or discrepancies which may be noted in the
course of audit and surcharges for late remittances without prejudice to similar
future retentions to answer for any deficiency in such surcharges, and provided
further that no offsetting of remittances and reimbursements for the current and
ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive
Director Wenceslao R. De la Paz of the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and
based on our initial verification of documents submitted to us by your Office in
support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989,
Page 32 of 49
TAXATION LAW REVIEW

as well as its outstanding claims against the Oil Price Stabilization Fund (OPSF) as
of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines),
Inc. shall be required to remit to OPSF an amount of P1,505,668,906,
representing remittances to the OPSF which were offset against its claims
reimbursements (net of unsubmitted claims). In addition, the Commission hereby
authorize (sic) the Office of Energy Affairs (OEA) to cause payment of
P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details
of which are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled
P387,683,535, which included P130,420,235 representing those claims disallowed
by OEA, details of which is (sic) shown in Schedule 1 as summarized as follows:
Disallowance
Particulars Amount
of
COA
Recovery
of
financing
charges
P162,728,475
/a
Product
sales
48,402,398
/b
Inventory
losses
Borrow
loan
arrangement
14,034,786
/c
Sales
to
Atlas/Marcopper
32,097,083
/d
Sales
to
NPC
558
P257,263,300
Disallowances
Total P387,683,535
of
OEA
130,420,235
The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate
that recovery of financing charges by oil companies is not among the items for
which the OPSF may be utilized. Therefore, it is our view that recovery of
financing charges has no legal basis. The mechanism for such claims is provided in
DOF Circular 1-87.
b. Product Sales Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order
No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that
(sic) oil companies should pay OPSF impost on export sales of petroleum
products. Effective February 7, 1987 sales to international vessels/airlines should
not be included as part of its domestic sales. Changing the effectivity date of the
resolution from February 7, 1987 to October 20, 1987 as covered by subsequent
ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to
Page 33 of 49
TAXATION LAW REVIEW

include in their domestic sales volumes to international vessels/airlines and claim

the corresponding reimbursements from OPSF during the period. It is our opinion
that the effectivity of the said resolution should be February 7, 1987.
c. Inventory losses Settlement of Ad Valorem
We reviewed the system of handling Borrow and Loan (BLA) transactions
including the related BLA agreement, as they affect the claims for reimbursements
of ad valorem taxes. We observed that oil companies immediately settle ad
valorem taxes for BLA transaction (sic). Loan balances therefore are not tax paid
inventories of Caltex subject to reimbursements but those of the borrower. Hence,
we recommend reduction of the claim for July, August, and November, 1987
amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges
whether direct or indirect due and payable by the copper mining companies in
distress to the national and local governments." It is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected by
OEA has no legal basis.
Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the
amount as herein authorized shall be subject to availability of funds of OPSF as of
May 31, 1989 and applicable auditing rules and regulations. With regard to the
disallowances, it is further informed that the aggrieved party has 30 days within
which to appeal the decision of the Commission in accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the
decision based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,
ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF
FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO
EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF
EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED
UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY
LEGISLATION.
xxx xxx xxx
Page 34 of 49
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C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS

AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS
VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171
reads as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the
.authority to recover financing charges from the OPSF on the basis of Department
of Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil
companies to "recover cost of financing working capital associated with crude oil
shipments," and provided a schedule of reimbursement in terms of peso per
barrel. It appears that on November 6, 1989, the DOF issued a memorandum to
the President of the Philippines explaining the nature of these financing charges
and justifying their reimbursement as follows:
As part of your program to promote economic recovery, . . . oil
companies (were authorized) to refinance their imports of crude oil
and petroleum products from the normal trade credit of 30 days
up to 360 days from date of loading . . . Conformably . . ., the oil
companies deferred their foreign exchange remittances for
purchases by refinancing their import bills from the normal 30-day
payment term up to the desired 360 days. This refinancing of
importations carried additional costs (financing charges) which then
became, due to government mandate, an inherent part of the cost
of the purchases of our country's oil requirement.
We beg to disagree with such contention. The justification that financing charges
increased oil costs and the schedule of reimbursement rate in peso per barrel
(Exhibit 1) used to support alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the same formula which the
DOF used in arriving at the reimbursement rate but using comparable percentages
instead of pesos, the ineluctable conclusion is that the oil companies are actually
gaining rather than losing from the extension of credit because such extension
enables them to invest the collections in marketable securities which have much
higher rates than those they incur due to the extension. The Data we used were
obtained from CPI (CALTEX) Management and can easily be verified from our
records.
Page 35 of 49
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With respect to product sales or those arising from sales to international vessels or
airlines, . . ., it is believed that export sales (product sales) are entitled to claim
refund from the OPSF.
As regard your claim for underrecovery arising from inventory losses, . . . It is the
considered view of this Commission that the OPSF is not liable to refund such
surtax on inventory losses because these are paid to BIR and not OPSF, in view of
which CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is represented that you are
entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July 17,
1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF
imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that the
CPI (CALTEX) has no authority to claim reimbursement for this uncollected OPSF
impost because LOI 1416 dated July 17, 1984, which exempts distressed mining
companies from "all taxes, duties, import fees and other charges" was issued when
OPSF was not yet in existence and could not have contemplated OPSF imposts at
the time of its formulation. Moreover, it is evident that OPSF was not created to
aid distressed mining companies but rather to help the domestic oil industry by
stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it
imputes to the COA the commission of the following errors: 16
I
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF
FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT
COMMISSION
ERRED
IN
DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM
SALES TO NPC.
III
RESPONDENT COMMISSION ERRED IN DENYING CPI's
REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.
CLAIMS
FOR
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING
ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS
REIMBURSEMENT VIS-A-VIS THE OPSF.
Page 36 of 49
TAXATION LAW REVIEW

V
RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH
ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the respondents to comment on the
petition within ten (10) days from notice. 18
On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the
Office of the Solicitor General, filed their Comment. 19
This Court resolved to give due course to this petition on 30 May 1991 and required the parties
to file their respective Memoranda within twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment
filed on 6 September 1990 be considered as the Memorandum for respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added
a second purpose, to wit:
2) To reimburse the oil companies for possible cost underrecovery incurred as a
result of the reduction of domestic prices of petroleum products. The magnitude
of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of
Energy without the corresponding reduction in the landed cost of
oil inventories in the possession of the oil companies at the time of
the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing
government mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance
to result in cost underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now Department)
of Finance may include financing charges for "in essence, financing charges constitute unrecovered
cost of acquisition of crude oil incurred by the oil companies," as explained in the 6 November
1989 Memorandum to the President of the Department of Finance; they "directly translate to
cost underrecovery in cases where the money market placement rates decline and at the same
time the tax on interest income increases. The relationship is such that the presence of
underrecovery or overrecovery is directly dependent on the amount and extent of financing
charges."
Page 37 of 49
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(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the
basis of Department of Finance Circular No. 1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital
associated with crude oil shipments, the following guidelines on the utilization of
the Oil Price Stabilization Fund pertaining to the payment of the foregoing (sic)
exchange risk premium and recovery of financing charges will be implemented:
1. The OPSF foreign exchange premium shall be reduced to a flat
rate of one (1) percent for the first (6) months and 1/32 of one
percent per month thereafter up to a maximum period of one
year, to be applied on crude oil' shipments from January 1, 1987.
Shipments with outstanding financing as of January 1, 1987 shall be
charged on the basis of the fee applicable to the remaining period
of financing.
2. In addition, for shipments loaded after January 1987, oil
companies shall be allowed to recover financing charges directly
from the OPSF per barrel of crude oil based on the following
schedule:
Financing Period Reimbursement Rate
Pesos per Barrel
Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28
The above rates shall be subject to review every sixty
days. 22
Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the
Office of Energy Affairs as follows:
HON. VICENTE T. PATERNO
Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila
Dear Sir:
This refers to the letters of the Oil Industry dated December 4, 1986 and February
5, 1987 and subsequent discussions held by the Price Review committee on
February 6, 1987.
Page 38 of 49
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On the basis of the representations made, the Department of Finance recognizes

