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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10431
July 31, 1962
COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
LA TONDEA INC., and THE COURT OF TAX APPEALS,
respondents.
Office of the Solicitor General for petitioner.Manuel V. San Jose for
respondents.
PAREDES, J.:
The respondent "La Tondea, Inc." a duly licensed rectifier, has been
engaged in the business of manufacturing wines, and liquors, with a
distillery at 1068 Velasquez, Tondo, Manila. The principal products of
the respondent are "Ginebra San Miguel", "Manila Rum", "Oak Barrel
Rum", "Mallorca Wine", "Anizado", "Creme de Mente", "Creme de
Cacao", etc. Since 1929, respondent has been purchasing the alcohol
used in the manufacture of its products, principally from Binalbagan
Isabela Sugar Central, Negros Occidental and Central Azcarera Don
Pedro in Nasugbu, Batangas, and has been removing this alcohol from
the centrals to respondent's distillery under joint bonds, without
prepayment of specific taxes, with the express permission and approval
of the petitioner Collector of Internal Revenue. The quantity of alcohol
purchased and received by the respondent from the centrals are
recorded and entered in the BIR Official Register Books of "La Tondea,
Inc. A-Account", under the column "CRUDE spirit" (Exhs. A, A-1, G, G1), attested by the Inspector of the Bureau assigned to respondent's
distillery. In the manufacture of "Manila Rum", respondent uses as
basic materials low test alcohol, purchased in crude form from the
suppliers, which it re-rectifies or subjects to further distillation, in
order to suit the purpose of respondent in producing only high quality
products. In the process of further rectification or distillation, losses
thru evaporation had necessarily been incurred, for which the
petitioner in the past had given the respondent allowance of not
exceeding 7% for said losses. Respondent stated that the process
adopted by it in the manufacture of its "Manila Rum", has now made
this product the largest selling rum in the Philippines and the specific
taxes that it had been paying the government, had steadily increased
from P3, 172,515.30 in 1950 to P4, 973,123.40 in 1954. On May 8,
1954, petitioner wrote a demand letter to respondent for the payment
of specific taxes, in the total amount of P154, 663.10 on alcohol lost by
evaporation, thru re-rectification or re-redistillation, covering the
period from June 7, 1950 to February 7, 1954. A first extension of 30

days within which to reply was granted the respondent by the


petitioner. On July 26, 1954, it asked for another 30-day extension to
reply (Exh. I-3). On August 2, 1954, petitioner granted 5 days only, from
August 2, 1954 (Exh. I-f), or until August 7, 1954. On August 6, 1954,
respondent answered the demand letter dated May 8, 1954 (Exh. I),
protesting against the said assessment (Exhs. 1-5 and 1-b). In a letter
dated August 26, 1954, the petitioner made manifest its refusal to
reconsider the assessment and urged the respondent to pay within 3
days from receipt, the amount of the assessment, which communication
was received by the respondent on August 31, 1954 (Exh. I-7). On
September 1, 1954, the respondent appealed the decision to the
Conference Staff in the same Bureau (Exh. I-8). On September 3, 1954,
the Conference Staff gave the appeal due course (Exh. I-9).
Before any hearing could be had in the Conference Staff, on January 8,
1955, the respondent received a letter from the petitioner dated
December 22, 1954, requiring it to comply with Department of Finance
Order No. 213, to deposit one-half of the amount of assessment in cash
and the balance guaranteed by a surety bond (Exh. 1-11). Respondent
requested for reconsideration of this requirement (Exh. I-1a) on
January 10, 1955, which was denied on February 10, 1955 (Exh. I-13). A
second motion for reconsideration presented on February 15, 1955
(Exh. I-14), followed by a supplementary letter (Exh. I-15) dated
February 17, 1955 was denied, same having been received by
respondent on March 16, 1955, and gave the respondent 5 days from
receipt thereof, within which to comply with the said Order. Not
satisfied with the said rulings, the La Tondea, Inc. presented an action
with the respondent Court of Tax Appeals on March 18, 1955. The Tax
Court on December 7, 1955, rendered the following judgment
IN VIEW OF THE FOREGOING CONSIDERATION, the decision of
respondent Collector of Internal Revenue, dated May 8, 1954, is hereby
modified, and petitioner La Tondea, Inc., is hereby ordered to pay the
respondent Collector of Internal Revenue the sum of P672.15, by way
of specific tax. However, with respect to the balance of the assessment
amounting to P153, 990.95, which corresponds to the period after
January 1, 1951 and up to February 27, 1954, pursuant to Republic Act
No. 592, the petitioner is declared exempt from liability for the specific
taxes assessed therefor. Without pronouncement as to costs.
On appeal to this Court, the petitioner alleges that the Court of Tax
Appeals erred (1) In exempting the respondent La Tondea, Inc. from
the payment of the specific tax on rectified alcohol lost in process of
further rectification, during the period from January 1, 1951 to
February 27, 1954; and (2) In assuming jurisdiction over the case.

It appears that the specific taxes in question were assessed by the


petitioner "in accordance with section 133 the Tax Code". Up to
December 31, 1950, said section reads:
SEC 133. Specific tax on distilled spirits. On distilled spirits there
shall be collected, except as hereinafter provided, specific taxes as
follows:
(a) If produced from sap of the nipa, coconut, casava, camote, or buri
palm, or from the juice syrup, or sugar of the cane, per proof liter,
forty-five centavo.
(b) If produced from any other material, per proof liter, one peso and
seventy centavos.
This tax shall be proportionately increased for any strength of the
spirits taxed over proof spirits.
"Distilled spirits", as here used, includes all substances known as ethyl
alcohol, dehydrated oxide of ethyl, or spirits of wine, which are
commonly produced by the fermentation and subsequent distillation of
grain starch, molasses, or sugar, or of some syrup of sap, including all
dilutions or mixtures; and the tax shall attach to this substance as soon
as it is in existence as such, whether it be subsequently separated as
pure or impure spirits, or be immediately or at any subsequent time
transformed into any other substance either in process of original
production or by any subsequent process.
Pursuant to the above provision of law, therefore, "the tax shall attach
to this substance as soon is it is in existence as such" etc. However, on
January 1, 1951, Republic Act No. 592 took effect, amending section
133 and the clause underlined above had been eliminated. The evident
intention of the law maker in deleting the all embracing underlined
clauses, was to subject to specific tax not all kinds of alcoholic
substances, but only distilled spirits as finished products, actually
removed from the factory or bonded warehouse. The said amendment
could not mean anything else; it is in harmony with section 129, of the
same Tax Code, which provides
SEC 129. Removal of spirits or cigar under bond. Spirits requiring
rectification may be removed from the place of their manufacture to
some other establishment for the purpose of rectification without the
prepayment of the specific tax, provided the distiller removing such
spirits and the rectifier receiving them shall file with the Collector of
Internal Revenue their joint bond conditioned upon the future payment
by the rectifier of the specific tax that may be due on any finished
product. . . . .
And if one would consider that the Tax Code does no prohibit further
rectification or distillation and defines in section 194 thereof, a rectifier
as a person who rectifies, purifies or refines distilled spirits, the
conclusion is logical that when alcohol, even if already distilled (as in

the present case) or rectified, is again rectified, purified or refined, the


specific tax should be based on the finished product, and not on the
evaporated alcohol. The intention not to subject to specific tax all kinds
of alcoholic substances but only distilled spirits as finished products, is
reflected in former Senator Garcia's observation on the floor of the
Senate, during the discussion of House Bill No. 1443 (now Rep. Act No.
592), when he proposed the elimination of the phrase "and the tax shall
attach to this substances as soon as it is in existence as such, etc." He
said
That is why, Mr. President, in Section 1 of this Bill now under
consideration. I have some serious objections to the provision where all
kinds of alcoholic substance which falls under the definition of proof
spirits in the last paragraph of the same Section I of the proposed
measure are taxable because this is one of those that I consider of
deterrent effect to the industrialization of this country . . . (Senate
Diario No. 6, Jan. 15, 1951, Original 4th Special Session; Emphasis
supplied.)
And on August 23, 1956, upon the recommendation of the Bureau of
Internal Revenue itself, Rep. Act No. 1608 was passed, amending
section 133 of the Tax Code, as amended by R. A. No. 592, restoring the
very same clause which was eliminated (Sec. 7, R.A. No. 1608). The
inference, therefore, is clear that from January 1, 1951, when Rep. Act
No. 592, took effect, until August 23, 1956, when R.A. No. 1608 became
a law, the tax on alcohol did not attach as soon as it was in existence as
such, but on the finished product. And this must be so, otherwise a
great injustice would be caused upon a duly licensed rectifier, who, like
the respondent herein, will be made to pay the specific tax on the
alcohol lost thru evaporation, from which no one has been benefited,
based on the provision of laws then extant, of doubtful application. In
every case of doubt, tax statutes are construed most strongly against
the government and in favor of the citizens, because burdens are not to
be imposed beyond what the statutes expressly and clearly import
(MRR Co. v. Coll. of Customs, 52 Phil. 950 Luzon Stev. Co. v. Trinidad,
43 Phil. 803, 809). It should be pointed out also that said section 129
was amended adding the following
And provided, further, That in cases where alcohol has already been
rectified either by original and continuous distillation or by
redistillation is further rectified, no loss for rectification and handling
shall be allowed and the rectifier thereof shall pay the specific tax due
on such losses (Sec. 5, Rep. Act No. 1608).
which obviously reveals that the purpose of the amendment is to tax,
only now, alcohol lost, in further distillation or rectification. This law
certainly should not be given retroactive effect, so as to cover the
period in question (January 1, 1951 to February 27, 1954). It is only

after August 23, 1956 that the government woke up from its lethargy
and hastened to fill the hiatus.
The second assignment of error is predicated upon the proposition, that
the respondent Court of Tax Appeals had no jurisdiction over the case,
because the petition for review was not filed within the 30-day period
as provided by section 11 of Rep. Act No. 1125 (Law creating the CTA),
which states
SEC. 11. Who may appeal; effect of appeal. Any person, association
or corporation adversely affected by a decision or ruling of the
Collector of Internal Revenue, the Collector of Customs . . . or any
provincial or city Board of Assessment Appeals, may file an appeal in
the Court of Tax Appeals within thirty days after the receipt of such
decision or ruling . . .
Conceding for the purpose of argument that the ruling appealable was
the letter-assessment dated May 1, 1954, still we believe that the
petition for review to the Tax Court was filed within the time. The intraoffice arrangement in the Bureau of Internal Revenue allowed a
taxpayer to appeal from the ruling of the Collector to a Conference
Staff of the same Bureau. The appeal made on September 1, 1954, to
the Conference Staff, from said letter-assessment dated May 8, 1954
(received by the respondent on May 28, 1954), which was reiterated in
petitioner's letter of August 26, 1954, (received by the respondent on
August 31, 1954), had suspended the period because it was a remedy
prescribed by the petitioner himself, made available to the respondent
(Collector of Int. Rev. v. Suck Consolidated Mining Co., L-11527, Nov.
25, 1958). When the Conference Staff gave due course to the appeal on
September 3, 1954, the petitioner gave the impression that his letterassessments of May 8 and August 26, 1954, were still subject to review
by his Conference Staff. And when the Conference Staff finally refused
to reconsider its ruling requiring respondent to deposit of the
amount of the tax in cash, and payment of the balance or guaranteed by
a surety bond, after the submission of two requests for reconsideration,
the second denial having been received by respondent only on March
16, 1955 (Exh. I-16), said it was then only, that the petitioner may or
can be said to have rejected the administrative appeal and gave finality
to his letter of August 26, 1954. We believe that petitioner did not
create the Conference Staff and permitted a taxpayer to appeal to it
from his ruling, as a mere administrative expediency, to delay the
taxpayer from appealing to the Tax Court, and thus allow the period of
his appeal to lapse. We should presume that this injurious result was
not intended by the Government. This being the case, as it is the case,
when respondent lodged its petition for review with the Tax Court on
March 18, 1955, only three (3) days in all, had elapsed, out of the
period. The period within which the review must be sought, should be

counted from the denial of the motion for reconsideration because of


the principle that all administrative remedies must be exhausted before
recourse to the courts can be had against orders or decisions of
administrative bodies (Sec. of Agriculture, etc., et al. v. Hoar, et al.,
G.R. No. L-7752, May 27, 1955). If, as it should be, the final appealable
ruling of the petitioner, was that received by respondent on March 16,
1955, then only two (2) days had been consumed by the respondent of
the statutory period. In either case, the appeal to the Tax Court was
presented on time and the latter has jurisdiction to take cognizance of
the case.
WHEREFORE, the decision appealed from is hereby affirmed, without
pronouncement as to costs.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-34526 August 9, 1988
HIJO PLANTATION INC., DAVAO FRUITS CORPORATION, TWIN
RIVERS PLANTATION, INC. and MARSMAN & CO., INC., for
themselves and in behalf of other persons and entities similarly
situated, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent.
PARAS, J.:
This is a petition for certiorari and prohibition which seeks: (1) to
declare Monetary Board Resolution No. 1995, series of 1971, as null
and void; (2) to prohibit the Central Bank from collecting the
stabilization tax on banana exports shipped during the period January
1, 1972 to June 30, 1982; and (3) a refund of the amount collected as
stabilization tax from the Central Bank.
The facts of this case as culled from the records are as follows:
Hijo Plantation, Inc., Davao Fruits Corporation, Twin Rivers Plantation,
Inc. and Marsman Plantation (Manifestation, Rollo, P. 18), collectively
referred to herein as petitioners, are domestic corporations duly

organized and existing under the laws of the Philippines, all of which
are engaged in the production and exportation of bananas in and from
Mindanao.
Owing to the difficulty of determining the exchange rate of the peso to
the dollar because of the floating rate and the promulgation of Central
Bank Circular No. 289 which imposes an 80% retention scheme on all
dollar earners, Congress passed Republic Act No. 6125 entitled "an act
imposing STABILIZATION TAX ON CONSIGNMENTS ABROAD TO
ACCELERATE
THE
ECONOMIC
DEVELOPMENT
OF
THE
PHILIPPINES AND FOR OTHER PURPOSES," approved and made
effective on May 1, 1970 (Comment on Petition, Rollo, p, 32), to
eliminate the necessity for said circular and to stabilize the peso.
Among others, it provides as follows:
SECTION 1. There shall be imposed, assessed and collected a
stabilization tax on the gross F.O.B. peso proceeds, based on the rate of
exchange prevailing at the time of receipt of such proceeds, whether
partial or total, of any exportation of the following products in
accordance with the following schedule:
a. In the case of logs, copra, centrifugal sugar, and copper ore and
concentrates:
Ten per centum of the F.O.B. peso proceeds of exports received on or
after the date of effectivity of this Act to June thirty, nineteen hundred
seventy one;
Eight per centum of the F.O.B. peso proceeds of exports received from
July first, nineteen hundred seventy-one to June thirty, nineteen
hundred seventy-two;
Six per centum of the F.O.B. peso proceeds of exports received from
July first, nineteen hundred seventy two to June thirty, nineteen
hundred seventy- three; and
Four per centum of the F.O.B. peso proceeds of exports received from
July first, nineteen hundred seventy-three to June thirty, nineteen
hundred seventy-four.
b. In the case of molasses, coconut oil, dessicated coconut, iron ore and
concentrates, chromite ore and concentrates, copra meal or cake,
unmanufactured abaca, unmanufactured tobacco, veneer core and
sheets, plywood (including plywood panels faced with plastics), lumber,
canned pineapples, and bunker fuel oil;
Eight per centum of the F.O.B. peso proceeds of exports shipped on or
after the date of effectivity of this Act to June thirty, nineteen hundred
seventy-one;
Six per centum of the F.O.B. peso proceeds of exports shipped from July
first, nineteen hundred seventy one to June thirty nineteen hundred
seventy- two;

Four per centum of the F.O.B. peso proceeds of exports shipped from
July first, nineteen hundred seventy-two to June thirty nineteen
hundred seventy-three; and
Two per centum of the F.O.B. peso proceeds of exports shipped from
July first, nineteen hundred seventy three to June thirty nineteen
hundred seventy-four.
Any export product the aggregate annual F.O.B. value of which shall
exceed five million United States dollars in any one calendar year
during the effectivity of this Act shall likewise be subject to the rates of
tax in force during the fiscal years following its reaching the said
aggregate value. (Emphasis supplied).
During the first nine (9) months of calendar year 1971, the total banana
export amounted to an annual aggregate F.O.B. value of P8,949,000.00
(Answer, Rollo, p. 73) thus exceeding the aggregate F.O.B. value of five
million United States Dollar, bringing it within the ambit of Republic
Act No. 6125. Consequently, the banana industry was in a dilemma as
to when the stabilization tax was to become due and collectible from it
and under what schedule of Section 1 (b) of Republic Act 6125 should
said tax be collected. Accordingly, petitioners through their counsel, by
letter dated November 5, 1971, sought the authoritative
pronouncement of the Central Bank (herein referred to as respondent),
therein advancing the opinion that the stabilization tax does not
become due and collectible from the petitioners until July 1, 1972 at the
rate of 4% of the F.O.B. peso proceeds of the exports shipped from July
1, 1972 to June 30,1973. Replying by letter dated December 17,1971
(Rollo, p. 11), the Central Bank called attention to Monetary Board
Resolution No. 1995 dated December 3, 1971 which clarified that:
1) For exports of bananas shipped during the period from January 1,
1972 to June 30, 1972; the stabilization tax shall be at the rate of 6%;
2) For exports of bananas shipped during the period from July 1, 1972
to June 30, 1973, the stabilization tax shall be at the rate of 4%; and
3) For exports of bananas shipped during the period from July 1, 1973,
to June 30, 1974, the stabilization tax shall be at the rate of 2%."
Contending that said Board Resolution No. 1995 was manifestly
contrary to the legislative intent, petitioners sought a reconsideration
of said Board Resolution by letter dated December 27, 1971 (Rollo, p.
12) which request for reconsideration was denied by the respondent,
also by letter dated January 20, 1972 (Rollo, p. 24). With the denial of
petitioners' request for reconsideration, respondent thru its agent
Bank, Rizal Commercial Banking Corporation has been collecting from
the petitioners who have been forced to pay under protest, such
stabilization tax.

Petitioners view respondent's act as a clear violation of the provision of


Republic Act No. 6125, and as an act in excess of its jurisdiction, hence,
this petition.
The sole issue in this case is whether or not respondent acted with
grave abuse of discretion amounting to lack of jurisdiction when it
issued Monetary Board Resolution No. 1995, series of 1971 which in
effect reaffirmed Central Bank Circular No. 309, enacted pursuant to
Monetary Board Resolution No. 1179.
There is here no dispute that the banana industry is liable to pay the
stabilization tax prescribed under Republic Act No. 1995, it being the
admission of both parties, that the Industry has indeed reached and for
the first time in the calendar year 1971, a total banana export
exceeding the aggregate annual F.O.B. value of five million United
States dollars. The crux of the controversy, however, is the manner of
implementation of Republic Act No. 6125.
Section 1 of R.A. 6125 clearly provides as follows:
An export product the aggregate annual F.O.B. value of which shall
exceed five million US dollars in any one calendar year during the
effectivity of the act shall likewise be subject to the rates of tax in force
during the fiscal year following its reaching the said aggregate value."
Petitioners contend that the stabilization tax to be collected from the
banana industry does not become due and collectible until July 1, 1972
at the rate of 4% of the F.O.B. peso proceeds of the export shipped from
July 1, 1972 to June 30,1973. They further contend that respondent
gave retroactive effect to the law (RA 6125) by ruling in Monetary
Board Resolution No. 1995 dated December 3, 1 971, that the export
stabilization tax on banana industry would start to accrue on January 1,
1972 at the rate of 6% of the F.O.B. peso proceeds of export shipped
from July 1, 1971 to June 30, 1972 (Rollo, pp. 3-4).
Respondent, on the other hand, contends that the aforecited provision
of RA 6125 merely prescribes the rates that may be imposed but does
not provide when the tax shall be collected and makes no reference to
any definite fixed period when the tax shall begin to be collected (Rollo,
pp. 77-78). There is merit in this petition.
In the very nature of things, in many cases it becomes impracticable for
the legislative department of the Government to provide general
regulations for the various and varying details for the management of a
particular department of the Government. It therefore becomes
convenient for the legislative department of the government, by law, in
a most general way, to provide for the conduct, control, and
management of the work of the particular department of the
government; to authorize certain persons, in charge of the management
and control of such department (United States v. Tupasi Molina, 29
Phil. 119 [19141).

Such is the case in RA 6125, which provided in its Section 6, as follows:


All rules and regulations for the purpose of carrying out the provisions
of the act shall be promulgated by the Central Bank of the Philippines
and shall take effect fifteen days after publication in three newspapers
of general circulation throughout the Philippines, one of which shall be
in the national language.
Such regulations have uniformly been held to have the force of law,
whenever they are found to be in consonance and in harmony with the
general purposes and objects of the law. Such regulations once
established and found to be in conformity with the general purposes of
the law, are just as binding upon all the parties, as if the regulation had
been written in the original law itself (29 Phil. 119, Ibid). Upon the
other hand, should the regulation conflict with the law, the validity of
the regulation cannot be sustained (Director of Forestry vs. Muroz 23
SCRA 1183).
Pursuant to the aforecited provision, the Monetary Board issued
Resolution No. 1179 which contained the rules and regulations for the
implementation of said provision which Board resolution was
subsequently embodied in Central Bank Circular No. 309, dated August
10, 1970 (duly published in the Official Gazette, Vol. 66, No. 34, August
24, 1940, p. 7855 and in three newspapers of general circulation
throughout the Philippines namely, the Manila Times, Manila Chronicle
and Manila Daily Bulletin). Section 3 of Central Bank Circular No. 309,
"provides that the stabilization tax shall begin to apply on January first
following the calendar year during which such export products shall
have reached the aggregate annual F.O.B. value of more than $5 million
and the applicable tax rates shall be the rates prescribed in schedule
(b) of Section 1 of RA No. 6125 for the fiscal year following the
reaching of the said aggregate value." Central Bank Circular No. 309
was subsequently reaffirmed in Monetary Board Resolution No. 1995
herein assailed by petitioners for being null and void (Rollo, pp. 97- 98).
In its comment (Rollo, p. 40), respondent argues that the request for
authoritative pronouncement of petitioners was made because there
was no express provision in Section 1 of RA 6125 which categorically
states, when the stabilization tax shall begin to accrue on those
aggregate annual F.O.B. values exceeding five (5) million United States
dollars in any one calendar year during the effectivity of said act. For
which reason, the law itself authorized it under Section 7 to promulgate
rules and regulations to carry out the provisions of said law.
In petitioner's reply (Rollo, p. 154) they argue that since the Banana
Exports reached the aggregate annual F.O.B. value of US $5 million in
August 1971, the stabilization tax on banana should be imposed only on
July 1, 1972, the fiscal year following the calendar year during which
the industry attained the $5 million mark. Their argument finds support

in the very language of the law and upon congressional record where a
clarification on the applicability of the law was categorically made by
the then Senator Aytona who stated that the tax shall be applicable only
after the $5 million aggregate value is reached, making such tax
prospective in application and for a period of one year- referring to the
fiscal year (Annex 8, Comment of Respondent; Rollo, p. 60). Clearly
such clarification was indicative of the legislative intent. Further, they
argue that respondent bank through the Monetary Board clearly
overstepped RA 6125 which empowered it to promulgate rules and
regulations for the purpose of carrying out the provisions of said act,
because while Section 1 of the law authorizes it to levy a stabilization
tax on petitioners only in the fiscal year following their reaching the
aggregate annual F.O.B. value of US $5 million, that is, the fiscal year
July 1, 1972 to June 30, 1973, at a tax rate of 4% of the F.O.B. peso
proceeds, respondent in gross violation of the law, instead issued
Resolution No. 1995 which impose a 6% stabilization tax for the
calendar year January 1, 1972 to June 30, 1972, which obviously is in
excess of its jurisdiction. It was further argued that in directing its
agent bank to collect the stabilization tax in accordance with Monetary
Board Resolution No. 1995, it acted whimsically and capriciously.
(Rollo, p. 155).
It will be observed that while Monetary Board Resolution No. 1995
cannot be said to be the product of grave abuse of discretion but rather
the result of respondent's overzealous desire to carry into effect the
provisions of RA 6125, it is evident that the Board acted beyond its
authority under the law and the Constitution. Hence, the petition for
certiorari and prohibition in the case at bar, is proper.
Moreover, there is no dispute that in case of discrepancy between the
basic law and a rule or regulation issued to implement said law, the
basic law prevails because said rule or regulation cannot go beyond the
terms and provisions of the basic law (People vs. Lim, 108 Phil. 1091).
Rules that subvert the statute cannot be sanctioned (University of Sto.
Tomas v. Board of Tax Appeals, 93 Phil. 376; Del Mar v. Phil. Veterans
Administration, 51 SCRA 340). Except for constitutional officials who
can trace their competence to act to the fundamental law itself, a public
official must locate to the statute relied upon a grant of power before
he can exercise it. Department zeal may not be permitted to outrun the
authority conferred by statute (Radio Communications of the
Philippines, Inc. v. Santiago L-29236, August 21, 1974, 58 SCRA 493;
cited in Tayug Rural Bank v. Central Bank, L-46158, November
28,1986,146 SCRA 120,130).
PREMISES CONSIDERED, this petition is hereby GRANTED.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-69136 September 30, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MEGA GENERAL MERCHANDISING CORPORATION and THE
COURT OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Fortunato S. Rivera for respondents.
PARAS, J.:
This is a petition for review of the decision of the Court of Tax Appeals,
promulgated on May 21, 1984, in CTA Case No. 3078 entitled "Mega
General Merchandising Corporation vs. Commissioner of Internal
Revenue," holding that respondent corporation is not liable for specific
tax in the sum of P275,652.00 on its importations of crude paraffin wax
on June 21 and August 17, 1977 under Section 142(i) of the Tax Code,
as amended by P.D. No. 392, but to 7% advance sales tax, (now Section
197 II) in relation to Section 186 (now Section 200 of the Tax Code) and
further ordering the Commissioner of Internal Revenue to refund or
credit to petitioner the said assessment (Rollo, Annex "C", pp. 38-47).
The antecedent facts of this case are as follows:
Prior to the promulgation of P.D. No. 392 on February 18, 1974, all
importations of paraffin wax, irrespective of kind and nature, were
subject to 7% advance sales tax on landed costs plus 25% mark up
pursuant to Section 183(b) now Section 197(II) in relation to Section
186 (now Section 200) of the Tax Code.
With the promulgation of P.D. No. 392, a new provision for the
imposition of specific tax was added to Section 142 of the Tax Code,
that is, sub- section (i) which reads:
Section 142. Specific tax on manufactured oils and other fuels.On
refined and manufactured mineral oils and other motor fuels, there
shall be collected the following taxes:
(i) Greases, waxes and petroleum, per kilogram, thirty-five centavos; ...
Therefore, beginning February 18,1974, the date of effectivity of P.D.
No. 392, all importations of paraffin wax were subject to the specific
tax imposed under Section 142(i) of the Tax Code, instead of the former
7% sales tax.
Hence, respondent corporation paid the corresponding specific tax
thereon in the total amount of P177,750.00 which applies to its total
importation of crude paraffin on April 18, 1975, or exactly 1 year and 2
months after the effectivity of P.D. No. 392.