the necessity to reduce the foreign exchange risk premium accruing to the Oil Price
Stabilization Fund (OPSF). Such a reduction would allow the industry to recover
partly associated financing charges on crude oil imports. Accordingly, the OPSF
foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6)
months plus 1/32% of 1% per month thereafter up to a maximum period of one
year, effective January 1, 1987. In addition, since the prevailing company take
would still leave unrecovered financing charges, reimbursement may be secured
from the OPSF in accordance with the provisions of the attached Department of
Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the
guidelines for the computation of the foreign exchange risk fee and the recovery of financing
charges from the OPSF, to wit:
B. FINANCE CHARGES
1. Oil companies shall be allowed to recover financing charges
directly from the OPSF for both crude and product shipments
loaded after January 1, 1987 based on the following rates:
Financing Period Reimbursement Rate
(PBbl.)
Less than 180 days None
240 days to 229 (sic) days 4.02
360 days to more 8.28
2. The above rates shall be subject to review every sixty days. 24
Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing
further guidelines on the recoverability of financing charges, to wit:
Following are the supplemental rules to Department of Finance Circular No. 1-87
dated February 18, 1987 which allowed the recovery of financing charges directly
from the Oil Price Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be on a per shipment basis.
2. The claim shall be filed with the Office of Energy Affairs together
with the claim on peso cost differential for a particular shipment
and duly certified supporting documents provided for under
Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of reimbursement
certificate (Annex A) to be issued by the Office of Energy Affairs.
Page 39 of 49
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The said certificate may be used to offset against amounts payable

to the OPSF. The oil companies may also redeem said certificates in
cash if not utilized, subject to availability of funds. 25
The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12017. 26
The COA can neither ignore these issuances nor formulate its own interpretation of the laws in
the light of the determination of executive agencies. The determination by the Department of
Finance and the OEA that financing charges are recoverable from the OPSF is entitled to great
weight and consideration. 27 The function of the COA, particularly in the matter of allowing or
disallowing certain expenditures, is limited to the promulgation of accounting and auditing rules
for, among others, the disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and properties. 28
(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's
claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised
and not supported by expert analysis.
In impeaching the validity of petitioner's assertions, the respondents argue that:
1. The Constitution gives the COA discretionary power to disapprove irregular or
unnecessary government expenditures and as the monetary claims of petitioner
are not allowed by law, the COA acted within its jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing
charges from the OPSF;
3. Under the principle of ejusdem generis, the "other factors" mentioned in the
second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors
which are of the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87
of the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations implementing P.D. No. 1956 do
not
likewise
allow
reimbursement
of
financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view of its primacy, We find the
theory of petitioner that such does not extend to the disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable expenditures, or use of government funds and
properties, but only to the promulgation of accounting and auditing rules for, among others,
such disallowance to be untenable in the light of the provisions of the 1987 Constitution and
related laws.
Page 40 of 49
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Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies, commissions
and offices that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or
controlled corporations and their subsidiaries; and (d) such non-governmental
entities receiving subsidy or equity, directly or indirectly, from or through the
government, which are required by law or the granting institution to submit to
such audit as a condition of subsidy or equity. However, where the internal
control system of the audited agencies is inadequate, the Commission may adopt
such measures, including temporary or special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall keep the general accounts, of the
Government and, for such period as may be provided by law, preserve the
vouchers and other supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques
and methods required therefor, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of
government funds and properties.
These present powers, consistent with the declared independence of the Commission, 30 are
broader and more extensive than that conferred by the 1973 Constitution. Under the latter, the
Commission was empowered to:
Examine, audit, and settle, in accordance with law and regulations, all accounts
pertaining to the revenues, and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of
its subdivisions, agencies, or instrumentalities including government-owned or
controlled corporations, keep the general accounts of the Government and, for
such period as may be provided by law, preserve the vouchers pertaining thereto;
and promulgate accounting and auditing rules and regulations including those for
the prevention of irregular, unnecessary, excessive, or extravagant expenditures or
uses of funds and property. 31
Upon the other hand, under the 1935 Constitution, the power and authority of the COA's
precursor, the General Auditing Office, were, unfortunately, limited; its very role was markedly
passive. Section 2 of Article XI thereofprovided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining
to the revenues and receipts from whatever source, including trust funds derived
from bond issues; and audit, in accordance with law and administrative
Page 41 of 49
TAXATION LAW REVIEW