On April 22, 1975, the respondent corporation wrote the Commissioner


of Internal Revenue for clarification as to whether imported crude
paraffin wax is subject to specific tax under Section 142 (i) of the Tax
Code, as amended by P.D. No. 392, or to the 7% advance sales tax.
Former Commissioner Misael P. Vera in his reply to said query dated
May 14, 1975 ruled that only wax used as high pressure lubricant and
micro crystallin is subject to specific tax; that paraffin which was used
as raw material in the manufacture of candles, wax paper, matches,
crayons, drugs, appointments etc., is subject to the 7% advance sales
tax, the tax to be based on the landed cost thereof, plus 25% mark-up.
Due to Commissioner Vera's ruling of May 14, 1975, several importers
including respondent corporation filed several claims for tax refund or
tax credit of specific tax paid by them on importation of crude paraffin
wax.
Considering that respondent corporation had paid the amount of
P477,750.00 as specific tax pursuant to Section 142(i) of the Tax Code
on its importation of crude paraffin wax on April 18, 1975 (an amount
bigger than the 7% advance sales tax prescribed under Section 183(b)
(now Section 197 II) in relation to Section 186 (now Sec. 200 of the Tax
Code) respondent corporation in a letter, dated November 27, 1975,
requested for a refund or tax credit of the amount of P321,436.79
representing the difference between the amount paid as specific tax
and the 7% advance sales tax.
Since the law (Section 142(i) of the Tax Code, amended by P.D. No. 392)
does not make any distinction as to the kind of wax subject to specific
tax, then Acting Commissioner of Internal Revenue Efren I. Plana, on
January 28, 1977 denied respondent Corporation's claim for refund or
tax credit of the amount of P321,436,79. On this ruling, respondent
corporation filed a request for reconsideration. This was denied by
petitioner.
During the pendency of respondent corporation's request for
reconsideration, an investigation was conducted by the Bureau of
Internal Revenue in connection with the importations of wax and
petroleum that arrived in the country on or subsequent to the date of
the ruling of January 28, 1977 and it was ascertained that respondent
Corporation owes the government specific tax for importation of
1,214,400 kilograms of paraffin wax on June 21, 1977 and August 17,
1977 which gave rise to the letter of assessment dated May 8, 1978 for
P275,652.00 re the subject matter in this case.
Prior, however, to the issuance of the said letter of assessment of May
8, 1978, petitioner in a letter dated January 11, 1978, granted
respondent corporation's claim for refund or tax credit of the amount of
P321,436.79 since the importation which had arrived in Manila on April

18, 1975 was covered by the ruling of May 14, 1975 (before its
revocation by the ruling of January 28, 1977).
Respondent corporation protested the tax assessment of May 8,1978 in
the amount of P275,652.00 in a letter dated June 5, 1978 alleging that
crude paraffin wax is subject to 7% advance sales tax pursuant to
petitioner's ruling of May 14, 1975. The protest was denied by
petitioner in a letter dated February 15, 1980.
During the pendency of the request of respondent corporation for
reconsideration, it appealed to respondent Court of Tax Appeals (Annex
"A", Rollo, pp. 26-35) and petitioner filed his answer on September 10,
1980 (Annex "B", Rollo, pp. 3647).
On May 21,1984, respondent Court of Tax Appeals rendered its
decision, the dispositive portion of which reads as follows:
WHEREFORE, the decision of the Commissioner of Internal Revenue
appealed from is hereby reversed. Petitioner is not liable for specific
tax on its importation of crude paraffin wax in the sum of P275,652.00
imposed against petitioner, but only subject to the 7% advance sales tax
which petitioner had already paid. Accordingly, respondent is hereby
ordered to refund or credit petitioner specific tax it paid in the sum of
P275,652.00. Without pronouncement as to costs.
SO ORDERED.
(p. 9, Decision; p. 46, Rollo)
This was later amended to read:
WHEREFORE the decision of the Commissioner of Internal Revenue
appealed from is hereby reversed. Petitioner is not liable for specific
tax on its importation of crude paraffin wax in the sum of P275,652.00
imposed against petitioner but only subject to the 7% D advance sales
tax which petitioner had already paid. Without pro- announcement as to
costs.
SO ORDERED.
Hence, this petition filed on January 15, 1984 (Rollo, pp. 824).
The sole issue raised by petitioner is whether or not respondent
corporation's importation of crude paraffin wax on June 21 and August
17, 1977 are subject to specific tax under Section 142(i) of the Tax
Code, as amended by P.D. No. 392, promulgated on February 18, 1974.
Petitioner contends that the controlling interpretation is that given by
Commissioner Plana and not that of Commissioner Vera.
Petitioner further argues that respondent corporation's request for
refund of the amount of P321,436.79 was granted in the letter of
petitioner dated January 11, 1978 because the importation of private
respondent was made on April 18,1975 wherein petitioner made clear
that all importation of crude paraffin wax only after the ruling of
January 28, 1977, is subject to specific tax prescribed in Section 142(i)
of the Tax Code as amended by P.D. No. 392.

Moreover, the importation which gave rise to the assessment in the


amount of P275,652.00 subject of this case, was made on June 27, 1977
and August 17, 1977 and that the petitioner's ruling of January 28,1977
was not revoked or overruled by his letter of January 11, 1978 granting
respondent corporation's request for refund of the amount of
P321,436.79.
Petitioner's contention is completely meritorious.
The Court of Tax Appeals' decision aptly stated:
It will be starkly noted that in a ruling of respondent Commissioner of
Internal Revenue dated January 11, 1978 (p. 204, BIR Rec.), the
request for reconsideration of petitioner of the ruling holding it liable
for specific tax and for the tax credit of the sum of P321,436.79 paid as
specific tax was granted by the Commissioner of Internal Revenue. In
effect, this ruling overrules that of January 28, 1977 holding petitioner
liable for specific tax on its importations of crude paraffin wax. The
ruling of January 11, 1978 having overruled that of January 28, 1977,
the importations of crude paraffin made on June 21 and August 17,
1977 ostensibly became once more subject to the ruling of May 14,
1975 which held such importation of crude paraffin wax as not liable to
specific tax under the provisions of Section 142(i) of the National
Internal Revenue Code, as amended by PD 392. In other words, there
was no other ruling which is prior to or was made to apply to the
importations of petitioner of crude paraffin wax on June 21 and August
17, 1977, except only that ruling of the Commissioner of Internal
Revenue of May 14, 1975 which applied Section 142(i), as amended by
PD 392, of the National Revenue Code, which took effect on February
18, 1974, and that this provision of Section 142(i), as amended, has
remained unchanged since then. It is clearly and legally justified to
conclude that this ruling of the Commissioner of Internal Revenue of
May 14, 1975 shall prospectively apply in favor of the importations of
crude paraffin wax on June 21 and August 17, 1977 in question. This is
the ruling, which assured the taxpayer, Mega General Merchandising
Corporation, that for its importations of crude paraffin wax, it shall only
be liable to 7% advance sales tax and no more. To make petitioner
liable for specific tax after it has made the importations, would surely
prejudice petitioner as it would be subject to a tax liability of which the
Bureau of Internal Revenue has not made it fully aware. As a result, the
rulings of May 8, 1978 and February 15, 1980 having been issued long
after the importations on June 21 and August 1 7, 1977 in question
cannot be applied with legal effect in this case because to do so will
violate the prohibition against retroactive application of the rulings of
executive bodies. Rulings or circulars promulgated by the
Commissioner of Internal Revenue, such as the rulings of January 28,
1977 and those of May 8, 1978 and February 15, 1980, can not have

any retroactive application, where to do so, as it did in the case at bar,


would prejudice the taxpayer. (ABS-CBN Broadcasting Corp. vs. Court
of Tax Appeals & Com. of Int. Revenue, G.R. No. L-523b6, October 23,
1981). Also, the re-enactment of Section 142(i) of the National Internal
Revenue Code, as amended by PD 392, which provision of law has
substantially remained unchanged is a clear indication that Congress
has adopted its prior executive construction and which means that
imported crude paraffin wax is not subject to specific tax thereunder
pursuant to the BIR ruling dated May 14, 1975. (Alexander Howden &
Co., Ltd. vs. Coll. of Int. Rev., 13 SCRA 601). (pp. 11-13, Petition; pp.
18-20, Rollo)
Contrary to the Court of Tax Appeals' ruling, We believe that the letter
of Commissioner Plana dated January 11, 1978 did not in any way
revoke his ruling dated January 28,1977 which ruling applied the
specific tax to wax (without distinction). The reason he removed in
1978 private respondent's liability for the specific tax was NOT (as
erroneously pointed out by the Court of Tax Appeals) because he
wanted to revoke, expressly or implicitly, his ruling of January 28, 1977
but because the P321,436.79 tax referred to importation BEFORE
January 28, 1977 and hence still covered by the ruling of Commissioner
Vera, and not by the January 28,1977 ruling of Commissioner Plana.
PREMISES CONSIDERED, the decision of the Court of Tax Appeals is
hereby REVERSED and SET ASIDE, and the private respondent is
ordered to pay the tax as assessed by the Commissioner of Internal
Revenue, together with interest. No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-14880
April 29, 1960
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
FILIPINAS COMPAIA DE SEGUROS, respondent.
Assistant Solicitor General Jose P. Alejandro and Special Attorney Jaime
M. Maza for petitioner.Ramon T. Garcia for respondent.
BARRERA, J.:
Respondent Filipinas Compaia de Seguros, an insurance company, is
also engaged in business as a real estate dealer. On January 4, 1956,
respondent, in accordance with the single rate then prescribed under
Section 182 of the National Internal Revenue Code. 1 paid the amount of
P150.00 as real estate dealer's fixed annual tax for the year 1956.
Subsequently said Section 182 of the Code was amended by Republic

Act No. 1612, which took effect on August 24, 1956, by providing a
small of graduated rates: P150 if the annual income of the real estate
dealer from his business as such is P4,000, but does not exceed
P10,000; P300, if such annual income exceeds P10,000 but does not
exceed P30,000; and P500 if such annual income exceeds P30,000.
On June 17, 1957, petitioner Commissioner of Internal Revenue
assessed and demanded from respondent (whose annual income
exceeded P30,000.00) the amount of P350.00 as additional real estate
dealer's fixed annual tax for the year 1956. On July 16, 1957,
respondent wrote a letter to petitioner stating that the "records will
show that the real estate dealer's fixed tax for 1956 of this Company
was fully paid by us prior to the effectivity of Republic Act No. 1612
which amended, among other things, Sections 178 and 192 of the
National Internal Revenue Code." And, as to the retroactive effect of
said Republic Act No. 1612, respondent added that the Republic Act
No. 1856 which, among other things, amended Section 182 of the
National Internal Revenue Code, Congress has clearly shown its
intention when it provided that the increase in rates of taxes envisioned
by Republic Act No. 1612 is to be made effective as of 1 January 1957".
On October 23, 1957, petitioner informed respondent that "Republic
Act No. 1856 which took effect June 22, 1957 amended the date of
effectivity of Republic Act 1612 to January 1, 1957. However, the said
amendment applies only to fixed taxes on occupation and not to fixed
taxes on business." Hence, petitioner insisted that respondent should
pay the amount of P350.00 as additional real estate dealer's fixed
annual tax for the year 1956.
On November 20, 1957, respondent filed with the Court of Tax Appeals
a petition for review. To this petition, petitioner filed his answer on
December 6, 1957. As petitioner practically admitted the material
factual allegations in the petition for review, the case was submitted for
judgment on the pleadings. On November 22, 1958, the Court of Tax
Appeals rendered a decision sustaining the contention of respondent
company and ordering the petitioner Commissioner of Internal Revenue
to desist from collecting the P350.00 additional assessment. From this
decision, petitioner appealed to us.
As a rule, laws have no retroactive effect, unless the contrary is
provided. (Art. 4, Civil Code of the Philippines; Manila Trading and
Supply Co. vs. Santos, et al., 66 Phil., 237; La Provisora Filipina vs.
Ledda, 66 Ph 573.) Otherwise stated, a state should be consider as
prospective in its operation whether it enacts, amen or repeals a tax,
unless the language of the statute clearly demands or expresses that it
shall have a retroactive effect (61 C. J. 1602, cited in Loremo vs.
Posadas, 64 Phi 353.) The rule applies with greater force to the case
bar, considering that Republic Act No. 1612, which imposes the new

and higher rates of real estate dealer's annual fixed tax, expressly
provides in Section 21 thereof the said Act "shall take effect upon its
approval" on August 24, 1956.
The instant case involves the fixed annual real estate dealer's tax for
1956. There is no dispute that before the enactment of Republic Act
No. 1612 on August 2 1956, the uniform fixed annual real estate
dealer's was P150.00 for all owners of rental properties receiving an
aggregate amount of P3,000.00 or more a year in the form of rentals 2
and that. "the yearly fixed taxes are due on the first of January of each
year" unless tendered in semi-annual or quarterly installments. Since
the petitioner indisputably paid in full on January 4, 1956, the total
annual tax then prescribed for the year 1956, require it to pay an
additional sum of P350.00 to complete the P500.00 provided in
Republic Act No. 1612 which became effective by its very terms only on
August 24 1956, would, in the language of the Court of Tax Appeals
result in the imposition upon respondent of a tax burden to which it
was not liable before the enactment of said amendatory act, thus
rendering its operation retroactive rather than prospective, which
cannot be done, as it would contravene the aforecited Section 21 of
Republic Act No. 1612 as well as the established rule regarding
prospectivity of operation of statutes. The view that Congress did
intend to impose said increased rates of real estate dealer's annual tax
prospectively and not retroactively, finds some affirmation in Republic
Act No. 1856, approved on June 22, 1957, which fixed the effective date
of said new rates under Republic Act No. 1612 by inserting the
following proviso in Section 182 of the National Internal Revenue Code:
Provided, further, That any amount collected in excess of the rates in
effect prior to January one, nineteen hundred and fifty-seven, shall be
refunded or credited to the taxpayer concerned subject to the
provisions of section three hundred and nine of this Code. (Sec. 182 (b)
(2) (1).)
Petitioner, however, contends that the above-quoted provision refers
only to fixed taxes on occupation and does not cover fixed taxes on
business, such as the real estate dealer's fixed tax herein involved. This
is technically correct, but we note from the deliberations in the Senate,
where the proviso in question was introduced as an amendment, that
said House Bill No. 5919 which became Republic Act No. 1856 was
considered, amended, and enacted into law, in order precisely that the
"iniquitous effects" which were then being felt by taxpayers. in general,
on account of the approval of Republic Act No. 1612, Which was being
given retroactive effect by the Bureau of Internal Revenue by collecting
these taxes retroactively from January 1, 1956, be eliminated and
complaints against such action be finally settled. (See Senate
Congressional Record, May 4, 1957, pp. 10321033.)

It is also to be observed that said House Bill No. 5819 as originally


presented, was expressly intended to amend certain provisions of the
National Internal Revenue Code dealing on fixed taxes on business. The
provisions in respect of fixed tax on occupation were merely
subsequently added. This would seem to indicate that the proviso in
question was intended to cover not only fixed taxes on occupation, but
also fixed taxes on business. (Senate Congressional Record, March 7,
1957, p. 444.)The fact that said proviso was placed only at the end of
paragraph "(B) On occupation" is not, therefore, view of the
circumstances, decisive and unmistakable indication that Congress
limited the proviso to occupation taxes. Even though the primary
purpose of the proviso is to limit restrain the general language of a
statute, the legislature, unfortunately, does not always use it with
technical correctness; consequently, where its use creates an
ambiguity, it is the duty of the court to ascertain the legislative
intention, through resort to usual rules of construction applicable to
statutes, generally an give it effect even though the statute is thereby
enlarged, or the proviso made to assume the force of an independent
enactment and although a proviso as such has no existence apart from
provision which it is designed to limit or to qualify. (Statutory
Construction by E. T. Crawford, pp. 604-605.)
. . . When construing a statute, the reason for its enactment should be
kept in mind, and the statute should be construe with reference to its
intended scope and purpose. (Id. at p. 249.)
On the general principle of prospectivity of statute on the language of
Republic Act 1612 itself, especially Section 21 thereof, and on the basis
of its intended scope and purpose as disclosed in the Congressional
Record we find ourselves in agreement with the Court of Tax Appeals.
Wherefore, the decision appealed from is hereby affirmed without
costs. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-29059 December 15, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX
APPEALS, respondents.
CRUZ, J.:
By virtue of a decision of the Court of Tax Appeals rendered on June 21,
1961, as modified on appeal by the Supreme Court on February 27,
1965, the Commissioner of Internal Revenue was ordered to refund to

the Cebu Portland Cement Company the amount of P 359,408.98,


representing overpayments of ad valorem taxes on cement produced
and sold by it after October 1957.
On March 28, 1968, following denial of motions for reconsideration
filed by both the petitioner and the private respondent, the latter
moved for a writ of execution to enforce the said judgment.
The motion was opposed by the petitioner on the ground that the
private respondent had an outstanding sales tax liability to which the
judgment debt had already been credited. In fact, it was stressed, there
was still a balance owing on the sales taxes in the amount of P
4,789,279.85 plus 28% surcharge.
On April 22, 1968, the Court of Tax Appeals * granted the motion,
holding that the alleged sales tax liability of the private respondent was
still being questioned and therefore could not be set-off against the
refund.
In his petition to review the said resolution, the Commissioner of
Internal Revenue claims that the refund should be charged against the
tax deficiency of the private respondent on the sales of cement under
Section 186 of the Tax Code. His position is that cement is a
manufactured and not a mineral product and therefore not exempt from
sales taxes. He adds that enforcement of the said tax deficiency was
properly effected through his power of distraint of personal property
under Sections 316 and 318 of the said Code and, moreover, the
collection of any national internal revenue tax may not be enjoined
under Section 305, subject only to the exception prescribed in Rep. Act
No. 1125. This is not applicable to the instant case. The petitioner also
denies that the sales tax assessments have already prescribed because
the prescriptive period should be counted from the filing of the sales
tax returns, which had not yet been done by the private respondent.
For its part, the private respondent disclaims liability for the sales
taxes, on the ground that cement is not a manufactured product but a
mineral product. As such, it was exempted from sales taxes under
Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299
on June 16, 1955, in accordance with Cebu Portland Cement Co. v.
Collector of Internal Revenue, decided in 1968. Here Justice Eugenio
Angeles declared that "before the effectivity of Rep. Act No. 1299,
amending Section 246 of the National Internal Revenue Code, cement
was taxable as a manufactured product under Section 186, in
connection with Section 194(4) of the said Code," thereby implying that
it was not considered a manufactured product afterwards. Also, the
alleged sales tax deficiency could not as yet be enforced against it
because the tax assessment was not yet final, the same being still under
protest and still to be definitely resolved on the merits. Besides, the
assessment had already prescribed, not having been made within the

reglementary five-year period from the filing of the tax returns.


Our ruling is that the sales tax was properly imposed upon the private
respondent for the reason that cement has always been considered a
manufactured product and not a mineral product. This matter was
extensively discussed and categorically resolved in Commissioner of
Internal Revenue v. Republic Cement Corporation, decided on August
10, 1983, where Justice Efren L. Plana, after an exhaustive review of
the pertinent cases, declared for a unanimous Court:
From all the foregoing cases, it is clear that cement qua cement was
never considered as a mineral product within the meaning of Section
246 of the Tax Code, notwithstanding that at least 80% of its
components are minerals, for the simple reason that cement is the
product of a manufacturing process and is no longer the mineral
product contemplated in the Tax Code (i.e.; minerals subjected to
simple treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain
their present posture is the case of Cebu Portland Cement Co. v.
Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789)
penned by Justice Eugenio Angeles. For some portions of that decision
give the impression that Republic Act No. 1299, which amended
Section 246, reclassified cement as a mineral product that was not
subject to sales tax. ...
After a careful study of the foregoing, we conclude that reliance on the
decision penned by Justice Angeles is misplaced. The said decision is no
authority for the proposition that after the enactment of Republic Act
No. 1299 in 1955 (defining mineral product as things with at least 80%
mineral content), cement became a 'mineral product," as distinguished
from a "manufactured product," and therefore ceased to be subject to
sales tax. It was not necessary for the Court to so rule. It was enough
for the Court to say in effect that even assuming Republic Act No. 1299
had reclassified cement was a mineral product, the reclassification
could not be given retrospective application (so as to justify the refund
of sales taxes paid before Republic Act 1299 was adopted) because
laws operate prospectively only, unless the legislative intent to the
contrary is manifest, which was not so in the case of Republic Act 1266.
[The situation would have been different if the Court instead had ruled
in favor of refund, in which case it would have been absolutely
necessary (1) to make an unconditional ruling that Republic Act 1299
re-classified cement as a mineral product (not subject to sales tax), and
(2) to declare the law retroactive, as a basis for granting refund of sales
tax paid before Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968
(G.R. No. L-20563) insofar as its pronouncements or any implication
therefrom conflict with the instant decision.

The above views were reiterated in the resolution denying


reconsideration of the said decision, thus:
The nature of cement as a "manufactured product" (rather than a
"mineral product") is well settled. The issue has repeatedly presented
itself as a threshold question for determining the basis for computing
the ad valorem mining tax to be paid by cement Companies. No
pronouncement was made in these cases that as a "manufactured
product" cement is subject to sales tax because this was not at issue.
The decision sought to be reconsidered here referred to the legislative
history of Republic Act No. 1299 which introduced a definition of the
terms "mineral" and "mineral products" in Sec. 246 of the Tax Code.
Given the legislative intent, the holding in the CEPOC case (G.R. No. L20563) that cement was subject to sales tax prior to the effectivity of
Republic Act No. 1299 cannot be construed to mean that, after the law
took effect, cement ceased to be so subject to the tax. To erase any and
all misconceptions that may have been spawned by reliance on the case
of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563,
October 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles,
the Court has expressly overruled it insofar as it may conflict with the
decision of August 10, 1983, now subject of these motions for
reconsideration.
On the question of prescription, the private respondent claims that the
five-year reglementary period for the assessment of its tax liability
started from the time it filed its gross sales returns on June 30, 1962.
Hence, the assessment for sales taxes made on January 16, 1968 and
March 4, 1968, were already out of time. We disagree. This contention
must fail for what CEPOC filed was not the sales returns required in
Section 183(n) but the ad valorem tax returns required under Section
245 of the Tax Code. As Justice Irene R. Cortes emphasized in the
aforestated resolution:
In order to avail itself of the benefits of the five-year prescription period
under Section 331 of the Tax Code, the taxpayer should have filed the
required return for the tax involved, that is, a sales tax return. (Butuan
Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29, 1966, 16 SCRA
277). Thus CEPOC should have filed sales tax returns of its gross sales
for the subject periods. Both parties admit that returns were made for
the ad valorem mining tax. CEPOC argues that said returns contain the
information necessary for the assessment of the sales tax. The
Commissioner does not consider such returns as compliance with the
requirement for the filing of tax returns so as to start the running of the
five-year prescriptive period.
We agree with the Commissioner. It has been held in Butuan Sawmill
Inc. v. CTA, supra, that the filing of an income tax return cannot be
considered as substantial compliance with the requirement of filing

sales tax returns, in the same way that an income tax return cannot be
considered as a return for compensating tax for the purpose of
computing the period of prescription under Sec. 331. (Citing Bisaya
Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R.
Nos. L-12100 and L-11812, May 29, 1959). There being no sales tax
returns filed by CEPOC, the statute of stations in Sec. 331 did not begin
to run against the government. The assessment made by the
Commissioner in 1968 on CEPOC's cement sales during the period from
July 1, 1959 to December 31, 1960 is not barred by the five-year
prescriptive period. Absent a return or when the return is false or
fraudulent, the applicable period is ten (10) days from the discovery of
the fraud, falsity or omission. The question in this case is: When was
CEPOC's omission to file that return deemed discovered by the
government, so as to start the running of said period?
The argument that the assessment cannot as yet be enforced because it
is still being contested loses sight of the urgency of the need to collect
taxes as "the lifeblood of the government." If the payment of taxes
could be postponed by simply questioning their validity, the machinery
of the state would grind to a halt and all government functions would
be paralyzed. That is the reason why, save for the exception already
noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. No
court shall have authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge imposed
by this Code.
It goes without saying that this injunction is available not only when the
assessment is already being questioned in a court of justice but more so
if, as in the instant case, the challenge to the assessment is still-and
only-on the administrative level. There is all the more reason to apply
the rule here because it appears that even after crediting of the refund
against the tax deficiency, a balance of more than P 4 million is still due
from the private respondent.
To require the petitioner to actually refund to the private respondent
the amount of the judgment debt, which he will later have the right to
distrain for payment of its sales tax liability is in our view an Idle ritual.
We hold that the respondent Court of Tax Appeals erred in ordering
such a charade.
WHEREFORE, the petition is GRANTED. The resolution dated April 22,
1968, in CTA Case No. 786 is SET ASIDE, without any pronouncement
as to costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-52306 October 12, 1981
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision of the Court of
Tax Appeals in C.T.A. Case No. 2809, dated November 29, 1979, which
affirmed the assessment by the Commissioner of Internal Revenue,
dated April 16, 1971, of a deficiency withholding income tax against
petitioner, ABS-CBN Broadcasting Corporation, for the years 1965,
1966, 1967 and 1968 in the respective amounts of P75,895.24,
P99,239.18, P128,502.00 and P222, 260.64, or a total of P525,897.06.
During the period pertinent to this case, petitioner corporation was
engaged in the business of telecasting local as well as foreign films
acquired from foreign corporations not engaged in trade or business
within the Philippines. for which petitioner paid rentals after
withholding income tax of 30%of one-half of the film rentals.
In so far as the income tax on non-resident corporations is concerned,
section 24 (b) of the National Internal Revenue Code, as amended by
Republic Act No. 2343 dated June 20, 1959, used to provide:
(b) Tax on foreign corporations.(1) Non-resident corporations.
There shall be levied, collected, and paid for each taxable year, in lieu
of the tax imposed by the preceding paragraph, upon the amount
received by every foreign corporation not engaged in trade or business
within the Philippines, from an sources within the Philippines, as
interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income, a tax
equal to thirty per centum of such amount. (Emphasis supplied)
On April 12, 1961, in implementation of the aforequoted provision, the
Commissioner of Internal Revenue issued General Circular No. V-334
reading thus:
In connection with Section 24 (b) of Tax Code, the amendment
introduced by Republic Act No. 2343, under which an income tax equal
to 30% is levied upon the amount received by every foreign corporation
not engaged in trade or business within the Philippines from all sources
within this country as interest, dividends, rents, salaries, wages,
premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and

income, it has been determined that the tax is still imposed on income
derived from capital, or labor, or both combined, in accordance with the
basic principle of income taxation (Sec. 39, Income Tax Regulations),
and that a mere return of capital or investment is not income (Par. 5,06,
1 Mertens Law of Federal 'Taxation). Since according to the findings of
the Special Team who inquired into business of the non-resident foreign
film distributors, the distribution or exhibition right on a film is
invariably acquired for a consideration, either for a lump sum or a
percentage of the film rentals, whether from a parent company or an
independent outside producer, apart of the receipts of a non-resident
foreign film distributor derived from said film represents, therefore, a
return of investment.
4. The local distributor should withhold 30% of one-half of the film
rentals paid to the non-resident foreign film distributor and pay the
same to this office in accordance with law unless the non- resident
foreign film distributor makes a prior settlement of its income tax
liability. (Emphasis ours).
Pursuant to the foregoing, petitioner dutifully withheld and turned over
to the Bureau of Internal Revenue the amount of 30% of one-half of the
film rentals paid by it to foreign corporations not engaged in trade or
business within the Philippines. The last year that petitioner withheld
taxes pursuant to the foregoing Circular was in 1968.
On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the
Tax Code increasing the tax rate from 30 % to 35 % and revising the tax
basis from "such amount" referring to rents, etc. to "gross income," as
follows:
(b) Tax on foreign corporations.(1) Non-resident corporations.A
foreign corporation not engaged in trade or business in the Philippines
including a foreign life insurance company not engaged in the life
insurance business in the Philippines shall pay a tax equal to thirty-five
per cent of the gross income received during each taxable year from all
sources within the Philippines, as interests, dividends, rents, royalties,
salaries, wages, premiums, annuities, compensations, remunerations
for technical services or otherwise, emoluments or other fixed or
determinable annual, periodical or casual gains, profits, and income,
and capital gains, Provided however, That premiums shah not include
reinsurance premiums. (Emphasis supplied)
On February 8, 1971, the Commissioner of Internal Revenue issued
Revenue Memorandum Circular No. 4-71, revoking General Circular
No. V-334, and holding that the latter was "erroneous for lack of legal
basis," because "the tax therein prescribed should be based on gross
income without deduction whatever," thus:
After a restudy and analysis of Section 24 (b) of the National Internal
Revenue Code, as amended by Republic Act No. 5431, and guided by

the interpretation given by tax authorities to a similar provision in the


Internal Revenue Code of the United States, on which the
aforementioned provision of our Tax Code was patterned, this Office
has come to the conclusion that the tax therein prescribed should be
based on gross income without t deduction whatever. Consequently, the
ruling in General Circular No. V-334, dated April 12, 1961, allowing the
deduction of the proportionate cost of production or exhibition of
motion picture films from the rental income of non- resident foreign
corporations, is erroneous for lack of legal basis.
In view thereof, General Circular No. V-334, dated April 12, 1961, is
hereby revoked and henceforth, local films distributors and exhibitors
shall deduct and withhold 35% of the entire amount payable by them to
non-resident foreign corporations, as film rental or royalty, or whatever
such payment may be denominated, without any deduction whatever,
pursuant to Section 24 (b), and pay the withheld taxes in accordance
with Section 54 of the Tax Code, as amended.
All rulings inconsistent with this Circular is likewise revoked.
(Emphasis ours)
On the basis of this new Circular, respondent Commissioner of Internal
Revenue issued against petitioner a letter of assessment and demand
dated April 15, 1971, but allegedly released by it and received by
petitioner on April 12, 1971, requiring them to pay deficiency
withholding income tax on the remitted film rentals for the years 1965
through 1968 and film royalty as of the end of 1968 in the total amount
of P525,897.06 computed as follows:
1965
Total amount remitted

P 511,059.48

Withholding tax due thereon

153,318.00

Less: Amount already assessed

89,000.00

Balance

P64,318.00

Add: 1/2% mo. int. fr. 4-16-66 to 4-16-69

11,577.24

Total amount due & collectible

P 75,895.24

1966
Total amount remitted

P373,492.24

Withholding tax due thereon

112,048.00

Less: Amount already assessed

27,947.00

Balance

84,101.00

Add: 11/2%mo. int. fr. 4-16-67 to 4-116-70

15,138.18

Total amount due & collectible

P99,239.18

1967
Total amount remitted

P601,160.65

Withholding tax due thereon

180,348.00

Less: Amount already assessed

71,448.00

Balance

108,900.00

Add: 1/2% mo. int. fr. 4-16-68 to 4-16-71

19,602.00

Total amount due & collectible

P128,502.00

1968
Total amount remitted

P881,816.92

Withholding tax due thereon

291,283.00

Less: Amount already assessed

92,886.00

Balance

P198,447.00

Add: 1/2% mo. int. fr. 4-16-69 to 4-29-71

23,813.64

Total amount due & collectible

P222,260.44

On May 5, 1971, petitioner requested for a reconsideration and


withdrawal of the assessment. However, without acting thereon,
respondent, on April 6, 1976, issued a warrant of distraint and levy
over petitioner's personal as well as real properties. The petitioner then
filed its Petition for Review with the Court of Tax Appeals whose
Decision, dated November 29, 1979, is, in turn, the subject of this
review. The Tax Court held:

For the reasons given, the Court finds the assessment issued by
respondent on April 16, 1971 against petitioner in the amounts of
P75,895.24, P 99,239.18, P128,502.00 and P222,260.64 or a total of
P525,897.06 as deficiency withholding income tax for the years 1965,
1966, 1967 and 1968, respectively, in accordance with law. As prayed
for, the petition for review filed in this case is dismissed, and petitioner
ABS-CBN Broadcasting Corporation is hereby ordered to pay the sum
of P525,897.06 to respondent Commissioner of Internal Revenue as
deficiency withholding income tax for the taxable years 1965 thru 1968,
plus the surcharge and interest which have accrued thereon incident to
delinquency pursuant to Section 51 (e) of the National Internal
Revenue Code, as amended.
WHEREFORE, the decision appealed from is hereby affirmed at
petitioner's cost.
SO ORDERED.
The issues raised are two-fold:
I. Whether or not respondent can apply General Circular No. 4-71
retroactively and issue a deficiency assessment against petitioner in the
amount of P 525,897.06 as deficiency withholding income tax for the
years 1965, 1966, 1967 and 1968.
II. Whether or not the right of the Commissioner of Internal Revenue to
assess the deficiency withholding income tax for the year 196,5 has
prescribed.
Upon the facts and circumstances of the case, review is warranted.
In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by
Republic Act No. 6110 on August 9, 1969, it provides:
Sec. 338-A. Non-retroactivity of rulings. Any revocation,
modification, or reversal of and of the rules and regulations
promulgated in accordance with the preceding section or any of the
rulings or circulars promulgated by the Commissioner of Internal
Revenue shall not be given retroactive application if the relocation,
modification, or reversal will be prejudicial to the taxpayers, except in
the following cases: (a) where the taxpayer deliberately mis-states or
omits material facts from his return or any document required of him
by the Bureau of Internal Revenue: (b) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or (c) where the taxpayer
acted in bad faith. (italics for emphasis)
It is clear from the foregoing that rulings or circulars promulgated by
the Commissioner of Internal Revenue have no retroactive application
where to so apply them would be prejudicial to taxpayers. The
prejudice to petitioner of the retroactive application of Memorandum
Circular No. 4-71 is beyond question. It was issued only in 1971, or
three years after 1968, the last year that petitioner had withheld taxes

under General Circular No. V-334. The assessment and demand on


petitioner to pay deficiency withholding income tax was also made
three years after 1968 for a period of time commencing in 1965.
Petitioner was no longer in a position to withhold taxes due from
foreign corporations because it had already remitted all film rentals
and no longer had any control over them when the new Circular was
issued. And in so far as the enumerated exceptions are concerned,
admittedly, petitioner does not fall under any of them.
Respondent claims, however, that the provision on non-retroactivity is
inapplicable in the present case in that General Circular No. V-334 is a
nullity because in effect, it changed the law on the matter. The Court of
Tax Appeals sustained this position holding that: "Deductions are
wholly and exclusively within the power of Congress or the law-making
body to grant, condition or deny; and where the statute imposes a tax
equal to a specified rate or percentage of the gross or entire amount
received by the taxpayer, the authority of some administrative officials
to modify or change, much less reduce, the basis or measure of the tax
should not be read into law." Therefore, the Tax Court concluded,
petitioner did not acquire any vested right thereunder as the same was
a nullity.
The rationale behind General Circular No. V-334 was clearly stated
therein, however: "It ha(d) been determined that the tax is still imposed
on income derived from capital, or labor, or both combined, in
accordance with the basic principle of income taxation ...and that a
mere return of capital or investment is not income ... ." "A part of the
receipts of a non-resident foreign film distributor derived from said film
represents, therefore, a return of investment." The Circular thus fixed
the return of capital at 50% to simplify the administrative chore of
determining the portion of the rentals covering the return of capital."
Were the "gross income" base clear from Sec. 24 (b), perhaps, the
ratiocination of the Tax Court could be upheld. It should be noted,
however, that said Section was not too plain and simple to understand.
The fact that the issuance of the General Circular in question was
rendered necessary leads to no other conclusion than that it was not
easy of comprehension and could be subjected to different
interpretations.
In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was
the basis of General Circular No. V-334, was just one in a series of
enactments regarding Sec. 24 (b) of the Tax Code. Republic Act No.
3825 came next on June 22, 1963 without changing the basis but
merely adding a proviso (in bold letters).
(b) Tax on foreign corporation.(1) Non-resident corporations. There
shall be levied, collected and paid for each taxable year, in lieu of the
tax imposed by the preceding paragraph, upon the amount received by

every foreign corporation not engaged in trade or business within the


Philippines, from all sources within the Philippines, as interest,
dividends, rents, salaries, wages, premiums annuities, compensations,
remunerations, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income, a tax equal to thirty per centum
of such amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL
NOT INCLUDE REINSURANCE PREMIUMS. (double emphasis ours).
Republic Act No. 3841, dated likewise on June 22, 1963, followed after,
omitting the proviso and inserting some words (also in bold letters).
(b) Tax on foreign corporations.(1) Non-resident corporations.There
shall be levied, collected and paid for each taxable year, in lieu of the
tax imposed by the preceding paragraph, upon the amount received by
every foreign corporation not engaged in trade or business within the
Philippines, from all sources within the Philippines, as interest,
dividends, rents, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments, or other fixed or determinable annual or
periodical OR CASUAL gains, profits and income, AND CAPITAL
GAINS, a tax equal to thirty per centum of such amount. (double
emphasis supplied)
The principle of legislative approval of administrative interpretation by
re-enactment clearly obtains in this case. It provides that "the reenactment of a statute substantially unchanged is persuasive indication
of the adoption by Congress of a prior executive construction. Note
should be taken of the fact that this case involves not a mere opinion of
the Commissioner or ruling rendered on a mere query, but a Circular
formally issued to "all internal revenue officials" by the then
Commissioner of Internal Revenue.
It was only on June 27, 1968 under Republic Act No. 5431, supra, which
became the basis of Revenue Memorandum Circular No. 4-71, that Sec.
24 (b) was amended to refer specifically to 35% of the "gross income."
This Court is not unaware of the well-entrenched principle that the
Government is never estopped from collecting taxes because of
mistakes or errors on the part of its
agents. In fact, utmost caution should be taken in this regard. But, like
other principles of law, this also admits of exceptions in the interest of
justice and fairplay. The insertion of Sec. 338-A into the National
Internal Revenue Code, as held in the case of Tuason, Jr. vs. Lingad, is
indicative of legislative intention to support the principle of good faith.
In fact, in the United States, from where Sec. 24 (b) was patterned, it
has been held that the Commissioner of Collector is precluded from
adopting a position inconsistent with one previously taken where
injustice would result therefrom, or where there has been a
misrepresentation to the taxpayer.

We have also noted that in its Decision, the Court of Tax Appeals
further required the petitioner to pay interest and surcharge as
provided for in Sec. 51 (e) of the Tax Code in addition to the deficiency
withholding tax of P 525,897.06. This additional requirement is much
less called for because the petitioner relied in good faith and religiously
complied with no less than a Circular issued "to all internal revenue
officials" by the highest official of the Bureau of Internal Revenue and
approved by the then Secretary of Finance.
With the foregoing conclusions arrived at, resolution of the issue of
prescription becomes unnecessary.
WHEREFORE, the judgment of the Court of Tax Appeals is hereby
reversed, and the questioned assessment set aside. No costs.
SO ORDERED.
Makasiar (Acting Chairman), Fernandez, Guerrero and De Castro, * JJ.,
concur.
FIRST DIVISION
[G.R. No. 117982. February 6, 1997]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
COURT OF APPEALS, COURT OF APPEALS and ALHAMBRA
INDUSTRIES, INC., respondents.
DECISION
BELLOSILLO, J.:
ALHAMBRA INDUSTRIES, INC., is a domestic corporation engaged in
the manufacture and sale of cigar and cigarette products. On 7 May
1991 private respondent received a letter dated 26 April 1991 from the
Commissioner of Internal Revenue assessing it deficiency Ad Valorem
Tax (AVT) in the total amount of Four Hundred Eighty-Eight Thousand
Three Hundred Ninety-Six Pesos and Sixty-Two Centavos (P
488,396.62), inclusive of increments, on the removals of cigarette
products from their place of production during the period 2 November
1990 to 22 January 1991.Petitioner computes the deficiency thus Total AVT due per manufacturers declaration P4, 279,042.33
Less: AVT paid under BIR Ruling No. 473-88 3, 905,348.85
Deficiency AVT 373,693.48
Add: Penalties:
25% Surcharge (Sec. 248[c][3] NIRC) 93,423.37
20% Interest (P 467,116.85 x 82/360 days) 21,279.77
Total Amount Due P 488,396.62
In a letter dated 22 May 1991 received by petitioner on even date,
private respondent thru counsel filed a protest against the proposed
assessment with a request that the same be withdrawn and cancelled.
On 31 May 1991 private respondent received petitioner's reply dated
27 May 1991 denying its protest and request for cancellation stating

that the decision was final, and at the same time requesting payment of
the revised amount of Five Hundred Twenty Thousand Eight Hundred
Thirty-Five Pesos and Twenty-Nine Centavos (P 520,835.29), with
interest updated, within ten (10) days from receipt thereof. In a letter
dated 10 June 1991 which petitioner received on the same day, private
respondent requested for the reconsideration of petitioner's denial of
its protest. Without waiting for petitioner's reply to its request for
reconsideration, private respondent filed on 19 June 1991 a petition for
review with the Court of Tax Appeals. On 25 June 1991 private
respondent received from petitioner a letter dated 21 June 1991
denying its request for reconsideration declaring again that its decision
was final. On 8 July 1991 private respondent paid under protest the
disputed ad valorem tax in the sum of P 520,835.29.
In its Decision of 1 December 1993 the Court of Tax Appeals ordered
petitioner to refund to private respondent the amount of Five Hundred
Twenty Thousand Eight Hundred Thirty-Five Pesos and Twenty-Nine
Centavos (P 520,835.29) representing erroneously paid ad valorem tax
for the period 2 November 1990 to 22 January 1991.
The Court of Tax Appeals explained that the subject deficiency excise
tax assessment resulted from private respondents use of the
computation mandated by BIR Ruling 473-88 dated 4 October 1988 as
basis for computing the fifteen percent (15%) ad valorem tax due on its
removals of cigarettes from 2 November 1990 to 22 January 1991. BIR
Circular 473-88 was issued by Deputy Commissioner Eufracio D. Santos
to Insular-Yebana Tobacco Corporation allowing the latter to exclude
the value-added tax (VAT) in the determination of the gross selling
price for purposes of computing the ad valorem tax of its cigar and
cigarette products in accordance with Sec. 127 of the Tax Code as
amended by Executive Order No. 273 which provides as follows:
Sec. 127. Payment of excise taxes on domestic products. - x x x x (b)
Determination of gross selling price of goods subject to ad valorem tax.
- Unless otherwise provided, the price, excluding the value-added tax,
at which the goods are sold at wholesale in the place of production or
through their sales agents to the public shall constitute the gross
selling price.
The computation, pursuant to the ruling, is illustrated by way of
example thus P44.00 x 1/11 = P 4.00 VAT
P44.00 - P 4.00 = P40.00 price without VAT
P40.00 x 15% = P 6.00 Ad Valorem Tax
For the period 2 November 1990 to 22 January 1991 private respondent
paid P3,905,348.85 ad valorem tax, applying Sec. 127 (b) of the NIRC
as interpreted by BIR Ruling 473-88 by excluding the VAT in the
determination of the gross selling price.

Thereafter, on 11 February 1991, petitioner issued BIR Ruling 017-91


to Insular-Yebana Tobacco Corporation revoking BIR Ruling 473-88 for
being violative of Sec. 142 of the Tax Code. It included back the VAT to
the gross selling price in determining the tax base for computing the ad
valorem tax on cigarettes. Cited as basis by petitioner is Sec. 142 of the
Tax Code, as amended by E.O. No. 273 Sec. 142. Cigar and cigarettes - x x x x For purposes of this section,
manufacturer's or importer's registered wholesale price shall include
the ad valorem tax imposed in paragraphs (a), (b), (c) or (d) hereof and
the amount intended to cover the value added tax imposed under Title
IV of this Code.
Petitioner sought to apply the revocation retroactively to private
respondent's removals of cigarettes for the period starting 2 November
1990 to 22 January 1991 on the ground that private respondent
allegedly acted in bad faith which is an exception to the rule on nonretroactivity of BIR Rulings.
On appeal, the Court of Appeals affirmed the Court of Tax Appeals
holding that the retroactive application of BIR Ruling 017-91 cannot be
allowed since private respondent did not act in bad faith; private
respondents computation under BIR Ruling 473-88 was not shown to be
motivated by ill will or dishonesty partaking the nature of fraud; hence,
this petition.
Petitioner imputes error to the Court of Appeals: (1) in failing to
consider that private respondents reliance on BIR Ruling 473-88 being
contrary to Sec. 142 of the Tax Code does not confer vested rights to
private respondent in the computation of its ad valorem tax; (2) in
failing to consider that good faith and prejudice to the taxpayer in
cases of reliance on a void BIR Ruling is immaterial and irrelevant and
does not place the government in estoppel in collecting taxes legally
due; (3) in holding that private respondent acted in good faith in
applying BIR Ruling 473-88; and, (4) in failing to consider that the
assessment of petitioner is presumed to be regular and the claim for
tax refund must be strictly construed against private respondent for
being in derogation of sovereign authority.
Petitioner claims that the main issue before us is whether private
respondent's reliance on a void BIR ruling conferred upon the latter a
vested right to apply the same in the computation of its ad valorem tax
and claim for tax refund. Sec. 142 (d) of the Tax Code, which provides
for the inclusion of the VAT in the tax base for purposes of computing
the 15% ad valorem tax, is the applicable law in the instant case as it
specifically applies to the manufacturer's wholesale price of cigar and
cigarette products and not Sec. 127 (b) of the Tax Code which applies
in general to the wholesale of goods or domestic products. Sec. 142
being a specific provision applicable to cigar and cigarettes must

perforce prevail over Sec. 127 (b), a general provision of law insofar as
the imposition of the ad valorem tax on cigar and cigarettes is
concerned. Consequently, the application of Sec. 127 (b) to the
wholesale price of cigar and cigarette products for purposes of
computing the ad valorem tax is patently erroneous. Accordingly, BIR
Ruling 473-88 is void ab initio as it contravenes the express provisions
of Sec. 142 (d) of the Tax Code.
Petitioner contends that BIR Ruling 473-88 being an erroneous
interpretation of Sec. 142 (b) of the Tax Code does not confer any
vested right to private respondent as to exempt it from the retroactive
application of BIR Ruling 017-91. Thus Art. 2254 of the New Civil Code
is explicit that "(n)o vested or acquired right can arise from acts or
omissions which are against the law. It is argued that the Court of
Appeals erred in ruling that retroactive application cannot be made
since private respondent acted in good faith. The following
circumstances would show that private respondents reliance on BIR
Ruling 473-88 was induced by ill will: first, private respondent despite
knowledge that Sec. 142 of the Tax Code was the specific provision
applicable still shifted its accounting method pursuant to Sec. 127 (b)
of the Tax Code; and, second, the shift in accounting method was made
without any prior consultation with the BIR.
It is further contended by petitioner that claims for tax refund must be
construed against private respondent. A tax refund being in the nature
of a tax exemption is regarded as in derogation of the sovereign
authority and is strictly construed against private respondent as the
same partakes the nature of a tax exemption. Tax exemptions cannot
merely be implied but must be categorically and unmistakably
expressed.
We cannot sustain petitioner. The deficiency tax assessment issued by
petitioner against private respondent is without legal basis because of
the prohibition against the retroactive application of the revocation of
BIR rulings in the absence of bad faith on the part of private
respondent.
The present dispute arose from the discrepancy in the taxable base on
which the excise tax is to apply on account of two incongruous BIR
Rulings: (1) BIR Ruling 473-88 dated 4 October 1988 which excluded
the VAT from the tax base in computing the fifteen percent (15%) excise
tax due; and, (2) BIR Ruling 017-91 dated 11 February 1991 which
included back the VAT in computing the tax base for purposes of the
fifteen percent (15%) ad valorem tax.
The question as to the correct computation of the excise tax on
cigarettes in the case at bar has been sufficiently addressed by BIR
Ruling 017-91 dated 11 February 1991 which revoked BIR Ruling 47388 dated 4 October 1988 -

It is to be noted that Section 127 (b) of the Tax Code as amended


applies in general to domestic products and excludes the value-added
tax in the determination of the gross selling price, which is the tax base
for purposes of the imposition of ad valorem tax. On the other hand, the
last paragraph of Section 142 of the same Code which includes the
value-added tax in the computation of the ad valorem tax, refers
specifically to cigar and cigarettes only. It does not include/apply to any
other articles or goods subject to the ad valorem tax. Accordingly,
Section 142 must perforce prevail over Section 127 (b)which is a
general provision of law insofar as the imposition of the ad valorem tax
on cigar and cigarettes is concerned.
Moreover, the phrase unless otherwise provided in Section 127 (b)
purports of exceptions to the general rule contained therein, such as
that of Section 142, last paragraph thereof which explicitly provides
that in the case of cigarettes, the tax base for purposes of the ad
valorem tax shall include, among others, the value-added tax.
Private respondent did not question the correctness of the above BIR
ruling. In fact, upon knowledge of the effectivity of BIR Ruling No. 01791, private respondent immediately implemented the method of
computation mandated therein by restoring the VAT in computing the
tax base for purposes of the 15% ad valorem tax.
However, well-entrenched is the rule that rulings and circulars, rules
and regulations promulgated by the Commissioner of Internal Revenue
would have no retroactive application if to so apply them would be
prejudicial to the taxpayers.
The applicable law is Sec. 246 of the Tax Code, which provides Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or
reversal of any rules and regulations promulgated in accordance with
the preceding section or any of the rulings or circulars promulgated by
the Commissioner of Internal Revenue shall not be given retroactive
application if the revocation, modification, or reversal will be
prejudicial to the taxpayers except in the following cases: a) where the
taxpayer deliberately misstates or omits material facts from his return
or in any document required of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based; or c) where the taxpayer acted in bad faith.
Without doubt, private respondent would be prejudiced by the
retroactive application of the revocation as it would be assessed
deficiency excise tax.
What is left to be resolved is petitioners claim that private respondent
falls under the third exception in Sec. 246, i.e., that the taxpayer has
acted in bad faith.

Bad faith imports a dishonest purpose or some moral obliquity and


conscious doing of wrong. It partakes of the nature of fraud; a breach
of a known duty through some motive of interest or ill will. We find no
convincing evidence that private respondents implementation of the
computation mandated by BIR Ruling 473-88 was ill motivated or
attended with a dishonest purpose. To the contrary, as a sign of good
faith, private respondent immediately reverted to the computation
mandated by BIR Ruling 017-91 upon knowledge of its issuance on 11
February 1991.
As regards petitioner's argument that private respondent should have
made consultations with it before private respondent used the
computation mandated by BIR Ruling 473-88, suffice it to state that the
aforesaid BIR Ruling was clear and categorical thus leaving no room for
interpretation. The failure of private respondent to consult petitioner
does not imply bad faith on the part of the former.
Admittedly the government is not estopped from collecting taxes legally
due because of mistakes or errors of its agents. But like other
principles of law, this admits of exceptions in the interest of justice and
fair play, as where injustice will result to the taxpayer.
WHEREFORE, there being no reversible error committed by
respondent Court of Appeals, the petition is DENIED and petitioner
COMMISSIONER OF INTERNAL REVENUE is ordered to refund
private respondent ALHAMBRA INDUSTRIES, INC., the amount of
P520,835.29 upon finality of this Decision.
SO ORDERED.
Padilla, (Chairman), Kapunan, and Hermosisima, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-66653 June 19, 1986
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
BURROUGHS LIMITED AND THE COURT OF TAX APPEALS,
respondents.
Sycip, Salazar, Feliciano & Hernandez Law Office for private
respondent.
PARAS, J.:
Petition for certiorari to review and set aside the Decision dated June
27, 1983 of respondent Court of Tax Appeals in its C.T.A. Case No.
3204, entitled "Burroughs Limited vs. Commissioner of Internal
Revenue" which ordered petitioner Commissioner of Internal Revenue
to grant in favor of private respondent Burroughs Limited, tax credit in

the sum of P172,058.90, representing erroneously overpaid branch


profit remittance tax.
Burroughs Limited is a foreign corporation authorized to engage in
trade or business in the Philippines through a branch office located at
De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro
Manila.
Sometime in March 1979, said branch office applied with the Central
Bank for authority to remit to its parent company abroad, branch profit
amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15%
branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and
remitted to its head office the amount of P6,499,999.30 computed as
follows:
Amount applied for remittance................................ P7,647,058.00
Deduct: 15% branch profit
remittance tax ..............................................1,147,058.70
Net amount actually remitted.................................. P6,499,999.30
Claiming that the 15% profit remittance tax should have been
computed on the basis of the amount actually remitted (P6,499,999.30)
and not on the amount before profit remittance tax (P7,647,058.00),
private respondent filed on December 24, 1980, a written claim for the
refund or tax credit of the amount of P172,058.90 representing alleged
overpaid branch profit remittance tax, computed as follows:
Profits actually remitted .........................................P6,499,999.30
Remittance tax rate .......................................................15%
Branch profit remittance taxdue thereon ......................................................P 974,999.89
Branch profit remittance
tax paid .............................................................Pl,147,058.70
Less: Branch profit remittance
tax as above computed................................................. 974,999.89
Total amount refundable........................................... P172,058.81
On February 24, 1981, private respondent filed with respondent court,
a petition for review, docketed as C.T.A. Case No. 3204 for the recovery
of the above-mentioned amount of P172,058.81.
On June 27, 1983, respondent court rendered its Decision, the
dispositive portion of which reads
ACCORDINGLY, respondent Commission of Internal Revenue is hereby
ordered to grant a tax credit in favor of petitioner Burroughs Limited
the amount of P 172,058.90. Without pronouncement as to costs.
SO ORDERED.
Unable to obtain a reconsideration from the aforesaid decision,
petitioner filed the instant petition before this Court with the prayers as
herein earlier stated upon the sole issue of whether the tax base upon
which the 15% branch profit remittance tax shall be imposed under the

provisions of section 24(b) of the Tax Code, as amended, is the amount


applied for remittance on the profit actually remitted after deducting
the 15% profit remittance tax. Stated differently is private respondent
Burroughs Limited legally entitled to a refund of the aforementioned
amount of P172,058.90.
We rule in the affirmative. The pertinent provision of the National
Revenue Code is Sec. 24 (b) (2) (ii) which states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by
a branch to its head office shall be subject to a tax of fifteen per cent
(15 %) ...
In a Bureau of Internal Revenue ruling dated January 21, 1980 by then
Acting Commissioner of Internal Revenue Hon. Efren I. Plana the
aforequoted provision had been interpreted to mean that "the tax base
upon which the 15% branch profit remittance tax ... shall be imposed...
(is) the profit actually remitted abroad and not on the total branch
profits out of which the remittance is to be made. " The said ruling is
hereinbelow quoted as follows:
In reply to your letter of November 3, 1978, relative to your query as to
the tax base upon which the 15% branch profits remittance tax
provided for under Section 24 (b) (2) of the 1977 Tax Code shall be
imposed, please be advised that the 15% branch profit tax shall be
imposed on the branch profits actually remitted abroad and not on the
total branch profits out of which the remittance is to be made.
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of private
respondent that it made an overpayment in the amount of P172,058.90
which is the difference between the remittance tax actually paid of
Pl,147,058.70 and the remittance tax that should have been paid of
P974,999,89, computed as follows
Profits actually remitted......................................... P6,499,999.30
Remittance tax rate.............................................................. 15%
Remittance tax due................................................... P974,999.89
is well-taken. As correctly held by respondent Court in its assailed
decisionRespondent concedes at least that in his ruling dated January 21, 1980
he held that under Section 24 (b) (2) of the Tax Code the 15% branch
profit remittance tax shall be imposed on the profit actually remitted
abroad and not on the total branch profit out of which the remittance is
to be made. Based on such ruling petitioner should have paid only the
amount of P974,999.89 in remittance tax computed by taking the 15%
of the profits of P6,499,999.89 in remittance tax actually remitted to its
head office in the United States, instead of Pl,147,058.70, on its net

profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its


branch profit remittance tax in the amount of P172,058.90.
Petitioner contends that respondent is no longer entitled to a refund
because Memorandum Circular No. 8-82 dated March 17, 1982 had
revoked and/or repealed the BIR ruling of January 21, 1980. The said
memorandum circular states
Considering that the 15% branch profit remittance tax is imposed and
collected at source, necessarily the tax base should be the amount
actually applied for by the branch with the Central Bank of the
Philippines as profit to be remitted abroad.
Petitioner's aforesaid contention is without merit. What is applicable in
the case at bar is still the Revenue Ruling of January 21, 1980 because
private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum Circular
No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the
light of Section 327 of the National Internal Revenue Code which
providesSec. 327. Non-retroactivity of rulings. Any revocation, modification, or
reversal of any of the rules and regulations promulgated in accordance
with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shag not be given retroactive
application if the revocation, modification, or reversal will be
prejudicial to the taxpayer except in the following cases (a) where the
taxpayer deliberately misstates or omits material facts from his return
or in any document required of him by the Bureau of Internal Revenue;
(b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based, or (c) where the taxpayer acted in bad faith. (ABS-CBN
Broadcasting Corp. v. CTA, 108 SCRA 151-152)
The prejudice that would result to private respondent Burroughs
Limited by a retroactive application of Memorandum Circular No. 8-82
is beyond question for it would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions are
concerned, admittedly, Burroughs Limited does not fall under any of
them.
WHEREFORE, the assailed decision of respondent Court of Tax Appeals
is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Feria, Fernan, Alampay and Gutierrez, Jr., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC
G.R. No. L-12182
March 27, 1918
VIUDA E HIJOS DE PEDRO P. ROXAS, plaintiffs-appellees,
vs.
JAMES J. RAFFERTY, Collector of Internal Revenue, ex officio
city assessor and collector of Manila, defendant-appellant.
City Fiscal Paredes for appellant.Gilbert, Cohn and Fisher for
appellees.
MALCOLM, J.:
This appeal presents the question of whether or not taxes can be
collected on the Roxas Building in the city of Manila for the year 1915.
FACTS.
Plaintiffs own a parcel of land located on the Escolta in the city of
Manila. In the latter part of 1913, the improvements of this land were
demolished, and the construction of a reinforced concrete building was
begun. No taxes on the improvements were levied or paid for the year
1914. Accepting the findings of fact by the trial court, the Roxas
building in December, 1914, when the city assessor and collector
attempted to assess it for taxation, still lacked the pavement of the
entrances, the floors of some of the stores the dividing partitions
between the stores, the dividing partitions between the greater part of
the rooms in the upper stories, sanitary installation, the elevators,
electrical installation, the roof of the building, the concrete covering
and towers of the elevator shaft, and the doors and windows of many
rooms. It was finished in all respects on February 15, 1915.
The city assessor and collector of Manila, under the date of December
1, 1914, sent plaintiffs notice, received by them on December 25, 1914,
requiring them to declare the new improvements for assessments for
the year 1915. Prior to this, in November, the city assessor and
collector had the building inspected and had assessed the new
improvements for taxation for 1915 at P300,000. On January 15, 1915,
plaintiffs were notified of this assessment. Plaintiffs paid the amount of
the taxes, which amounted to P3,000, under protest on June 30, 1915.
Suit was begun in the Court of First Instance of Manila to recover this
sum with interest at the legal rate from the date of payment. The court,
the Honorable Simplicio del Rosario, found with plaintiffs without
express finding as to costs. Defendant, by the city attorney of Manila,
appealed, making five assignments of error which we combine for
purposes of convenience into three issues.
LEGAL ISSUES.
1. Jurisdiction. The first assignment of error, concerning the
jurisdiction of the lower court, presents a question of primary
importance for obviously if the lower court had no right to take
cognizance of this case, we should not burden ourselves with the

consideration of its merits. This question appellee emphasizes, is


argued for the first time on appeal. In the trial court, defendant
appeared, demurred, and answered without assailing jurisdiction.
However, as jurisdiction is the power of a court to act at all, we should
even now resolve the question. Objection for want of jurisdiction may
be raised for the first time on appeal.
The local law, as elsewhere, provides an administrative procedure for
the assessment of realty. An assessor to fix the value of the property in
the first instance, and a board of tax appeals to review the action of the
assessor in the second instance are constituted. Proceedings before
this board are quasi-judicial in nature. To it the citizen must apply for
relief against excessive and irregular taxation. Here must be aggrieved
party go for the correction of errors in assessments. Administrative
remedies must be exhausted before resort can be had to the courts. It
is a condition precedent to the exercise of the taxpayer's right of action
in a court of justice that previous and timely effort shall have been
made on his part to have the board of tax appeals correct an alleged
error while the matter was yet in their hands and under their control.
Even when the courts assume jurisdiction, they will not presume to
interfere with the intelligent exercise of the judgment of men specially
trained in appraising property. (See Stanley vs. Supervisors of Albany
[1887], 121 U. S., 535)
This is hardly our case. We do not have before us merely a dispute as to
an excessive or unequal assessment. The assessment is claimed to be
wholly void. The contention is that the assessor has attempted to levy a
tax upon property, which is by law exempt, and that in this attempt the
assessor has violated the provisions of law, which exist for the
protection of the taxpayer. Not the correctness of the assessment, but
the legality of the assessment is involved. The rule of taxation is that
where there tax is illegal, the taxpayer may bring an action directly in
the courts to recover back the tax. (Roman Catholic Church vs. Cooley
on Taxation, 3rd ed., p. 1382, and Stanley vs. Supervisors of Albany,
supra.) This court has taken cognizance of questions concerning
assessments of and improvements on reality in a number of cases. (See
Fernandez vs. Shearer [1911], 19 Phil., 75; Ayala de Roxas vs. City of
Manila [1914], 27 Phil., 336; Young Men's Christians Association of
Manila vs. Collector of Internal Revenue [1916], 33 Phil. Rep., 217.)
The distinction is between a void and an erroneous tax. The first
identifies the existing situation and gives jurisdiction to the courts.
The situation in its simplest terms may be described as follows: The
citizens is forced to pay the alleged tax. As will hereafter appear, he
had no appropriate opportunity to present his grievance to the board of
tax appeals. He did all that was required by protesting at the time of
paying the tax. The citizen can therefore in turn bee permitted to bring

suit to recover the amount which he claims was unlawfully collected.


Appeal to the board of tax appeals is not a necessary prerequisite. Nor
is the decision of the assessor as to the right to tax property of such a
judicial or discretionary character as to be free from collateral attack.
When the state (here the city of Manila) makes the assessment, and
when the citizen stands on reasonably equal terms. The power of the
state and the remedy of the citizen are and should be reciprocal. It is
for the courts to arbitrate the controversy between the state and the
citizen.
The Court of First Instance of the city of Manila had jurisdiction over
this suit and the Supreme Court of the Philippine Islands now possesses
similar appellate jurisdiction.
2. Legality of assessment. The second, third, and fourth assignment
of error concern the point of when an improvement can be said to be
completed within the meaning of the Manila Charter. We feel it
unnecessary to decide this question for even more basic in aspect is the
point raised by the fifth assignment of error concerning the legality of
the assessment, particularly as relating to notification. The exact
situation can be more vividly pictured by quoting the provisions of the
law and then applying these provisions to the facts.
The Manila Charter provides: "It shall be the duty of each person who
at any time acquires real estate in the city,, and of any person who
constructs or adds to any improvement on real estate owned by him
within the city, to prepare and present to the city assessor and
collector, within a period of sixty days next succeeding the completion
of such acquisition, construction or addition, a sworn declaration
setting forth the value of the real estate acquired or the improvement
constructed or addition made by him and containing a description of
such property sufficient to enable the city assessor and collector readily
to identify the same. . . ." (Section 2484, Administrative Code of 1917.)
Plaintiffs were under obligation too present a declaration of their
improvements within sixty days succeeding completion, i. e. on or
before April 15, 1915. Under an attempted assessment in November
and December, 1914, the plaintiffs had and could have had no
opportunity to comply with the law.
The Charter continues: "The city assessor and collector shall, during
the first fifteen days of December of each year, add to his list of taxable
real estate in the city the value of the improvements placed upon such
property during the preceding year, and any property which is taxable
and which has therefore escaped taxation. . . ." (Sec. 2487,
Administrative Code of 1917.) Between December 1 and December 15,
1915, the city assessor and collector was under the obligation and
adding the improvements on the Roxas property to the assessment list.
Between December 1 and December 15, 1914, the city assessor and

collector could not prematurely and by anticipation perform this duty


on improvements not yet completed. There may be doubt as to the
exact meaning, which should be given to the words "during the
preceding year." The common sense construction would be that the
phrase includes December of the previous year and the current year to
December. The city assessor and collector perforce could not in 1914
levy a tax on incomplete improvements made during the current year,
when the statute only authorized him to make such levy upon
completed improvements made during the year.
The Charter continues: "He (the city assessor and collector) shall give
notice by publication for ten days prior to December first in two
newspapers of general circulation published in the city, one printed in
English and one in Spanish, that he will be present in his office for that
purpose on said days, and he shall further notify in writing each person
the amount of whose tax will be changed by such action or such
proposed change, by delivering or mailing such notification to such
person or his authorized agent at the last known address of such owner
or agent in the Philippine Islands some time in the month of
November." (Sec. 2487, Administrative Code of 1917.) And finally the
Charter provides that, "No court shall entertain any suit assailing the
validity of a tax assessed under this article until the taxpayer shall have
paid, under protest, the taxes assessed against him, nor shall any court
declare any tax invalid by reason of irregularities or informalities in the
proceedings of the officer in charged with the assessment or collection
of taxes, or of failure to perform their duties within the times herein
specified for their performance, unless such irregularities,
informalities, or failures shall have impaired the substantial rights of
the taxpayer; nor shall any court declare any tax assessed under the
provisions of article invalid except upon condition that the taxpayer
shall pay the just amount of his tax as determined by the court in the
pending proceeding." (Sec. 2504, Administrative Code of 1917.) It is a
general rule that those provisions of a statute relating to the
assessment of taxes, which are intended for the security of the citizen,
or to insure the equality of taxation, or certainty as to the nature and
amount of each person's tax, are mandatory; but those designed merely
for the information or direction of officers or to secure methodical and
systematic modes of proceedings are merely directory. In the language
of the United States Supreme Court, "When the regulations prescribed
are intended for the protection of the citizen and to prevent a sacrifice
of his property, and by a disregard of which his right might be, and
generally would be, injuriously affected, they are not directory but
mandatory." (French vs. Edwards [1871], 13 Wall., 506.) Sometimes
statutes requiring the assessor to notify the taxpayer have been held
merely directory. But in the majority of jurisdictions this requirement is

held to be mandatory, so that the assessor cannot make a valid


assessment unless he has given proper notice. (37 Cyc., pp. 988, 991,
citing cases.) Applied to our facts, the assessor should have notified the
plaintiffs during November, 1915. His attempted notification on
December 25, 1914, was not given during the time fixed by statute and
was no more than a reminder to plaintiffs to present a sworn
declaration of the value of the new improvements on their property. In
this instance there was no such substantial compliance with the law as
amounts to due process of law.
There was no legal assessment of the Roxas Building for the year 1915.
3. Interest. To narrow our discussion and to avoid misunderstanding,
let us set down a few principles, which every one knows. The United
States of America, a State of the Islands cannot be sued without their
consent. Whether interest could bee adjudged to a taxpayer against any
of these entities, is beside the our question. But what is of moment is
that the city of Manila is not sovereign but is a public corporation with
certain delegated powers, including that of suing and being sued.
Turning to the American authorities, which are controlling, we find the
following: The basic case is Erskine vs. Van Arsdale ([1872], 15 Wall.,
68-75). Suit as brought against a collecting officer to recover back
certain taxes claimed to be exempt under a Federal statute. Interest
was added to the judgment for the plaintiff. The United States Supreme
Court, through the Chief Justice, said that "Where an illegal tax has
been collected, the citizen who has paid it, and has been obliged to
bring suit against the collector, is, we think, entitled too interest in the
event of recovery, from time of the illegal exaction." This case should
not be confused with others which hold that the United States cannot
be subjected to the payment of interest unless there be an authorized
engagement to pay it, or a statute permitting its recovery. (Angarica vs.
Bayard [1888] 127 U. S., 251; United States vs. State of North Carolina
[1890], 136 U. S., 211; National Home for Disabled Volunteer Soldiers
vs. Parrish [1912], 229 U. S., 494.) The distinction appears to be
between suits to recover moneys illegally exacted as taxes and paid
under protest, brought against collectors, although the judgment is not
to be paid by the collector but directly from the Treasury, and suits
against the United States. A late decision of the United States Supreme
Court (National Home for Disabled Volunteer Soldiers vs. Parrish,
supra), which reviews the previous cases, held that the National Home
for Disabled Volunteer Soldiers was not exempt from the payment of
interest on a judgment for the recovery of taxes. The court said that the
exemption in favor of the United States "has never as yet been applied
to subordinate governmental agencies."
Some States hold that a municipal corporation is not liable for interest
unless so required by special contract or by statute. In other States,

however, it is held that notwithstanding a municipal corporation has


delegated to it certain powers of government, it is to be regarded as a
private person with respect to its contracts, which are to be considered
in the manner and with a like effect as those of natural persons. (See 15
R. C. L., 18.) Even where the stricter rule is observed, as Illinois, it is
nevertheless settled that a municipal corporation which wrongfully
exacts money and holds the same without just claim or right is liable
for the interest thereon. (City of Chicago vs. N. W. Mutual Ins. Co.
[1905], 218 Ill., 40. See also In re O'Berry [1904], 179 N. Y., 285.)
Laches on the part of the plaintiff would, of course, defeat the right to
recover interest. (Redfield vs. Ystefera Iron Co. [1884], 110 U. S., 174.)
The city of Manila, a public corporation, even in the absence of statute,
is liable to pay interest at the legal rate, from the date of exaction, in
the amount of taxes illegally collected.
CONCLUSION.
In conclusion, as an authority which is on all fours with the prominent
issues before us, we invite attention to the decision of a United States
Circuit Court, in Powder River Cattle Co. vs. Board of Commissioners of
Custer County ([1891], 45 Fed., 232). The Revised Statutes of Montana
provided that the assessor shall demand of each taxpayer in the district
a list of his personal property and on his refusing to give it, the
assessor shall list his property on information and belief. The assessor
listed the property of the defendant without demanding a list from the
taxpayer. The court held that the taxpayer may recover the illegal taxes
paid under compulsion and is not required to apply to the board of
equalization for an abatement. The court, finally adjudged legal interest
on the sum illegally exacted from the date collection was made.
We think the court below took the correct view of the case, and, while
resolving the appeal on somewhat different grounds, believe that the
judgment should stand. Accordingly, the judgment is affirmed, without
special finding as to costs. So ordered.
Arellano, C.J., Torres, Carson, Araullo, Street and Avancea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-2678
December 29, 1949
ANTONIO C. ARAGON, petitioner-appellant,
vs.
MARCOS JORGE, Provincial Treasurer of Zambales, respondentappellee.
Antonio C. Aragon in his own behalf.Office of the Solicitor General Felix
Bautista Angelo and Solicitor Francisco Carreon for appellee.

OZAETA, J.:
This is an appeal from a judgment of the Court of First Instance of
Zambales denying appellant's petition for mandamus to compel the
respondent provincial treasurer to issue final bills of sale covering
numerous parcels of land situated in the municipalities of Santa Cruz
and Candelaria, Zambales, which the petitioner alleged to have
purchased at auction sales made by the respective municipal treasurers
of said municipalities for tax delinquencies and which had not been
redeemed by the owners within one year.
The provincial treasurer, supported by an opinion of the provincial
fiscal, held the sales void for irregularities and refused to issue the final
bills of sale, but in his answer he alleged that he had offered to refund
the purchase price but that the petitioner thru his counsel refused to
accept it.
The trial court sustained the opinion of the fiscal and the provincial
treasurer.
The real properties located in the municipality of Santa Cruz were
advertised for sale "at public auction to be held at the main entrance of
the municipal building of said municipality from March 24, 1947, at 10
a.m. until all sold, to satisfy all taxes and penalties due thereon and the
cost of the sale, pursuant to the provisions of section 35 of
Commonwealth Act No. 470, subject to the conditions provided in
section 36 of said Act." The sale did not take place on the date above
fixed but on May 12, 13, 14, and 15, 1947, without a new advertisement
and without a new notice to the owners concerned. On the dates last
mentioned 253 parcels with an aggregate assessed value of P67, 150
were sold for only P1,471.
The real properties located in the municipality of Candelaria were
originally advertised for sale "at public auction to be held at the main
entrance of the municipal building of said municipality from May 5,
1947, at 10 A. M. until sold, to satisfy all taxes and penalties due
thereon and the cost of sale, pursuant to the provisions of section 35 of
Commonwealth Act No. 470, subject to the conditions provided in
section 36 of said Act." Likewise the sale did not take place on the date
above fixed but on June 12, 1947, without a new advertisement and
without a new notice to the owners concerned. On said date 71 lots
with an aggregate assessed value of P32,250 were sold for only
P820.19.
It was not the petitioner who bid at both auction sales but one Pedro
Porras; and it was not the latter who paid the purchase price but Public
Defender Moises Ma. Buhain, who caused the official receipts to be
issued in the name of the herein petitioner Antonio c. Aragon. The
latter is a Manila resident who had no house and no interest any kind in
Zambales. Public defender Buhain was the one who appeared in the

trial court as counsel and attorney-in-fact of the petitioner. The trial


court intimated that the petitioner was a dummy of the public defender,
who as a public official was prohibited by section 579 of the revised
Administrative Code "from purchasing, directly or indirectly, from the
Government, any property sold by the Government for the nonpayment
of any public tax. Any such purchase by a public official or employee
shall be void."
While there is ground for suspension that said provision of the revised
Administrative Code may have been violated, in the absence of
categorical finding by the trial court on that point we must decide this
case on the alleged nullity of sale for lack of notice. Notice of such sale
to the delinquent taxpayers and landowners in particular and to the
public in general is an essential and indispensable requirement of the
law, the non-fulfilment of which vitiates and nullifies the sale. (Section
35, Commonwealth Act No. 470, known as the Assessment Law;
Cabrera vs. Provincial Treasurer of Tayabas, 42 O. G. 1492.) 1
The sale should have been made on a fixed date as originally
advertised, or if that was not practicable and if it was desired to
postpone the sale indefinitely "to give a chance to the taxpayers to pay
their delinquent taxes," as was done in this case, new notices to the
taxpayers and to the public should have been made.
The sales in question being void for lack of due notice, the respondent
provincial treasurer cannot be compelled to issue the final bills of sale
demanded by the petitioner.
The judgment is affirmed, with costs against the appellants.
Moran, C.J., Paras, Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes
and Torres, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila;
ROMAN G. GARGANTIEL, as Secretary to the Mayor; THE
MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of
the Court of First Instance of Manila, Branch XXX and the
FEDERATION OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

MARTIN, J.:
The chief question to be decided in this case is what law shall govern
the publication of a tax ordinance enacted by the Municipal Board of
Manila, the Revised City Charter (R.A. 409, as amended), which
requires publication of the ordinance before its enactment and after its
approval, or the Local Tax Code (P.D. No. 231), which only demands
publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance
No. 7522, "AN ORDINANCE REGULATING THE OPERATION OF
PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF
STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF
AND FOR OTHER PURPOSES." The petitioner City Mayor, Ramon D.
Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market
Vendors, Inc. commenced Civil Case 96787 before the Court of First
Instance of Manila presided over by respondent Judge, seeking the
declaration of nullity of Ordinance No. 7522 for the reason that (a) the
publication requirement under the Revised Charter of the City of
Manila has not been complied with; (b) the Market Committee was not
given any participation in the enactment of the ordinance, as
envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and
Corrupt Practices Act has been violated; and (d) the ordinance would
violate Presidential Decree No. 7 of September 30, 1972 prescribing
the collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of
preliminary injunction, respondent Judge issued an order on March 11,
1975, denying the plea for failure of the respondent Federation of
Manila Market Vendors, Inc. to exhaust the administrative remedies
outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its
decision on August 29, 1975, declaring the nullity of Ordinance No.
7522 of the City of Manila on the primary ground of non-compliance
with the requirement of publication under the Revised City Charter.
Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not
published at all in two daily newspapers of general circulation in the
City of Manila before its enactment. Neither was it published in the
same manner after approval, although it was posted in the legislative
hall and in all city public markets and city public libraries. There being
no compliance with the mandatory requirement of publication before
and after approval, the ordinance in question is invalid and, therefore,
null and void.
Petitioners moved for reconsideration of the adverse decision, stressing
that (a) only a post-publication is required by the Local Tax Code; and

(b) private respondent failed to exhaust all administrative remedies


before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present
petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict
between the Revised Charter of the City of Manila and the Local Tax
Code on the manner of publishing a tax ordinance enacted by the
Municipal Board of Manila. For, while Section 17 of the Revised Charter
provides:
Each proposed ordinance shall be published in two daily newspapers of
general circulation in the city, and shall not be discussed or enacted by
the Board until after the third day following such publication. * * * Each
approved ordinance * * * shall be published in two daily newspapers of
general circulation in the city, within ten days after its approval; and
shall take effect and be in force on and after the twentieth day
following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all
provincial, city, municipal and barrio ordinances levying or imposing
taxes, fees or other charges shall be published for three consecutive
days in a newspaper or publication widely circulated within the
jurisdiction of the local government, or posted in the local legislative
hall or premises and in two other conspicuous places within the
territorial jurisdiction of the local government. In either case, copies of
all provincial, city, municipal and barrio ordinances shall be furnished
the treasurers of the respective component and mother units of a local
government for dissemination.
In other words, while the Revised Charter of the City of Manila requires
publication before the enactment of the ordinance and after the
approval thereof in two daily newspapers of general circulation in the
city, the Local Tax Code only prescribes for publication after the
approval of "ordinances levying or imposing taxes, fees or other
charges" either in a newspaper or publication widely circulated within
the jurisdiction of the local government or by posting the ordinance in
the local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government.
Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a
special act since it relates only to the City of Manila, whereas the Local
Tax Code is a general law because it applies universally to all local
governments. Blackstone defines general law as a universal rule

affecting the entire community and special law as one relating to


particular persons or things of a class. 1 And the rule commonly said is
that a prior special law is not ordinarily repealed by a subsequent
general law. The fact that one is special and the other general creates a
presumption that the special is to be considered as remaining an
exception of the general, one as a general law of the land, the other as
the law of a particular case. 2 However, the rule readily yields to a
situation where the special statute refers to a subject in general, which
the general statute treats in particular. The exactly is the circumstance
obtaining in the case at bar. Section 17 of the Revised Charter of the
City of Manila speaks of "ordinance" in general, i.e., irrespective of the
nature and scope thereof, whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges"
in particular. In regard, therefore, to ordinances in general, the Revised
Charter of the City of Manila is doubtless dominant, but, that dominant
force loses its continuity when it approaches the realm of "ordinances
levying or imposing taxes, fees or other charges" in particular. There,
the Local Tax Code controls. Here, as always, a general provision must
give way to a particular provision. 3 Special provision governs. 4 This is
especially true where the law containing the particular provision was
enacted later than the one containing the general provision. The City
Charter of Manila was promulgated on June 18, 1949 as against the
Local Tax Code which was decreed on June 1, 1973. The law-making
power cannot be said to have intended the establishment of conflicting
and hostile systems upon the same subject, or to leave in force
provisions of a prior law by which the new will of the legislating power
may be thwarted and overthrown. Such a result would render
legislation a useless and Idle ceremony, and subject the law to the
reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico
sued the City of Manila for damages arising from the injuries he
suffered when he fell inside an uncovered and unlighted catchbasin or
manhole on P. Burgos Avenue. The City of Manila denied liability on the
basis of the City Charter (R.A. 409) exempting the City of Manila from
any liability for damages or injury to persons or property arising from
the failure of the city officers to enforce the provisions of the charter or
any other law or ordinance, or from negligence of the City Mayor,
Municipal Board, or other officers while enforcing or attempting to
enforce the provisions of the charter or of any other law or ordinance.
Upon the other hand, Article 2189 of the Civil Code makes cities liable
for damages for the death of, or injury suffered by any persons by
reason of the defective condition of roads, streets, bridges, public
buildings, and other public works under their control or supervision. On
review, the Court held the Civil Code controlling. It is true that, insofar

as its territorial application is concerned, the Revised City Charter is a


special law and the subject matter of the two laws, the Revised City
Charter establishes a general rule of liability arising from negligence in
general, regardless of the object thereof, whereas the Civil Code
constitutes a particular prescription for liability due to defective streets
in particular. In the same manner, the Revised Charter of the City
prescribes a rule for the publication of "ordinance" in general, while
the Local Tax Code establishes a rule for the publication of "ordinance
levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication
of a special or specific act by a general or broad one. 7 A charter
provision may be impliedly modified or superseded by a later statute,
and where a statute is controlling, it must be read into the charter
notwithstanding any particular charter provision. 8 A subsequent
general law similarly applicable to all cities prevails over any
conflicting charter provision, for the reason that a charter must not be
inconsistent with the general laws and public policy of the state. 9 A
chartered city is not an independent sovereignty. The state remains
supreme in all matters not purely local. Otherwise stated, a charter
must yield to the constitution and general laws of the state, it is to have
read into it that general law which governs the municipal corporation
and which the corporation cannot set aside but to which it must yield.
When a city adopts a charter, it in effect adopts as part of its charter
general law of such character. 10
2. The principle of exhaustion of administrative remedies is strongly
asserted by petitioners as having been violated by private respondent
in bringing a direct suit in court. This is because Section 47 of the
Local Tax Code provides that any question or issue raised against the
legality of any tax ordinance, or portion thereof, shall be referred for
opinion to the city fiscal in the case of tax ordinance of a city. The
opinion of the city fiscal is appealable to the Secretary of Justice, whose
decision shall be final and executory unless contested before a
competent court within thirty (30) days. But, the petition below plainly
shows that the controversy between the parties is deeply rooted in a
pure question of law: whether it is the Revised Charter of the City of
Manila or the Local Tax Code that should govern the publication of the
tax ordinance. In other words, the dispute is sharply focused on the
applicability of the Revised City Charter or the Local Tax Code on the
point at issue, and not on the legality of the imposition of the tax.
Exhaustion of administrative remedies before resort to judicial bodies is
not an absolute rule. It admits of exceptions. Where the question
litigated upon is purely a legal one, the rule does not apply. 11 The
principle may also be disregarded when it does not provide a plain,

speedy and adequate remedy. It may and should be relaxed when its
application may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is
not a "tax ordinance," because the imposition of rentals, permit fees,
tolls and other fees is not strictly a taxing power but a revenue-raising
function, so that the procedure for publication under the Local Tax
Code finds no application. The pretense bears its own marks of fallacy.
Precisely, the raising of revenues is the principal object of taxation.
Under Section 5, Article XI of the New Constitution, "Each local
government unit shall have the power to create its own sources of
revenue and to levy taxes, subject to such provisions as may be
provided by law." 13 And one of those sources of revenue is what the
Local Tax Code points to in particular: "Local governments may collect
fees or rentals for the occupancy or use of public markets and premises
* * *." 14 They can provide for and regulate market stands, stalls and
privileges, and, also, the sale, lease or occupancy thereof. They can
license, or permit the use of, lease, sell or otherwise dispose of stands,
stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential
Decree No. 7, dated September 30, 1972, insofar as it affects livestock
and animal products, because the said decree prescribes the collection
of other fees and charges thereon "with the exception of ante-mortem
and post-mortem inspection fees, as well as the delivery, stockyard and
slaughter fees as may be authorized by the Secretary of Agriculture
and Natural Resources." 16 Clearly, even the exception clause of the
decree itself permits the collection of the proper fees for livestock. And
the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31:
"Local governments may collect fees for the slaughter of animals and
the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of
Ordinance No. 7522 supposedly in accordance with Republic Act No.
6039, an amendment to the City Charter of Manila, providing that "the
market committee shall formulate, recommend and adopt, subject to
the ratification of the municipal board, and approval of the mayor,
policies and rules or regulation repealing or maneding existing
provisions of the market code" does not infect the ordinance with any
germ of invalidity. 17 The function of the committee is purely
recommendatory
as
the
underscored
phrase
suggests,
its
recommendation is without binding effect on the Municipal Board and
the City Mayor. Its prior acquiescence of an intended or proposed city
ordinance is not a condition sine qua non before the Municipal Board
could enact such ordinance. The native power of the Municipal Board
to legislate remains undisturbed even in the slightest degree. It can
move in its own initiative and the Market Committee cannot demur. At

most, the Market Committee may serve as a legislative aide of the


Municipal Board in the enactment of city ordinances affecting the city
markets or, in plain words, in the gathering of the necessary data,
studies and the collection of consensus for the proposal of ordinances
regarding city markets. Much less could it be said that Republic Act
6039 intended to delegate to the Market Committee the adoption of
regulatory measures for the operation and administration of the city
markets. Potestas delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the
disputed ordinance are diverted to the exclusive private use of the
Asiatic Integrated Corporation since the collection of said fees had
been let by the City of Manila to the said corporation in a "Management
and Operating Contract." The assumption is of course saddled on
erroneous premise. The fees collected do not go direct to the private
coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is
the object it serves. The entrusting of the collection of the fees does not
destroy the public purpose of the ordinance. So long as the purpose is
public, it does not matter whether the agency through which the money
is dispensed is public or private. The right to tax depends upon the

ultimate use, purpose and object for which the fund is raised. It is not
dependent on the nature or character of the person or corporation
whose intermediate agency is to be used in applying it. The people may
be taxed for a public purpose, although it be under the direction of an
individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of
the Anti-Graft and Corrupt Practices Act because the increased rates of
market stall fees as levied by the ordinance will necessarily inure to the
unwarranted benefit and advantage of the corporation. 19 We are
concerned only with the issue whether the ordinance in question is
intra vires. Once determined in the affirmative, the measure may not be
invalidated because of consequences that may arise from its
enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and
set aside. Ordinance No. 7522 of the City of Manila, dated June 15,
1975, is hereby held to have been validly enacted. No. costs.
SO ORDERED.
Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and
Concepcion, Jr., JJ., concur.
Teehankee, J., reserves his vote.