regulations, all expenditures of funds or property pertaining to or held in trust by

the Government or the provinces or municipalities thereof. He shall keep the
general accounts of the Government and the preserve the vouchers pertaining
thereto. It shall be the duty of the Auditor General to bring to the attention of the
proper administrative officer expenditures of funds or property which, in his
opinion, are irregular, unnecessary, excessive, or extravagant. He shall also
perform such other functions as may be prescribed by law.
As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the power
to issue rules and regulations to prevent the same. His was merely to bring that matter to the
attention of the proper administrative officer.
The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer controlling as the two (2) were decided in
the light of the 1935 Constitution.
There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and property. Our present Constitution
retains that same power and authority, further strengthened by the definition of the COA's
general jurisdiction in Section 26 of the Government Auditing Code of the Philippines 34and
Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing
rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 7755. Since the COA is responsible for the enforcement of the rules and regulations, it goes without
saying that failure to comply with them is a ground for disapproving the payment of the
proposed expenditure. As observed by one of the Commissioners of the 1986 Constitutional
Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the 1935
Constitution the Auditor General could not correct "irregular, unnecessary,
excessive or extravagant" expenditures of public funds but could only "bring [the
matter] to the attention of the proper administrative officer," under the 1987
Constitution, as also under the 1973 Constitution, the Commission on Audit can
"promulgate accounting and auditing rules and regulations including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures or uses of government funds and properties." Hence,
since the Commission on Audit must ultimately be responsible for the enforcement
of these rules and regulations, the failure to comply with these regulations can be
a ground for disapproving the payment of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more
active role and invested it with broader and more extensive powers, they did not intend merely
to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and
independent watchdog of the Government.
Page 42 of 49
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The issue of the financing charges boils down to the validity of Department of Finance Circular
No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA,
issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to
determine "other factors" which may result in cost underrecovery and a consequent
reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges
are not included in "cost underrecovery" and, therefore, cannot be considered as one of the
"other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly
define what "cost underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:
i. Reduction in oil company takes as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of
the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
These "other factors" can include only those which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they
are in the nature of government mandated price reductions. Hence, any other factor which seeks
to be a part of the enumeration, or which could qualify as a cost underrecovery, must be of the
same class or nature as those specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance
broad and unrestricted authority to determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons
or things, by words of a particular and specific meaning, such general words are not to be
construed in their widest extent, but are held to be as applying only to persons or things of the
same kind or class as those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily
discloses that they do not have a common characteristic. The first relates to price reduction as
directed by the Board of Energy while the second refers to reduction in internal ad
valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these
subparagraphs. What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows cost
underrecovery only if such were incurred as a result of the reduction of domestic prices of
petroleum products.
Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in
the sense that such were incurred as a result of the inability to fully offset financing expenses from
Page 43 of 49
TAXATION LAW REVIEW

yields in money market placements, they do not, however, fall under the foregoing provision of
P.D. No. 1956, as amended, because the same did not result from the reduction of the domestic
price of petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further
amended by Congress, this Court can do nothing. The duty of this Court is not to legislate, but to
apply or interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in
this case have shown, it was at the behest of the Government that petitioner refinanced its oil
import payments from the normal 30-day trade credit to a maximum of 360 days. Petitioner
could be correct in its assertion that owing to the extended period for payment, the financial
institution which refinanced said payments charged a higher interest, thereby resulting in higher
financing expenses for the petitioner. It would appear then that equity considerations dictate that
petitioner should somehow be allowed to recover its financing losses, if any, which may have
been sustained because it accommodated the request of the Government. Although under Section
29 of the National Internal Revenue Code such losses may be deducted from gross income, the
effect of that loss would be merely to reduce its taxable income, but not to actually wipe out
such losses. The Government then may consider some positive measures to help petitioner and
others similarly situated to obtain substantial relief. An amendment, as aforestated, may then be
in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the
Department of Finance to determine or define "other factors" is to uphold an undue delegation
of legislative power, it clearly appearing that the subject provision does not provide any standard
for the exercise of the authority. It is a fundamental rule that delegation of legislative power may
be sustained only upon the ground that some standard for its exercise is provided and that the
legislature, in making the delegation, has prescribed the manner of the exercise of the delegated
authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant
by reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to
disprove COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed
to sufficiently show that it incurred a loss. Such being the case, how can petitioner claim for
reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation, We find for the
petitioner. The respondents themselves admit in their Comment that underrecovery arising from
sales to NPC are reimbursable because NPC was granted full exemption from the payment of
taxes; to prove this, respondents trace the laws providing for such exemption. 40 The last law
cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which
provides, in part, "that the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum
products . . . are restored effective March 10, 1987." In a Memorandum issued on 5 October
1987 by the Office of the President, NPC's tax exemption was confirmed and approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products
to the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum
Price Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act No.
6952 provides:
Sec. 2. Application of the Fund shall be subject to the following conditions:
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(1) That the Fund shall be used to reimburse the oil companies for
(a) cost increases of imported crude oil and finished petroleum
products resulting from foreign exchange rate adjustments and/or
increases in world market prices of crude oil; (b) cost
underrecovery incurred as a result of fuel oil sales to the National

Power Corporation (NPC); and (c) other cost underrecoveries
incurred as
Court; . . .
may
be
finally
decided
by
the
Supreme
Hence, petitioner can recover its claim arising from sales of petroleum products to the National
Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner
relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable
by the copper mining companies in distress to the national government. Pursuant to this LOI,
then Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22
advising the oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining
Corporation are among those declared to be in distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August
1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI
1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no
legal basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority
to claim reimbursement for this uncollected impost because LOI 1416 dated July 17, 1984, . . .
was issued when OPSF was not yet in existence and could not have contemplated OPSF imposts
at the time of its formulation." 43 It is further stated that: "Moreover, it is evident that OPSF was
not created to aid distressed mining companies but rather to help the domestic oil industry by
stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have
intended to exempt said distressed mining companies from the payment of OPSF dues for the
following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956
creating the OPSF was promulgated on October 10, 1984, while E.O. 137,
amending P.D. 1956, was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line
with the government's effort to prevent the collapse of the copper industry. P.D
No. 1956, as amended, was issued for the purpose of minimizing frequent price
changes brought about by exchange rate adjustments and/or changes in world
market prices of crude oil and imported petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other
charges, whether direct or indirect, due and payable by the copper mining
companies in distress to the Notional and Local Governments . . ." On the other
hand, OPSF dues are not payable by (sic) distressed copper companies but by oil
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companies. It is to be noted that the copper mining companies do not pay OPSF
dues. Rather, such imposts are built in or already incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining
companies, it does not accord petitioner the same privilege with respect to its obligation to pay
OPSF dues.
We concur with the disquisitions of the respondents. Aside from such reasons, however, it is
apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of
the Civil Code, which reads:
Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Taada vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to publish in the Official
Gazette all unpublished presidential issuances which are of general application,
and unless so published they shall have no binding force and effect.
Resolving the motion for reconsideration of said decision, this Court, in its Resolution
promulgated on 29 December 1986, 47 ruled:
We hold therefore that all statutes, including those of local application and private
laws, shall be published as a condition for their effectivity, which shall begin
fifteen days after publication unless a different effectivity date is fixed by the
legislature.
Covered by this rule are presidential decrees and executive orders promulgated by
the President in the exercise of legislative powers whenever the same are validly
delegated by the legislature or, at present, directly conferred by the Constitution.
Administrative rules and regulations must also be published if their purpose is to
enforce or implement existing laws pursuant also to a valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as above defined shall
immediately upon their approval, or as soon thereafter as possible, be published
in full in the Official Gazette, to become effective only after fifteen days from their
publication, or on another date specified by the legislature, in accordance with
Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official
Gazette after its issuance or at any time after the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on
18 June 1987. As amended, the said provision now reads:
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Laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general circulation
in the Philippines, unless it is otherwiseprovided.
We are not aware of the publication of LOI 1416 in any newspaper of general circulation
pursuant to Executive Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must
still fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in
favor of the taxing authority.48 The burden of proof rests upon the party claiming exemption to
prove that it is in fact covered by the exemption so claimed. The party claiming exemption must
therefore be expressly mentioned in the exempting law or at least be within its purview by clear
legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to
ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI
1416 may suspend the payment of taxes by copper mining companies, it does not give petitioner
the same privilege with respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its
jurisdiction. 49 Respondents, on the other hand, contend that said amount was already
disallowed by the OEA for failure to substantiate it. 50 In fact, when OEA submitted the claims of
petitioner for pre-audit, the abovementioned amount was already excluded.
An examination of the records of this case shows that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has
already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said
claim must be upheld.
V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner
contends that it should be allowed to offset its claims from the OPSF against its contributions to
the fund as this has been allowed in the past, particularly in the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which
provides for "Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner
also mentions communications from the Board of Energy and the Department of Finance that
supposedly authorize compensation.
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can
be no offsetting of taxes against the claims that a taxpayer may have against the government, as
taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by
law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the
Revised Administrative Code, is misplaced because "while this provision empowers the COA to
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withhold payment of a government indebtedness to a person who is also indebted to the

government and apply the government indebtedness to the satisfaction of the obligation of the
person to the government, like authority or right to make compensation is not given to the
private person." 54 The reason for this, as stated in Commissioner of Internal Revenue vs. Algue,
Inc., 55 is that money due the government, either in the form of taxes or other dues, is its
lifeblood and should be collected without hindrance. Thus, instead of giving petitioner a reason
for compensation or set-off, the Revised Administrative Code makes it the respondents' duty to
collect petitioner's indebtedness to the OPSF.
Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a
result of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead
established a special fund . . .," 56 and that the OPSF contributions do not go to the general fund
of the state and are not used for public purpose,i.e., not for the support of the government, the
administration of law, or the payment of public expenses. This alleged lack of a public purpose
behind OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is
inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the
OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum Price Standby Fund shall be
used to pay any oil company which has an outstanding obligation
to the Government without said obligation being offset first,
subject to the requirements of compensation or offset under the
Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are not for a public
purpose because they go to a special fund of the government. Taxation is no longer envisioned
as a measure merely to raise revenue to support the existence of the government; taxes may be
levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be within the police power of the
state. 57 There can be no doubt that the oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a
majority of the people and cause economic crisis of untold proportions. It would have a chain
reaction in terms of, among others, demands for wage increases and upward spiralling of the cost
of basic commodities. The stabilization then of oil prices is of prime concern which the state, via
its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. 58Taxes cannot be the subject of compensation because the government and
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taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off.59
We may even further state that technically, in respect to the taxes for the OPSF, the oil
companies merely act as agents for the Government in the latter's collection since the taxes are, in
reality, passed unto the end-users the consuming public. In that capacity, the petitioner, as one
of such companies, has the primary obligation to account for and remit the taxes collected to the
administrator of the OPSF. This duty stems from the fiduciary relationship between the two;
petitioner certainly cannot be considered merely as a debtor. In respect, therefore, to its
collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally
feasible. Firstly, the Government and the petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that petitioner's claim is already due and
liquidated. Under Article 1279 of the Civil Code, in order that compensation may be proper, it is
necessary that:
(1) each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
That compensation had been the practice in the past can set no valid precedent. Such a practice
has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims
against their OPSF contributions. Instead, it prohibits the government from paying any amount
from the Petroleum Price Standby Fund to oil companies which have outstanding obligations
with the government, without said obligation being offset first subject to the rules on
compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged
decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim
for reimbursement of underrecovery arising from sales to the National Power Corporation,
which is hereby allowed.
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UNIVERSITY OF THE EAST COLLEGE OF LAW

G.R. No. L-17725

February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

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June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

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October 15, 1966

IN THE MATTER OF THE TESTATE ESTATE OF PATRICIO PONFERRADA, deceased.

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(f) Charges for forest products.

(f) Charges for forest products;

1. Tax on forestry products.

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July 29, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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xxx xxx xxx

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[G.R. Nos. 28508-9. July 7, 1989.]

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In the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of

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The reasons for the disallowances are discussed hereunder:

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include in their domestic sales volumes to international vessels/airlines and claim

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C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS

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On the basis of the representations made, the Department of Finance recognizes

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The said certificate may be used to offset against amounts payable

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Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides: