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TAXATION 1

FULLEXTS

AND

DIGESTED CASES FROM THE NET

FOR 2ND BATCH

IN RE: INHERENT LIMITATIONS

BROWSE TIL THE END: NEXT TOFULLTEXTS ARE THE


DIGESTED CASES
G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES,
petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA
COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and
purportedly on behalf of other videogram operators adversely affected. It assails
the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days
after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree,


Presidential Decree No. 1994 amended the National Internal Revenue Code providing,
inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided,
That locally manufactured or imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie
Producers, Importers and Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete
protection of their rights and that their "survival and very existence is threatened by the
unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file
their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses
as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including,


among others, videotapes, discs, cassettes or any technical improvement or variation
thereof, have greatly prejudiced the operations of moviehouses and theaters, and have
caused a sharp decline in theatrical attendance by at least forty percent (40%) and a
tremendous drop in the collection of sales, contractor's specific, amusement and other
taxes, thereby resulting in substantial losses estimated at P450 Million annually in
government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per


annum from rentals, sales and disposition of videograms, and such earnings have not
been subjected to tax, thereby depriving the Government of approximately P180 Million in
taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected


the viability of the movie industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-wide displacement and
unemployment due to the shutdown of numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the


Government to create an environment conducive to growth and development of all
business industries, including the movie industry which has an accumulated investment
of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only
alleviate the dire financial condition of the movie industry upon which more than 75,000
families and 500,000 workers depend for their livelihood, but also provide an additional
source of revenue for the Government, and at the same time rationalize the heretofore
uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features


constitutes a clear and present danger to the moral and spiritual well-being of the youth,
and impairs the mandate of the Constitution for the State to support the rearing of the
youth for civic efficiency and the development of moral character and promote their
physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to
curb these blatant malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the
people and betraying the national economic recovery program, bold emergency
measures must be adopted with dispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following


grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the
local government is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade
in violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which
shall be expressed in the title thereof" 1 is sufficiently complied with if the title be
comprehensive enough to include the general purpose which a statute seeks to
achieve. It is not necessary that the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all the parts of the statute are
related, and are germane to the subject matter expressed in the title, or as long as they
are not inconsistent with or foreign to the general subject and title. 2 An act having a
single general subject, indicated in the title, may contain any number of provisions, no
matter how diverse they may be, so long as they are not inconsistent with or foreign to
the general subject, and may be considered in furtherance of such subject by providing
for the method and means of carrying out the general object." 3 The rule also is that the
constitutional requirement as to the title of a bill should not be so narrowly construed as
to cripple or impede the power of legislation. 4 It should be given practical rather than
technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the
DECREE is a rider is without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any


provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of
the purchase price or rental rate, as the case may be, for every sale, lease or disposition
of a videogram containing a reproduction of any motion picture or audiovisual program.
Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and
the other fifty percent (50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the
video industry through the Videogram Regulatory Board as expressed in its title. The tax
provision is not inconsistent with, nor foreign to that general subject and title. As a tool
for regulation 6 it is simply one of the regulatory and control mechanisms scattered
throughout the DECREE. The express purpose of the DECREE to include taxation of
the video industry in order to regulate and rationalize the heretofore uncontrolled
distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles
explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive
enough to include the purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the title or that the latter
be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and
oppressive, confiscatory, and in restraint of trade. However, it is beyond serious
question that a tax does not cease to be valid merely because it regulates, discourages,
or even definitely deters the activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to declare
that it is subject to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it. 9 In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and oppressive
taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure
prompted by the realization that earnings of videogram establishments of around P600
million per annum have not been subjected to tax, thereby depriving the Government of
an additional source of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing. It is similar to the 30% amusement
tax imposed or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission ticket, thus
shifting the tax burden on the buying or the viewing public. It is a tax that is imposed
uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the
need for regulating the video industry, particularly because of the rampant film piracy,
the flagrant violation of intellectual property rights, and the proliferation of pornographic
video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and
it has been repeatedly held that "inequities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation". 12 Taxation
has been made the implement of the state's police power. 13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the
DECREE by the former President under Amendment No. 6 of the 1973 Constitution
providing that "whenever in the judgment of the President ... , there exists a grave
emergency or a threat or imminence thereof, or whenever the interim Batasang
Pambansa or the regular National Assembly fails or is unable to act adequately on any
matter for any reason that in his judgment requires immediate action, he may, in order
to meet the exigency, issue the necessary decrees, orders, or letters of instructions,
which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th
"whereas" clause sufficiently summarizes the justification in that grave emergencies
corroding the moral values of the people and betraying the national economic recovery
program necessitated bold emergency measures to be adopted with dispatch. Whatever
the reasons "in the judgment" of the then President, considering that the issue of the
validity of the exercise of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the question raised at the
proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation
of legislative power. The grant in Section 11 of the DECREE of authority to the BOARD
to "solicit the direct assistance of other agencies and units of the government and
deputize, for a fixed and limited period, the heads or personnel of such agencies and
units to perform enforcement functions for the Board" is not a delegation of the power to
legislate but merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the delegation of
power to make the law, which necessarily involves a discretion as to what it shall be,
and conferring authority or discretion as to its execution to be exercised under and in
pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to
solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That the grant of
such authority might be the source of graft and corruption would not stigmatize the
DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will
not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is,
among other categories, one which "alters the legal rules of evidence, and authorizes
conviction upon less or different testimony than the law required at the time of the
commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five
(45) days after the effectivity of this Decree within which to register with and secure a
permit from the BOARD to engage in the videogram business and to register with the
BOARD all their inventories of videograms, including videotapes, discs, cassettes or
other technical improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession of any person
engaged in the videogram business without the required proof of registration by the
BOARD, shall be prima facie evidence of violation of the Decree, whether the possession
of such videogram be for private showing and/or public exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the
required proof of registration of any videogram cannot be presented and thus partakes
of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of
Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856
[1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have
been proved that they shall be prima facie evidence of the existence of the guilt of the
accused and shift the burden of proof provided there be a rational connection between
the facts proved and the ultimate facts presumed so that the inference of the one from
proof of the others is not unreasonable and arbitrary because of lack of connection
between the two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational


connection between the fact proved, which is non-registration, and the ultimate fact
presumed which is violation of the DECREE, besides the fact that the prima facie
presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and
being eased out of existence as if it were a nuisance. Being a relatively new industry,
the need for its regulation was apparent. While the underlying objective of the DECREE
is to protect the moribund movie industry, there is no question that public welfare is at
bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the
availability of unclassified and unreviewed video tapes containing pornographic films
and films with brutally violent sequences; and losses in government revenues due to the
drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and
municipal license fees are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise"
of the video industry. On the contrary, video establishments are seen to have
proliferated in many places notwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and
expediency of the DECREE. These considerations, however, are primarily and
exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be
the basis for declaring a statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the respective authority of each
department and confined its jurisdiction to such a sphere. There would then be intrusion
not allowable under the Constitution if on a matter left to the discretion of a coordinate
branch, the judiciary would substitute its own. If there be adherence to the rule of law, as
there ought to be, the last offender should be courts of justice, to which rightly litigants
submit their controversy precisely to maintain unimpaired the supremacy of legal norms
and prescriptions. The attack on the validity of the challenged provision likewise insofar
as there may be objections, even if valid and cogent on its wisdom cannot be sustained.
18
In fine, petitioner has not overcome the presumption of validity which attaches to a
challenged statute. We find no clear violation of the Constitution which would justify us
in pronouncing Presidential Decree No. 1987 as unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.

Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano,
Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-24756 October 31, 1968

CITY OF BAGUIO, plaintiff-appellee,


vs.
FORTUNATO DE LEON, defendant-appellant.

The City Attorney for plaintiff-appellee.


Fortunato de Leon for and in his own behalf as defendant-appellant.

FERNANDO, J.:

In this appeal, a lower court decision upholding the validity of an ordinance1 of the City of
Baguio imposing a license fee on any person, firm, entity or corporation doing business in the
City of Baguio is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real
estate dealer with a property therein worth more than P10,000, but not in excess of P50,000, and
therefore obligated to pay under such ordinance the P50 annual fee. That is the principal
question. In addition, there has been a firm and unyielding insistence by defendant-appellant of
the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having
been filed against him by the City Attorney of Baguio for his failure to pay the amount of P300
as license fee covering the period from the first quarter of 1958 to the fourth quarter of 1962,
allegedly, inspite of repeated demands. Nor was defendant-appellant agreeable to such a suit
being instituted by the City Treasurer without the consent of the Mayor, which for him was
indispensable. The lower court was of a different mind.

In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate
dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no
question about the liability of defendant-appellant for the above license fee, it being shown in the
partial stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving
income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of
1962.

The source of authority for the challenged ordinance is supplied by Republic Act No. 329,
amending the city charter of Baguio2 empowering it to fix the license fee and regulate
"businesses, trades and occupations as may be established or practiced in the City."

Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power thus conferred.

Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City
of Baguio,3 the effect of the amendatory section insofar as it would expand the previous power
vested by the city charter was clarified in these terms: "Appellants apparently have in mind
section 2553, paragraph (c) of the Revised Administrative Code, which empowers the City of
Baguio merely to impose a license fee for the purpose of rating the business that may be
established in the city. The power as thus conferred is indeed limited, as it does not include the
power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the
charter of said city and adding to its power to license the power to tax and to regulate. And it is
precisely having in view this amendment that Ordinance No. 99 was approved in order to
increase the revenues of the city. In our opinion, the amendment above adverted to empowers the
city council not only to impose a license fee but also to levy a tax for purposes of revenue, more
so when in amending section 2553 (b), the phrase 'as provided by law' has been removed by
section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to
tax, to license and to regulate provided that the subjects affected be one of those included in the
charter. In this sense, the ordinance under consideration cannot be considered ultra vires whether
its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence."

It would be an undue and unwarranted emasculation of the above power thus granted if
defendant-appellant were to be sustained in his contention that no such statutory authority for the
enactment of the challenged ordinance could be discerned from the language used in the
amendatory act. That is about all that needs to be said in upholding the lower court, considering
that the City of Baguio was not devoid of authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps and
asserted that the challenged ordinance suffered from certain constitutional infirmities. To such
points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of
Baguio in the suit for the collection of the real estate dealer's fee from him in the amount of
P300. He contended before the lower court, and it is his contention now, that while the amount of
P300 sought was within the jurisdiction of the City Court of Baguio where this action originated,
since the principal issue was the legality and constitutionality of the challenged ordinance, it is
not such City Court but the Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only
recently, on September 7, 1968 to be exact, we rejected a contention similar in character in
Nemenzo v. Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary
before the Justice of the Peace Court of Pagadian, Zamboanga del Sur. The question of
jurisdiction was raised; the defendant Mayor asserted that what was in issue was the enforcement
of the decision of the Commission of Civil Service; the Justice of the Peace Court was thus
without jurisdiction to try the case. The above plea was curtly dismissed by Us, as what was
involved was "an ordinary money claim" and therefore "within the original jurisdiction of the
Justice of the Peace Court where it was filed, considering the amount involved." Such is likewise
the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this
license fee corresponding to the years 1951 and 1952 was filed with the Municipal Court of
Manila, in view of the amount involved. The thought that the municipal court lacked jurisdiction
apparently was not even in the minds of the parties and did not receive any consideration by this
Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question


is raised, it is the Court of First Instance that should have original jurisdiction on the matter. It
does not admit of doubt, however, that what confers jurisdiction is the amount set forth in the
complaint. Here, the sum sought to be recovered was clearly within the jurisdiction of the City
Court of Baguio.

Nor could it be plausibly maintained that the validity of such ordinance being open to question as
a defense against its enforcement from one adversely affected, the matter should be elevated to
the Court of First Instance. For the City Court could rely on the presumption of the validity of
such ordinance,6 and the mere fact, however, that in the answer to such a complaint a
constitutional question was raised did not suffice to oust the City Court of its jurisdiction. The
suit remains one for collection, the lack of validity being only a defense to such an attempt at
recovery. Since the City Court is possessed of judicial power and it is likewise axiomatic that the
judicial power embraces the ascertainment of facts and the application of the law, the
Constitution as the highest law superseding any statute or ordinance in conflict therewith, it
cannot be said that a City Court is bereft of competence to proceed on the matter. In the exercise
of such delicate power, however, the admonition of Cooley on inferior tribunals is well worth
remembering. Thus: "It must be evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the fallibility of the human judgment, will
shrink from exercising in any case where he can conscientiously and with due regard to duty and
official oath decline the responsibility."7 While it remains undoubted that such a power to pass
on the validity of an ordinance alleged to infringe certain constitutional rights of a litigant exists,
still it should be exercised with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city court in the judicial
hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than
ample statutory authority for the enactment thereof. Nonetheless, its validity on constitutional
grounds is challenged because of the allegation that it imposed double taxation, which is
repugnant to the due process clause, and that it violated the requirement of uniformity. We do not
view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the
amount of a tax, short of confiscation or proceedings unconstitutional on other grounds."8With
that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup de grace to the
bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would
seem though that in the United States, as with us, its ghost as noted by an eminent critic, still
stalks the juridical state. In a 1947 decision, however,9 we quoted with approval this excerpt
from a leading American decision:10 "Where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double taxation results."

At any rate, it has been expressly affirmed by us that such an "argument against double taxation
may not be invoked where one tax is imposed by the state and the other is imposed by the city ...,
it being widely recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling or activity by both
the state and the political subdivisions thereof."11

The above would clearly indicate how lacking in merit is this argument based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property
worth P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not
over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore,
the above ordinance cannot be assailed as violative of the constitutional requirement of
uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court,
stated: "A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.13 Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente14
incorporated the above excerpt in his opinion and continued: "Taking everything into account,
the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years
later, 15 is that the statute or ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." This Court is on record as accepting the view in a
leading American case16 that "inequalities which result from a singling out of one particular class
for taxation or exemption infringe no constitutional limitation."17

It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently
lacking in persuasiveness. There is no need to pass upon the other allegations to assail the
validity of the above ordinance, it being maintained that the license fees therein imposed "is
excessive, unreasonable and oppressive" and that there is a failure to observe the mandate of
equal protection. A reading of the ordinance will readily disclose their inherent lack of
plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City Mayor
of Baguio. These alleged errors, as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performed
within the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous, may
be assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This
should be the case considering that such city official is called upon to see to it that revenues due
the City are collected. When administrative steps are futile and unavailing, given the
stubbornness and obduracy of a taxpayer, convinced in good faith that no tax was due, judicial
remedy may be resorted to by him. It would be a reflection on the state of the law if such fidelity
to duty would be met by condemnation rather than commendation.

So, much for the analytical approach. The conclusion thus reached has a reinforcement that
comes to it from the functional and pragmatic test. If a city treasurer has to await the nod from
the city mayor before a municipal ordinance is enforced, then opportunity exists for favoritism
and undue discrimination to come into play. Whatever valid reason may exist as to why one
taxpayer is to be accorded a treatment denied another, the suspicion is unavoidable that such a
manifestation of official favor could have been induced by unnamed but not unknown
consideration. It would not be going too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal doctrine therefore, on the
assumption that a choice exists, is one that would do away with such temptation on the part of
both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs
against defendant-appellant.

Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.
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.

Separate Opinions

FERNANDO, J., concurring:

But qualifies his assent as to an ordinance intra vires not being open to question
"because of consequences that may arise from its enforcement."

Separate Opinions
FERNANDO, J., concurring:

But qualifies his assent as to an ordinance intra vires not being open to question
"because of consequences that may arise from its enforcement."

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,


petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL.,
respondents-appellees.

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.


Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein
issued, without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted
this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920,
entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained,
in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction,
repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta
Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen.
Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads
were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the
Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the
petition as Annexes A and B, near Shaw Boulevard, not far away from the intersection between
the latter and Highway 54), which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned Antonio
Subdivision (as well as the lands on which said feeder roads were to be construed) were private
properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of said
Act, was a member of the Senate of the Philippines; that on May, 1953, respondent Zulueta,
addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected
feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by
the council, subject to the condition "that the donor would submit a plan of the said roads and
agree to change the names of two of them"; that no deed of donation in favor of the municipality
of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter
to said council, calling attention to the approval of Republic Act. No. 920, and the sum of
P85,000.00 appropriated therein for the construction of the projected feeder roads in question;
that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District
Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch
as the projected feeder roads in question were private property at the time of the passage and
approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and improvement of said projected feeder roads,
was illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by
Congress because its members were made to believe that the projected feeder roads in question
were "public roads and not private streets of a private subdivision"'; that, "in order to give a
semblance of legality, when there is absolutely none, to the aforementioned appropriation",
respondents Zulueta executed on December 12, 1953, while he was a member of the Senate of
the Philippines, an alleged deed of donation copy of which is annexed to the petition of the
four (4) parcels of land constituting said projected feeder roads, in favor of the Government of
the Republic of the Philippines; that said alleged deed of donation was, on the same date,
accepted by the then Executive Secretary; that being subject to an onerous condition, said
donation partook of the nature of a contract; that, such, said donation violated the provision of
our fundamental law prohibiting members of Congress from being directly or indirectly
financially interested in any contract with the Government, and, hence, is unconstitutional, as
well as null and void ab initio, for the construction of the projected feeder roads in question with
public funds would greatly enhance or increase the value of the aforementioned subdivision of
respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision
streets or roads at his own expense"; that the construction of said projected feeder roads was then
being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the
respondents would continue to execute, comply with, follow and implement the aforementioned
illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the
petitioner but to the Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared
unconstitutional and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary
of Public Works and Communications, the Director of the Bureau of Public Works and
Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-
mentioned feeder roads project, and from making and securing any new and further releases on
the aforementioned item of Republic Act No. 920, and the disbursing officers of the Department
of Public Works and Highways from making any further payments out of said funds provided for
in Republic Act No. 920; and that pending final hearing on the merits, a writ of preliminary
injunction be issued enjoining the aforementioned parties respondent from making and securing
any new and further releases on the aforesaid item of Republic Act No. 920 and from making
any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity
to sue", and that the petition did "not state a cause of action". In support to this motion,
respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should
represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code;
that said respondent is " not aware of any law which makes illegal the appropriation of public
funds for the improvements of . . . private property"; and that, the constitutional provision
invoked by petitioner is inapplicable to the donation in question, the same being a pure act of
liberality, not a contract. The other respondents, in turn, maintained that petitioner could not
assail the appropriation in question because "there is no actual bona fide case . . . in which the
validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he
has a personal and substantial interest" in said Act "and that its enforcement has caused or will
cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision,
dated October 29, 1953, holding that, since public interest is involved in this case, the Provincial
Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the
requisite personalities" to question the constitutionality of the disputed item of Republic Act No.
920; that "the legislature is without power appropriate public revenues for anything but a public
purpose", that the instructions and improvement of the feeder roads in question, if such roads
where private property, would not be a public purpose; that, being subject to the following
condition:

The within donation is hereby made upon the condition that the Government of the
Republic of the Philippines will use the parcels of land hereby donated for street
purposes only and for no other purposes whatsoever; it being expressly understood that
should the Government of the Republic of the Philippines violate the condition hereby
imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto
revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is
"absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of the
Civil Code of the Philippines, declares in existence and void from the very beginning contracts
"whose cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality
of said donation may not be contested, however, by petitioner herein, because his "interest are
not directly affected" thereby; and that, accordingly, the appropriation in question "should be
upheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as much, are deemed to have admitted hypothetically
the allegations of fact made in the petition of appellant herein. According to said petition,
respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and
known as the Antonio Subdivision, certain portions of which had been reserved for the projected
feeder roads aforementioned, which, admittedly, were private property of said respondent when
Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair,
extension and improvement" of said roads, was passed by Congress, as well as when it was
approved by the President on June 20, 1953. The petition further alleges that the construction of
said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have
the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or
roads at his own expenses, 1and would "greatly enhance or increase the value of the subdivision"
of said respondent. The lower court held that under these circumstances, the appropriation in
question was "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However,
respondent Zulueta contended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any
law which makes illegal the appropriation of public funds for the improvement of what
we, in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of
the Government established under the Constitution of the Republic of the Philippines and the
system of checks and balances underlying our political structure. Moreover, it is refuted by the
decisions of this Court invalidating legislative enactments deemed violative of the Constitution
or organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:

It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude
of the interest to be affected nor the degree to which the general advantage of the
community, and thus the public welfare, may be ultimately benefited by their promotion.
Incidental to the public or to the state, which results from the promotion of private
interest and the prosperity of private enterprises or business, does not justify their aid by
the use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes
only, discussed supra sec. 14, money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646;
emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may
be used only for public purpose. The right of the legislature to appropriate funds is
correlative with its right to tax, and, under constitutional provisions against taxation
except for public purposes and prohibiting the collection of a tax for one purpose and the
devotion thereof to another purpose, no appropriation of state funds can be made for
other than for a public purpose.
The test of the constitutionality of a statute requiring the use of public funds is whether
the statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve
the public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as
such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional
law.lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question,
upon the ground that petitioner may not contest the legality of the donation above referred to
because the same does not affect him directly. This conclusion is, presumably, based upon the
following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of
the aforementioned appropriation; (2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article
1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these
premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consists of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for
the projected feeder roads in question, the legality thereof depended upon whether said roads
were public or private property when the bill, which, latter on, became Republic Act 920, was
passed by Congress, or, when said bill was approved by the President and the disbursement of
said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the
land on which the projected feeder roads were to be constructed belonged then to respondent
Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and
void. 4 The donation to the Government, over five (5) months after the approval and effectivity
of said Act, made, according to the petition, for the purpose of giving a "semblance of legality",
or legalizing, the appropriation in question, did not cure its aforementioned basic defect.
Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions
set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only
those which are inherent in his person, including therefore, his right to the annulment of said
contract, even though such creditors are not affected by the same, except indirectly, in the
manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will
sustain a direct injury in consequence of its enforcement. Yet, there are many decisions
nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds,
5
upon the theory that "the expenditure of public funds by an officer of the State for the purpose
of administering an unconstitutional act constitutes a misapplication of such funds," which may
be enjoined at the request of a taxpayer. 6Although there are some decisions to the contrary, 7the
prevailing view in the United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to
attack the constitutionality of a statute, the general rule is that not only persons
individually affected, but also taxpayers, have sufficient interest in preventing the illegal
expenditure of moneys raised by taxation and may therefore question the constitutionality
of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs.
Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the ground that the
relationship of a taxpayer of the U.S. to its Federal Government is different from that of a
taxpayer of a municipal corporation to its government. Indeed, under the composite system of
government existing in the U.S., the states of the Union are integral part of the Federation from
an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty,
subject to the limitations imposed by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the U.S., except insofar as the
former represented the people of the respective States, and the people of each State has,
independently of that of the others, ratified said Constitution. In other words, the Federal
Constitution and the Federal statutes have become binding upon the people of the U.S. in
consequence of an act of, and, in this sense, through the respective states of the Union of which
they are citizens. The peculiar nature of the relation between said people and the Federal
Government of the U.S. is reflected in the election of its President, who is chosen directly, not by
the people of the U.S., but by electors chosen by each State, in such manner as the legislature
thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people
and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to
that existing between the people and taxpayers of each state and the government thereof, except
that the authority of the Republic of the Philippines over the people of the Philippines is more
fully direct than that of the states of the Union, insofar as the simple and unitary type of our
national government is not subject to limitations analogous to those imposed by the Federal
Constitution upon the states of the Union, and those imposed upon the Federal Government in
the interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the
constitutionality of a legislation appropriating local or state public funds which has been
upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater
application in the Philippines than that adopted with respect to acts of Congress of the United
States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land
by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose
of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay
of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and Barredo vs.
Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases
the importance of the issues therein raised is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is our most
populated political subdivision, 8and, the taxpayers therein bear a substantial portion of the
burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently
justify petitioners action in contesting the appropriation and donation in question; that this action
should not have been dismissed by the lower court; and that the writ of preliminary injunction
should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this
instance against respondent Jose C. Zulueta. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez
David, Paredes, and Dizon, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-65773-74 April 30, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS,
respondents.

Quasha, Asperilla, Ancheta, Pea, Valmonte & Marcos for respondent British Airways.

MELENCIO-HERRERA, J.:
Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the
joint Decision of the Court of Tax Appeals (CTA) in CTA Cases Nos. 2373 and 2561,
dated 26 January 1983, which set aside petitioner's assessment of deficiency income
taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal
years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18
November, 1983 denying reconsideration.

BOAC is a 100% British Government-owned corporation organized and existing under


the laws of the United Kingdom It is engaged in the international airline business and is
a member-signatory of the Interline Air Transport Association (IATA). As such it
operates air transportation service and sells transportation tickets over the routes of the
other airline members. During the periods covered by the disputed assessments, it is
admitted that BOAC had no landing rights for traffic purposes in the Philippines, and
was not granted a Certificate of public convenience and necessity to operate in the
Philippines by the Civil Aeronautics Board (CAB), except for a nine-month period, partly
in 1961 and partly in 1962, when it was granted a temporary landing permit by the CAB.
Consequently, it did not carry passengers and/or cargo to or from the Philippines,
although during the period covered by the assessments, it maintained a general sales
agent in the Philippines Wamer Barnes and Company, Ltd., and later Qantas
Airways which was responsible for selling BOAC tickets covering passengers and
cargoes. 1

G.R. No. 65773 (CTA Case No. 2373, the First Case)

On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity)


assessed BOAC the aggregate amount of P2,498,358.56 for deficiency income taxes
covering the years 1959 to 1963. This was protested by BOAC. Subsequent
investigation resulted in the issuance of a new assessment, dated 16 January 1970 for
the years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment
under protest.

On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which
claim was denied by the CIR on 16 February 1972. But before said denial, BOAC had
already filed a petition for review with the Tax Court on 27 January 1972, assailing the
assessment and praying for the refund of the amount paid.

G.R. No. 65774 (CTA Case No. 2561, the Second Case)

On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and
penalty for the fiscal years 1968-1969 to 1970-1971 in the aggregate amount of
P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as compromise
penalties for violation of Section 46 (requiring the filing of corporation returns) penalized
under Section 74 of the National Internal Revenue Code (NIRC).

On 25 November 1971, BOAC requested that the assessment be countermanded and


set aside. In a letter, dated 16 February 1972, however, the CIR not only denied the
BOAC request for refund in the First Case but also re-issued in the Second Case the
deficiency income tax assessment for P534,132.08 for the years 1969 to 1970-71 plus
P1,000.00 as compromise penalty under Section 74 of the Tax Code. BOAC's request
for reconsideration was denied by the CIR on 24 August 1973. This prompted BOAC to
file the Second Case before the Tax Court praying that it be absolved of liability for
deficiency income tax for the years 1969 to 1971.

This case was subsequently tried jointly with the First Case.

On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the
CIR. The Tax Court held that the proceeds of sales of BOAC passage tickets in the
Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during
the period in question, do not constitute BOAC income from Philippine sources "since
no service of carriage of passengers or freight was performed by BOAC within the
Philippines" and, therefore, said income is not subject to Philippine income tax. The
CTA position was that income from transportation is income from services so that the
place where services are rendered determines the source. Thus, in the dispositive
portion of its Decision, the Tax Court ordered petitioner to credit BOAC with the sum of
P858,307.79, and to cancel the deficiency income tax assessments against BOAC in
the amount of P534,132.08 for the fiscal years 1968-69 to 1970-71.

Hence, this Petition for Review on certiorari of the Decision of the Tax Court.

The Solicitor General, in representation of the CIR, has aptly defined the issues, thus:

1. Whether or not the revenue derived by private respondent British Overseas Airways
Corporation (BOAC) from sales of tickets in the Philippines for air transportation, while
having no landing rights here, constitute income of BOAC from Philippine sources, and,
accordingly, taxable.

2. Whether or not during the fiscal years in question BOAC s a resident foreign
corporation doing business in the Philippines or has an office or place of business in the
Philippines.

3. In the alternative that private respondent may not be considered a resident foreign
corporation but a non-resident foreign corporation, then it is liable to Philippine income
tax at the rate of thirty-five per cent (35%) of its gross income received from all sources
within the Philippines.

Under Section 20 of the 1977 Tax Code:

(h) the term resident foreign corporation engaged in trade or business within the
Philippines or having an office or place of business therein.

(i) The term "non-resident foreign corporation" applies to a foreign corporation not
engaged in trade or business within the Philippines and not having any office or place of
business therein

It is our considered opinion that BOAC is a resident foreign corporation. There is no


specific criterion as to what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its peculiar environmental
circumstances. The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise of
some of the functions normally incident to, and in progressive prosecution of
commercial gain or for the purpose and object of the business organization. 2 "In order
that a foreign corporation may be regarded as doing business within a State, there must
be continuity of conduct and intention to establish a continuous business, such as the
appointment of a local agent, and not one of a temporary character. 3

BOAC, during the periods covered by the subject - assessments, maintained a general
sales agent in the Philippines, That general sales agent, from 1959 to 1971, "was
engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of
trips each trip in the series corresponding to a different airline company; (3) receiving
the fare from the whole trip; and (4) consequently allocating to the various airline
companies on the basis of their participation in the services rendered through the mode
of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA
Agreement." 4 Those activities were in exercise of the functions which are normally
incident to, and are in progressive pursuit of, the purpose and object of its organization
as an international air carrier. In fact, the regular sale of tickets, its main activity, is the
very lifeblood of the airline business, the generation of sales being the paramount
objective. There should be no doubt then that BOAC was "engaged in" business in the
Philippines through a local agent during the period covered by the assessments.
Accordingly, it is a resident foreign corporation subject to tax upon its total net income
received in the preceding taxable year from all sources within the Philippines. 5

Sec. 24. Rates of tax on corporations. ...

(b) Tax on foreign corporations. ...

(2) Resident corporations. A corporation organized, authorized, or existing under the


laws of any foreign country, except a foreign fife insurance company, engaged in trade or
business within the Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income received in the preceding taxable year from all sources
within the Philippines. (Emphasis supplied)

Next, we address ourselves to the issue of whether or not the revenue from sales of
tickets by BOAC in the Philippines constitutes income from Philippine sources and,
accordingly, taxable under our income tax laws.

The Tax Code defines "gross income" thus:

"Gross income" includes gains, profits, and income derived from salaries, wages or
compensation for personal service of whatever kind and in whatever form paid, or from
profession, vocations, trades, business, commerce, sales, or dealings in property,
whether real or personal, growing out of the ownership or use of or interest in such
property; also from interests, rents, dividends, securities, or the transactions of any
business carried on for gain or profile, or gains, profits, and income derived from any
source whatever (Sec. 29[3]; Emphasis supplied)

The definition is broad and comprehensive to include proceeds from sales of transport
documents. "The words 'income from any source whatever' disclose a legislative policy
to include all income not expressly exempted within the class of taxable income under
our laws." Income means "cash received or its equivalent"; it is the amount of money
coming to a person within a specific time ...; it means something distinct from principal
or capital. For, while capital is a fund, income is a flow. As used in our income tax law,
"income" refers to the flow of wealth. 6

The records show that the Philippine gross income of BOAC for the fiscal years 1968-69
to 1970-71 amounted to P10,428,368 .00. 7

Did such "flow of wealth" come from "sources within the Philippines",

The source of an income is the property, activity or service that produced the income. 8
For the source of income to be considered as coming from the Philippines, it is sufficient
that the income is derived from activity within the Philippines. In BOAC's case, the sale
of tickets in the Philippines is the activity that produces the income. The tickets
exchanged hands here and payments for fares were also made here in Philippine
currency. The site of the source of payments is the Philippines. The flow of wealth
proceeded from, and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of such protection, the flow of
wealth should share the burden of supporting the government.

A transportation ticket is not a mere piece of paper. When issued by a common carrier,
it constitutes the contract between the ticket-holder and the carrier. It gives rise to the
obligation of the purchaser of the ticket to pay the fare and the corresponding obligation
of the carrier to transport the passenger upon the terms and conditions set forth
thereon. The ordinary ticket issued to members of the traveling public in general
embraces within its terms all the elements to constitute it a valid contract, binding upon
the parties entering into the relationship. 9

True, Section 37(a) of the Tax Code, which enumerates items of gross income from
sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4)
rentals and royalties, (5) sale of real property, and (6) sale of personal property, does
not mention income from the sale of tickets for international transportation. However,
that does not render it less an income from sources within the Philippines. Section 37,
by its language, does not intend the enumeration to be exclusive. It merely directs that
the types of income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state that it is an
all-inclusive enumeration, and that no other kind of income may be so considered. " 10

BOAC, however, would impress upon this Court that income derived from transportation
is income for services, with the result that the place where the services are rendered
determines the source; and since BOAC's service of transportation is performed outside
the Philippines, the income derived is from sources without the Philippines and,
therefore, not taxable under our income tax laws. The Tax Court upholds that stand in
the joint Decision under review.
The absence of flight operations to and from the Philippines is not determinative of the
source of income or the site of income taxation. Admittedly, BOAC was an off-line
international airline at the time pertinent to this case. The test of taxability is the
"source"; and the source of an income is that activity ... which produced the income. 11
Unquestionably, the passage documentations in these cases were sold in the
Philippines and the revenue therefrom was derived from a activity regularly pursued
within the Philippines. business a And even if the BOAC tickets sold covered the
"transport of passengers and cargo to and from foreign cities", 12 it cannot alter the fact
that income from the sale of tickets was derived from the Philippines. The word "source"
conveys one essential idea, that of origin, and the origin of the income herein is the
Philippines. 13

It should be pointed out, however, that the assessments upheld herein apply only to the
fiscal years covered by the questioned deficiency income tax assessments in these
cases, or, from 1959 to 1967, 1968-69 to 1970-71. For, pursuant to Presidential Decree
No. 69, promulgated on 24 November, 1972, international carriers are now taxed as
follows:

... Provided, however, That international carriers shall pay a tax of 2- per cent on their
cross Philippine billings. (Sec. 24[b] [21, Tax Code).

Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory


definition of the term "gross Philippine billings," thus:

... "Gross Philippine billings" includes gross revenue realized from uplifts anywhere in the
world by any international carrier doing business in the Philippines of passage documents
sold therein, whether for passenger, excess baggage or mail provided the cargo or mail
originates from the Philippines. ...

The foregoing provision ensures that international airlines are taxed on their income
from Philippine sources. The 2- % tax on gross Philippine billings is an income tax. If it
had been intended as an excise or percentage tax it would have been place under Title
V of the Tax Code covering Taxes on Business.

Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by
this Court of the appeal in JAL vs. Commissioner of Internal Revenue (G.R. No. L-
30041) on February 3, 1969, is res judicata to the present case. The ruling by the Tax
Court in that case was to the effect that the mere sale of tickets, unaccompanied by the
physical act of carriage of transportation, does not render the taxpayer therein subject to
the common carrier's tax. As elucidated by the Tax Court, however, the common
carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or
removing passengers and cargo from one place to another. It purports to tax the
business of transportation. 14 Being an excise tax, the same can be levied by the State
only when the acts, privileges or businesses are done or performed within the
jurisdiction of the Philippines. The subject matter of the case under consideration is
income tax, a direct tax on the income of persons and other entities "of whatever kind
and in whatever form derived from any source." Since the two cases treat of a different
subject matter, the decision in one cannot be res judicata to the other.
WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET
ASIDE. Private respondent, the British Overseas Airways Corporation (BOAC), is
hereby ordered to pay the amount of P534,132.08 as deficiency income tax for the fiscal
years 1968-69 to 1970-71 plus 5% surcharge, and 1% monthly interest from April 16,
1972 for a period not to exceed three (3) years in accordance with the Tax Code. The
BOAC claim for refund in the amount of P858,307.79 is hereby denied. Without costs.

SO ORDERED.

Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.

Fernan, J., took no part.

Republic of the Philippines


SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 141104 & 148763 June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court are the consolidated cases involving the unsuccessful claims of herein
petitioner Atlas Consolidated Mining and Development Corporation (petitioner corporation) for
the refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on
its zero-rated sales in the taxable quarters of the years 1990 and 1992, the denial of which by the
Court of Tax Appeals (CTA), was affirmed by the Court of Appeals.

Petitioner corporation is engaged in the business of mining, production, and sale of various
mineral products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer.
It was initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to
register anew with the appropriate revenue district office (RDO) of the Bureau of Internal
Revenue (BIR) when it moved its principal place of business, and it was re-issued VAT
Registration No. 32-0-004622, dated 15 August 1990.1

G.R. No. 141104


Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.2 It alleged
that it likewise filed with the BIR the corresponding application for the refund/credit of its input
VAT on its purchases of capital goods and on its zero-rated sales in the amount of
P26,030,460.00.3 When its application for refund/credit remained unresolved by the BIR,
petitioner corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed as
CTA Case No. 5102. Asserting that it was a "zero-rated VAT person," it prayed that the CTA
order herein respondent Commissioner of Internal Revenue (respondent Commissioner) to
refund/credit petitioner corporation with the amount of P26,030,460.00, representing the input
VAT it had paid for the first quarter of 1992. The respondent Commissioner opposed and sought
the dismissal of the petition for review of petitioner corporation for failure to state a cause of
action. After due trial, the CTA promulgated its Decision4 on 24 November 1997 with the
following disposition

WHEREFORE, in view of the foregoing, the instant claim for refund is hereby
DENIED on the ground of prescription, insufficiency of evidence and failure to comply
with Section 230 of the Tax Code, as amended. Accordingly, the petition at bar is hereby
DISMISSED for lack of merit.

The CTA denied the motion for reconsideration of petitioner corporation in a Resolution5 dated
15 April 1998.

When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate
court, in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding
no reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for
reconsideration of petitioner corporation was also denied by the Court of Appeals in its
Resolution,7 dated 14 December 1999.

Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari
under Rule 45 of the Revised Rules of Court, assigning the following errors committed by the
Court of Appeals

THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF


REVENUE REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF
THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF
EXPORTS FOR ZERO-RATING TO APPLY.

II

THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED


TO SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT
PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL DEFECT.

III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM
WAS FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL
CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT
RETURN.

IV

THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-
OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL
EVIDENCE.8

G.R. No. 148763

G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above,
except that it relates to the claims of petitioner corporation for refund/credit of input VAT on its
purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of
1990.

Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth
quarters of 1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It
submitted separate applications to the BIR for the refund/credit of the input VAT paid on its
purchases of capital goods and on its zero-rated sales, the details of which are presented as
follows

Date of Application Period Covered Amount Applied


For

21 August 1990 2nd Quarter, 1990 P 54,014,722.04

21 November 1990 3rd Quarter, 1990 75,304,774.77

19 February 1991 4th Quarter, 1990 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with
the CTA the following petitions for review

Date Filed Period Covered CTA Case No.

20 July 1992 2nd Quarter, 1990 4831

9 October 1992 3rd Quarter, 1990 4859

14 January 1993 4th Quarter, 1990 4944

which were eventually consolidated. The respondent Commissioner contested the foregoing
Petitions and prayed for the dismissal thereof. The CTA ruled in favor of respondent
Commissioner and in its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the
ground that the prescriptive periods for filing the same had expired. In a Resolution,10 dated 15
January 1998, the CTA denied the motion for reconsideration of petitioner corporation since the
latter presented no new matter not already discussed in the court's prior Decision. In the same
Resolution, the CTA also denied the alternative prayer of petitioner corporation for a new trial
since it did not fall under any of the grounds cited under Section 1, Rule 37 of the Revised Rules
of Court, and it was not supported by affidavits of merits required by Section 2 of the same Rule.

Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-
G.R. SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision,11
finding that although petitioner corporation timely filed its Petitions for Review with the CTA, it
still failed to substantiate its claims for the refund/credit of its input VAT for the last three
quarters of 1990. In its Resolution,12 dated 27 June 2001, the appellate court denied the motion
for reconsideration of petitioner corporation, finding no cogent reason to reverse its previous
Decision.

Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari
under Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following
issues

A.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT


PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88
AND 3-88 I.E., FOR FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-
RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS
FOR THE INSTANT CLAIM.

B.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT


THERE IS NO BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.

There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling
of this Court in these cases hinges on how it will resolve the following key issues: (1)
prescription of the claims of petitioner corporation for input VAT refund/credit; (2) validity and
applicability of Revenue Regulations No. 2-88 imposing upon petitioner corporation, as a
requirement for the VAT zero-rating of its sales, the burden of proving that the buyer companies
were not just BOI-registered but also exporting 70% of their total annual production; (3)
sufficiency of evidence presented by petitioner corporation to establish that it is indeed entitled
to input VAT refund/credit; and (4) legal ground for granting the motion of petitioner
corporation for re-opening of its cases or holding of new trial before the CTA so it could be
given the opportunity to present the required evidence.

Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated
sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977,
as amended, which provided that

SEC. 106. Refunds or tax credits of input tax. x x x.

(b) Zero-rated or effectively zero-rated sales. Any person, except those covered by
paragraph (a) above, whose sales are zero-rated may, within two years after the close of
the quarter when such sales were made, apply for the issuance of a tax credit certificate or
refund of the input taxes attributable to such sales to the extent that such input tax has not
been applied against output tax.

xxxx

(e) Period within which refund of input taxes may be made by the Commissioner. The
Commissioner shall refund input taxes within 60 days from the date the application for
refund was filed with him or his duly authorized representative. No refund of input taxes
shall be allowed unless the VAT-registered person files an application for refund within
the period prescribed in paragraphs (a), (b) and (c) as the case may be.

By a plain reading of the foregoing provision, the two-year prescriptive period for filing the
application for refund/credit of input VAT on zero-rated sales shall be determined from the close
of the quarter when such sales were made.

Petitioner contends, however, that the said two-year prescriptive period should be counted, not
from the close of the quarter when the zero-rated sales were made, but from the date of filing of
the quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with
Section 110(b) of the Tax Code of 1977, as amended, quoted as follows

SEC. 110. Return and payment of value-added tax. x x x.

(b) Time for filing of return and payment of tax. The return shall be filed and the tax
paid within 20 days following the end of each quarter specifically prescribed for a VAT-
registered person under regulations to be promulgated by the Secretary of Finance:
Provided, however, That any person whose registration is cancelled in accordance with
paragraph (e) of Section 107 shall file a return within 20 days from the cancellation of
such registration.

It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding
for recovery of corporate income tax erroneously or illegally paid under Section 23013 of the Tax
Code of 1977, as amended, was to be counted from the filing of the final adjustment return. This
Court already set out in ACCRA Investments Corporation v. Court of Appeals,14 the rationale for
such a rule, thus

Clearly, there is the need to file a return first before a claim for refund can prosper
inasmuch as the respondent Commissioner by his own rules and regulations mandates
that the corporate taxpayer opting to ask for a refund must show in its final adjustment
return the income it received from all sources and the amount of withholding taxes
remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner
corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In
our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v.
Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive
period within which to claim a refund commences to run, at the earliest, on the date of the
filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15,
1984 within which to file its claim for refund.

Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with
the respondent Commissioner who failed to take any action thereon and considering
further that the non-resolution of its claim for refund with the said Commissioner
prompted ACCRAIN to reiterate its claim before the Court of Tax Appeals through a
petition for review on April 13, 1984, the respondent appellate court manifestly
committed a reversible error in affirming the holding of the tax court that ACCRAIN's
claim for refund was barred by prescription.

It bears emphasis at this point that the rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim for refund from the time it filed
its final adjustment return is the fact that it was only then that ACCRAIN could ascertain
whether it made profits or incurred losses in its business operations. The "date of
payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon
its filing of its final adjustment return on April 15, 1982.

In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further
expounded on the same matter

A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon
case is warranted under the circumstances to lay down a categorical pronouncement on
the question as to when the two-year prescriptive period in cases of quarterly corporate
income tax commences to run. A full-blown decision in this regard is rendered more
imperative in the light of the reversal by the Court of Tax Appeals in the instant case of
its previous ruling in the Pacific Procon case.

Section 292 (now Section 230) of the National Internal Revenue Code should be
interpreted in relation to the other provisions of the Tax Code in order to give effect the
legislative intent and to avoid an application of the law which may lead to inconvenience
and absurdity. In the case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated
that statutes should receive a sensible construction, such as will give effect to the
legislative intention and so as to avoid an unjust or an absurd conclusion.
INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR
INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will
avoid inconvenience and absurdity is to be adopted. Furthermore, courts must give effect
to the general legislative intent that can be discovered from or is unraveled by the four
corners of the statute, and in order to discover said intent, the whole statute, and not only
a particular provision thereof, should be considered. (Manila Lodge No. 761, et al. vs.
Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause of the
statute must be expounded by reference to each other in order to arrive at the effect
contemplated by the legislature. The intention of the legislator must be ascertained from
the whole text of the law and every part of the act is to be taken into view. (Chartered
Bank vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in
Aboitiz Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).

Thus, in resolving the instant case, it is necessary that we consider not only Section 292
(now Section 230) of the National Internal Revenue Code but also the other provisions of
the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section
86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income
Tax Payment and Section 321 (now Section 232) on keeping of books of accounts. All
these provisions of the Tax Code should be harmonized with each other.

xxxx

Therefore, the filing of a quarterly income tax returns required in Section 85 (now
Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax
should only be considered mere installments of the annual tax due. These quarterly tax
payments which are computed based on the cumulative figures of gross receipts and
deductions in order to arrive at a net taxable income, should be treated as advances or
portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal
year. This is reinforced by Section 87 (now Section 69) which provides for the filing of
adjustment returns and final payment of income tax. Consequently, the two-year
prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be
computed from the time of filing the Adjustment Return or Annual Income Tax Return
and final payment of income tax.

In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]),
this Court held that when a tax is paid in installments, the prescriptive period of two years
provided in Section 306 (Section 292) of the National Internal Revenue Code should be
counted from the date of the final payment. This ruling is reiterated in Commissioner of
Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated
that where the tax account was paid on installment, the computation of the two-year
prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the
date of the last installment.

In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the
two-year prescriptive period should be counted from the filing of the Adjustment Return
on April 15,1982, TMX Sales, Inc. is not yet barred by prescription.

The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive
period for claims for refund of illegally or erroneously collected income tax may also apply to
the Petitions at bar involving the same prescriptive period for claims for refund/credit of input
VAT on zero-rated sales.

It is true that unlike corporate income tax, which is reported and paid on installment every
quarter, but is eventually subjected to a final adjustment at the end of the taxable year, VAT is
computed and paid on a purely quarterly basis without need for a final adjustment at the end of
the taxable year. However, it is also equally true that until and unless the VAT-registered
taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing
with certainty just how much input VAT16 the taxpayer may apply against its output VAT;17 how
much output VAT it is due to pay for the quarter or how much excess input VAT it may carry-
over to the following quarter; or how much of its input VAT it may claim as refund/credit. It
should be recalled that not only may a VAT-registered taxpayer directly apply against his output
VAT due the input VAT it had paid on its importation or local purchases of goods and services
during the quarter; the taxpayer is also given the option to either (1) carry over any excess input
VAT to the succeeding quarters for application against its future output VAT liabilities, or (2)
file an application for refund or issuance of a tax credit certificate covering the amount of such
input VAT.18 Hence, even in the absence of a final adjustment return, the determination of any
output VAT payable necessarily requires that the VAT-registered taxpayer make adjustments in
its VAT return every quarter, taking into consideration the input VAT which are creditable for
the present quarter or had been carried over from the previous quarters.

Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish
that it does have refundable or creditable input VAT, and the same has not been applied against
its output VAT liabilities information which are supposed to be reflected in the taxpayer's VAT
returns. Thus, an application for refund/credit must be accompanied by copies of the taxpayer's
VAT return/s for the taxable quarter/s concerned.

Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as
illegally or erroneously collected, its refund/credit is a privilege extended to qualified and
registered taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the
same as any illegally or erroneously collected national internal revenue tax, consists of monetary
amounts which are currently in the hands of the government but must rightfully be returned to
the taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously collected
national internal revenue tax, or input VAT, the taxpayer must be given equal opportunity for
filing and pursuing its claim.

For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive
period for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing
of the return and payment of the tax due which, according to the law then existing, should be
made within 20 days from the end of each quarter. Having established thus, the relevant dates in
the instant cases are summarized and reproduced below

Period Covered Date of Filing Date of Filing Date of Filing


(Return w/ BIR) (Application w/ BIR) (Case w/ CTA)

2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992

3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992

4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993

1st Quarter, 1992 20 April 1992 -- 20 April 1994


The above table readily shows that the administrative and judicial claims of petitioner
corporation for refund of its input VAT on its zero-rated sales for the last three quarters of 1990
were all filed within the prescriptive period.

However, the same cannot be said for the claim of petitioner corporation for refund of its input
VAT on its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner
corporation filed in time its judicial claim with the CTA, there is no showing that it had
previously filed an administrative claim with the BIR. Section 106(e) of the Tax Code of 1977,
as amended, explicitly provided that no refund of input VAT shall be allowed unless the VAT-
registered taxpayer filed an application for refund with respondent Commissioner within the two-
year prescriptive period. The application of petitioner corporation for refund/credit of its input
VAT for the first quarter of 1992 was not only unsigned by its supposed authorized
representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was not dated,
stamped, and initialed by the BIR official who purportedly received the same. The CTA, in its
Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following observations

This Court, likewise, rejects any probative value of the Application for Tax
Credit/Refund of VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in
evidence by the petitioner on account of the fact that it does not bear the BIR stamp
showing the date when such application was filed together with the signature or initial of
the receiving officer of respondent's Bureau. Worse still, it does not show the date of
application and the signature of a certain Ma. Paz R. Semilla indicated in the form who
appears to be petitioner's authorized filer.

A review of the records reveal that the original of the aforecited application was lost
during the time petitioner transferred its office (TSN, p. 6, Hearing of December 9,
1994). Attempt was made to prove that petitioner exerted efforts to recover the original
copy, but to no avail. Despite this, however, We observe that petitioner completely failed
to establish the missing dates and signatures abovementioned. On this score, said
application has no probative value in demonstrating the fact of its filing within two years
after the [filing of the VAT return for the quarter] when petitioner's sales of goods were
made as prescribed under Section 106(b) of the Tax Code. We believe thus that petitioner
failed to file an application for refund in due form and within the legal period set by law
at the administrative level. Hence, the case at bar has failed to satisfy the requirement on
the prior filing of an application for refund with the respondent before the
commencement of a judicial claim for refund, as prescribed under Section 230 of the Tax
Code. This fact constitutes another one of the many reasons for not granting petitioner's
judicial claim.

As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation
timely filed its administrative claim for refund of its input VAT for the first quarter of 1992, but
also whether petitioner corporation actually filed such administrative claim in the first place. For
failing to prove that it had earlier filed with the BIR an application for refund/credit of its input
VAT for the first quarter of 1992, within the period prescribed by law, then the case instituted by
petitioner corporation with the CTA for the refund/credit of the very same tax cannot prosper.

Revenue Regulations No. 2-88 and the 70% export requirement


Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the
gross selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same
provision subjected the following sales made by VAT-registered persons to 0% VAT

(1) Export sales; and

(2) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero-
rate.

"Export Sales" means the sale and shipment or exportation of goods from the Philippines
to a foreign country, irrespective of any shipping arrangement that may be agreed upon
which may influence or determine the transfer of ownership of the goods so exported, or
foreign currency denominated sales. "Foreign currency denominated sales", means sales
to nonresidents of goods assembled or manufactured in the Philippines, for delivery to
residents in the Philippines and paid for in convertible foreign currency remitted through
the banking system in the Philippines.

These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for
VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of
goods and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its
purchases of goods or services related to such zero-rated sale shall be available as tax credit or
refund.20

Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the
said regulations imposed additional requirements, not found in the law itself, for the zero-rating
of its sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate,
Inc. (PHILPHOS), both of which are registered not only with the BOI, but also with the then
Export Processing Zone Authority (EPZA).21

The contentious provisions of Revenue Regulations No. 2-88 read

SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of


raw materials to export-oriented BOI-registered enterprises whose export sales, under
rules and regulations of the Board of Investments, exceed seventy percent (70%) of total
annual production, shall be subject to zero-rate under the following conditions:

"(1) The seller shall file an application with the BIR, ATTN.: Division, applying
for zero-rating for each and every separate buyer, in accordance with Section 8(d)
of Revenue Regulations No. 5-87. The application should be accompanied with a
favorable recommendation from the Board of Investments."

"(2) The raw materials sold are to be used exclusively by the buyer in the
manufacture, processing or repacking of his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales
invoice. The exporter (buyer) can no longer claim from the Bureau of Internal
Revenue or any other government office tax credits on their zero-rated purchases;

(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident
foreign buyer for delivery to a resident local export-oriented BOI-registered enterprise to
be used in manufacturing, processing or repacking of the said buyer's goods and paid for
in foreign currency, inwardly remitted in accordance with Central Bank rules and
regulations shall be subject to zero-rate.

It is the position of the respondent Commissioner, affirmed by the CTA and the Court of
Appeals, that Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar;
and to be entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner
corporation, as a VAT-registered seller, must be able to prove not only that PASAR and
PHILPHOS are BOI-registered corporations, but also that more than 70% of the total annual
production of these corporations are actually exported. Revenue Regulations No. 2-88 merely
echoed the requirement imposed by the BOI on export-oriented corporations registered with it.

While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it
finds that its application must be limited and placed in the proper context. Note that Section 2 of
Revenue Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-
oriented BOI-registered enterprises whose export sales, under BOI rules and regulations, should
exceed seventy percent (70%) of their total annual production.

Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of
the sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be
emphasized that PASAR and PHILPHOS, in addition to being registered with the BOI, were also
registered with the EPZA and located within an export-processing zone. Petitioner corporation
does not claim that its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales
were made to export-oriented BOI-registered corporations, but rather, on the basis that the sales
were made to EPZA-registered enterprises operating within export processing zones. Although
sales to export-oriented BOI-registered enterprises and sales to EPZA-registered enterprises
located within export processing zones were both deemed export sales, which, under Section
100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT distinction must be
made between these two types of sales because each may have different substantiation
requirements.

The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale
and shipment or exportation of goods from the Philippines to a foreign country, irrespective of
any shipping arrangement that may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported, or foreign currency denominated sales."
Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 - which,
in the years concerned (i.e., 1990 and 1992), governed enterprises registered with both the BOI
and EPZA, provided a more comprehensive definition of export sales, as quoted below:

"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from
invoices, bills of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a registered export
producer or the net selling price of export product sold by a registered export producer or
to an export trader that subsequently exports the same: Provided, That sales of export
products to another producer or to an export trader shall only be deemed export sales
when actually exported by the latter, as evidenced by landing certificates of similar
commercial documents: Provided, further, That without actual exportation the following
shall be considered constructively exported for purposes of this provision: (1) sales to
bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export
processing zones; (3) sales to registered export traders operating bonded trading
warehouses supplying raw materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and
the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other
agencies and/or instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or not: Provided,
further, That export sales of registered export trader may include commission income;
and Provided, finally, That exportation of goods on consignment shall not be deemed
export sales until the export products consigned are in fact sold by the consignee.

Sales of locally manufactured or assembled goods for household and personal use to
Filipinos abroad and other non-residents of the Philippines as well as returning Overseas
Filipinos under the Internal Export Program of the government and paid for in
convertible foreign currency inwardly remitted through the Philippine banking systems
shall also be considered export sales. (Underscoring ours.)

The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales
the sales of export products to another producer or to an export trader, provided that the export
products are actually exported. For purposes of VAT zero-rating, such producer or export trader
must be registered with the BOI and is required to actually export more than 70% of its annual
production.

Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation
specifically identified by the said provision are sales to export processing zones. Sales to export
processing zones are subjected to special tax treatment. Article 77 of the same Code establishes
the tax treatment of goods or merchandise brought into the export processing zones. Of particular
relevance herein is paragraph 2, which provides that "Merchandise purchased by a registered
zone enterprise from the customs territory and subsequently brought into the zone, shall be
considered as export sales and the exporter thereof shall be entitled to the benefits allowed by
law for such transaction."

Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle,22 goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine23 mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT, while those destined for use or
consumption within the Philippines shall be imposed with 10% VAT.24 Export processing
zones25 are to be managed as a separate customs territory from the rest of the Philippines and,
thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales by
persons from the Philippine customs territory to those inside the export processing zones are
already taxed as exports.

Plainly, sales to enterprises operating within the export processing zones are export sales, which,
under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that
petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to
PASAR and PHILPHOS.

The distinction made by this Court in the preceding paragraphs between the zero-rated sales to
export-oriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises
operating within export processing zones is actually supported by subsequent development in tax
laws and regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as
amended,26 the BIR defined with more precision what are zero-rated export sales

(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods and paid for in
acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);

(3) The sale of raw materials or packaging materials to an export-oriented enterprise


whose export sales exceed seventy percent (70%) of total annual production;

Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an export-oriented enterprise upon
accreditation as such under the provisions of the Export Development Act (R.A. 7844)
and its implementing rules and regulations;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g.
Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act
of 1992.

The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales,
which are subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which
applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not be
applied to the applications for refund/credit of input VAT filed by petitioner corporation since it
based its applications on the zero-rating of export sales to enterprises registered with the EPZA
and located within export processing zones.

Sufficiency of evidence

There can be no dispute that the taxpayer-claimant has the burden of proving the legal and
factual bases of its claim for tax credit or refund, but once it has submitted all the required
documents, it is the function of the BIR to assess these documents with purposeful dispatch.28 It
therefore falls upon herein petitioner corporation to first establish that its sales qualify for VAT
zero-rating under the existing laws (legal basis), and then to present sufficient evidence that said
sales were actually made and resulted in refundable or creditable input VAT in the amount being
claimed (factual basis).

It would initially appear that the applications for refund/credit filed by petitioner corporation
cover only input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a
more thorough perusal of its applications, VAT returns, pleadings, and other records of these
cases would reveal that it is also claiming refund/credit of its input VAT on purchases of capital
goods and sales of gold to the Central Bank of the Philippines (CBP).

This Court finds that the claims for refund/credit of input VAT of petitioner corporation have
sufficient legal bases.

As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of
the Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to
enterprises operating within export processing zones and registered with the EPZA, since such
export sales were deemed to be effectively zero-rated sales.29 The fact that PASAR and
PHILPHOS, to whom petitioner corporation sold its products, were operating inside an export
processing zone and duly registered with EPZA, was never raised as an issue herein. Moreover,
the same fact was already judicially recognized in the case Atlas Consolidated Mining &
Development Corporation v. Commissioner of Internal Revenue.30 Section 106(c) of the same
Code likewise permitted a VAT-registered taxpayer to apply for refund/credit of the input VAT
paid on capital goods imported or locally purchased to the extent that such input VAT has not
been applied against its output VAT. Meanwhile, the effective zero-rating of sales of gold to the
CBP from 1989 to 199131 was already affirmed by this Court in Commissioner of Internal
Revenue v. Benguet Corporation,32 wherein it ruled that

At the time when the subject transactions were consummated, the prevailing BIR
regulations relied upon by respondent ordained that gold sales to the Central Bank were
zero-rated. The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No.
581 s. 1980 which prescribed that gold sold to the Central Bank shall be considered
export and therefore shall be subject to the export and premium duties. In coming out
with this interpretation, the BIR also considered Sec. 169 of Central Bank Circular No.
960 which states that all sales of gold to the Central Bank are considered constructive
exports. x x x.
This Court now comes to the question of whether petitioner corporation has sufficiently
established the factual bases for its applications for refund/credit of input VAT. It is in this
regard that petitioner corporation has failed, both in the administrative and judicial level.

Applications for refund/credit of input VAT with the BIR must comply with the appropriate
revenue regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not
relevant to the applications for refund/credit of input VAT filed by petitioner corporation;
nonetheless, the said applications must have been in accordance with Revenue Regulations No.
3-88, amending Section 16 of Revenue Regulations No. 5-87, which provided as follows

SECTION 16. Refunds or tax credits of input tax.

xxxx

(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added
Tax Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city
or municipality where the principal place of business of the applicant is located or
directly with the Commissioner, Attention: VAT Division.

A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall
be submitted together with the application. The original copy of the said invoice/receipt,
however, shall be presented for cancellation prior to the issuance of the Tax Credit
Certificate or refund. In addition, the following documents shall be attached whenever
applicable:

xxxx

"3. Effectively zero-rated sale of goods and services.

"i) photo copy of approved application for zero-rate if filing for the first
time.

"ii) sales invoice or receipt showing name of the person or entity to whom
the sale of goods or services were delivered, date of delivery, amount of
consideration, and description of goods or services delivered.

"iii) evidence of actual receipt of goods or services.

"4. Purchase of capital goods.

"i) original copy of invoice or receipt showing the date of purchase,


purchase price, amount of value-added tax paid and description of the
capital equipment locally purchased.

"ii) with respect to capital equipment imported, the photo copy of import
entry document for internal revenue tax purposes and the confirmation
receipt issued by the Bureau of Customs for the payment of the value-
added tax.

"5. In applicable cases,

where the applicant's zero-rated transactions are regulated by certain government


agencies, a statement therefrom showing the amount and description of sale of goods and
services, name of persons or entities (except in case of exports) to whom the goods or
services were sold, and date of transaction shall also be submitted.

In all cases, the amount of refund or tax credit that may be granted shall be limited to the
amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-
rated transaction during the period covered by the application for credit or refund.

Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods
and services, and the VAT paid (inputs) on purchases of goods and services cannot be
directly attributed to any of the aforementioned transactions, the following formula shall
be used to determine the creditable or refundable input tax for zero-rated sale:

Amount of Zero-rated Sale


Total Sales

X
Total Amount of Input Taxes
=
Amount Creditable/Refundable

In case the application for refund/credit of input VAT was denied or remained unacted upon by
the BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may
already file a Petition for Review before the CTA. If the taxpayer's claim is supported by
voluminous documents, such as receipts, invoices, vouchers or long accounts, their presentation
before the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full
below

In the interest of speedy administration of justice, the Court hereby promulgates the
following rules governing the presentation of voluminous documents and/or long
accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts
pursuant to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated in
Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of
Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must, after
motion and approval by the Court, present:

(a) a Summary containing, among others, a chronological listing of the numbers,


dates and amounts covered by the invoices or receipts and the amount/s of tax
paid; and (b) a Certification of an independent Certified Public Accountant
attesting to the correctness of the contents of the summary after making an
examination, evaluation and audit of the voluminous receipts and invoices. The
name of the accountant or partner of the firm in charge must be stated in the
motion so that he/she can be commissioned by the Court to conduct the audit and,
thereafter, testify in Court relative to such summary and certification pursuant to
Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account for
marking, identification and comparison with the originals thereof need not be done before
the Court or Clerk of Court anymore after the introduction of the summary and CPA
certification. It is enough that the receipts, invoices, vouchers or other documents
covering the said accounts or payments to be introduced in evidence must be pre-marked
by the party concerned and submitted to the Court in order to be made accessible to the
adverse party who desires to check and verify the correctness of the summary and CPA
certification. Likewise, the originals of the voluminous receipts, invoices or accounts
must be ready for verification and comparison in case doubt on the authenticity thereof is
raised during the hearing or resolution of the formal offer of evidence.

Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when
the said Circular was issued, then petitioner corporation must have complied therewith during the
course of the trial of the said cases.

In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the
claim of therein respondent, Manila Mining Corporation, for refund of the input VAT on its
supposed zero-rated sales of gold to the CBP because it was unable to substantiate its claim. In
the same case, this Court emphasized the importance of complying with the substantiation
requirements for claiming refund/credit of input VAT on zero-rated sales, to wit

For a judicial claim for refund to prosper, however, respondent must not only prove that
it is a VAT registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input VAT paid by purchase invoices or official receipts.

This respondent failed to do.

Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.

xxxx

Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed
before it are litigated de novo, party litigants should prove every minute aspect of their
cases. No evidentiary value can be given the purchase invoices or receipts submitted to
the BIR as the rules on documentary evidence require that these documents must be
formally offered before the CTA.

This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-
output tax but this does not ipso fact mean that [the seller] is entitled to the
amount of refund sought as it is required by law to present evidence showing the
input taxes it paid during the year in question. What is being claimed in the
instant petition is the refund of the input taxes paid by the herein petitioner on its
purchase of goods and services. Hence, it is necessary for the Petitioner to show
proof that it had indeed paid the input taxes during the year 1991. In the case at
bar, Petitioner failed to discharge this duty. It did not adduce in evidence the
sales invoice, receipts or other documents showing the input value added tax on
the purchase of goods and services.

xxx

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present their
evidence accordingly if they desire the Court to take such evidence into consideration.
(Emphasis and italics supplied)

A "sales or commercial invoice" is a written account of goods sold or services rendered


indicating the prices charged therefor or a list by whatever name it is known which is
used in the ordinary course of business evidencing sale and transfer or agreement to sell
or transfer goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in


money or other settlement between seller and buyer of goods, debtor or creditor, or
person rendering services and client or customer.

These sales invoices or receipts issued by the supplier are necessary to substantiate the
actual amount or quantity of goods sold and their selling price, and taken collectively are
the best means to prove the input VAT payments.36

Although the foregoing decision focused only on the proof required for the applicant for
refund/credit to establish the input VAT payments it had made on its purchases from suppliers,
Revenue Regulations No. 3-88 also required it to present evidence proving actual zero-rated
VAT sales to qualified buyers, such as (1) photocopy of the approved application for zero-rate if
filing for the first time; (2) sales invoice or receipt showing the name of the person or entity to
whom the goods or services were delivered, date of delivery, amount of consideration, and
description of goods or services delivered; and (3) the evidence of actual receipt of goods or
services.

Also worth noting in the same decision is the weight given by this Court to the certification by
the independent certified public accountant (CPA), thus

Respondent contends, however, that the certification of the independent CPA attesting to
the correctness of the contents of the summary of suppliers' invoices or receipts which
were examined, evaluated and audited by said CPA in accordance with CTA Circular No.
1-95 as amended by CTA Circular No. 10-97 should substantiate its claims.

There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No.
10-97, which either expressly or impliedly suggests that summaries and schedules of
input VAT payments, even if certified by an independent CPA, suffice as evidence of
input VAT payments.

xxxx

The circular, in the interest of speedy administration of justice, was promulgated to avoid
the time-consuming procedure of presenting, identifying and marking of documents
before the Court. It does not relieve respondent of its imperative task of pre-marking
photocopies of sales receipts and invoices and submitting the same to the court after the
independent CPA shall have examined and compared them with the originals. Without
presenting these pre-marked documents as evidence from which the summary and
schedules were based, the court cannot verify the authenticity and veracity of the
independent auditor's conclusions.

There is, moreover, a need to subject these invoices or receipts to examination by the
CTA in order to confirm whether they are VAT invoices. Under Section 21 of Revenue
Regulation, No. 5-87, all purchases covered by invoices other than a VAT invoice shall
not be entitled to a refund of input VAT.

xxxx

While the CTA is not governed strictly by technical rules of evidence, as rules of
procedure are not ends in themselves but are primarily intended as tools in the
administration of justice, the presentation of the purchase receipts and/or invoices is not
mere procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of the respondent's claims.

The records further show that respondent miserably failed to substantiate its claims for
input VAT refund for the first semester of 1991. Except for the summary and schedules
of input VAT payments prepared by respondent itself, no other evidence was adduced in
support of its claim.

As for respondent's claim for input VAT refund for the second semester of 1991, it
employed the services of Joaquin Cunanan & Co. on account of which it (Joaquin
Cunanan & Co.) executed a certification that:

We have examined the information shown below concerning the input tax
payments made by the Makati Office of Manila Mining Corporation for the period
from July 1 to December 31, 1991. Our examination included inspection of the
pertinent suppliers' invoices and official receipts and such other auditing
procedures as we considered necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures considered necessary"
and not auditing procedures which are in accordance with generally accepted auditing
principles and standards, and that the examination was made on "input tax payments by
the Manila Mining Corporation," without specifying that the said input tax payments are
attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and
regard it as sufficient proof of the respondent's input VAT payments for the second
semester.37

As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its
zero-rated sales in the first quarter of 1992, this Court already found that the petitioner
corporation failed to comply with Section 106(b) of the Tax Code of 1977, as amended,
imposing the two-year prescriptive period for the filing of the application for refund/credit
thereof. This bars the grant of the application for refund/credit, whether administratively or
judicially, by express mandate of Section 106(e) of the same Code.

Granting arguendo that the application of petitioner corporation for the refund/credit of the input
VAT on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner
corporation still failed to present together with its application the required supporting documents,
whether before the BIR or the CTA. As the Court of Appeals ruled

In actions involving claims for refund of taxes assessed and collected, the burden of proof
rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to
substantiate its claim for tax refunds. Thus:

"We note, however, that in the cases at bar, petitioner has relied totally on
Revenue Regulations No. 2-88 in determining compliance with the documentary
requirements for a successful refund or issuance of tax credit. Unmentioned is the
applicable and specific amendment later introduced by Revenue Regulations No.
3-88 dated April 7, 1988 (issued barely after two months from the promulgation
of Revenue Regulations No. 2-88 on February 15, 1988), which amended Section
16 of Revenue Regulations No. 5-87 on refunds or tax credits of input tax. x x x.

xxxx

"A thorough examination of the evidence submitted by the petitioner before this
court reveals outright the failure to satisfy documentary requirements laid down
under the above-cited regulations. Specifically, petitioner was not able to present
the following documents, to wit:

"a) sales invoices or receipts;

"b) purchase invoices or receipts;

"c) evidence of actual receipt of goods;

"d) BOI statement showing the amount and description of sale of goods,
etc.
"e) original or attested copies of invoice or receipt on capital equipment
locally purchased; and

"f) photocopy of import entry document and confirmation receipt on


imported capital equipment.

"There is the need to examine the sales invoices or receipts in order to ascertain
the actual amount or quantity of goods sold and their selling price. Without them,
this Court cannot verify the correctness of petitioner's claim inasmuch as the
regulations require that the input taxes being sought for refund should be limited
to the portion that is directly and entirely attributable to the particular zero-rated
transaction. In this instance, the best evidence of such transaction are the said
sales invoices or receipts.

"Also, even if sales invoices are produced, there is the further need to submit
evidence that such goods were actually received by the buyer, in this case, by
CBP, Philp[h]os and PASAR.

xxxx

"Lastly, this Court cannot determine whether there were actual local and imported
purchase of capital goods as well as domestic purchase of non-capital goods
without the required purchase invoice or receipt, as the case may be, and
confirmation receipts.

"There is, thus, the imperative need to submit before this Court the original or
attested photocopies of petitioner's invoices or receipts, confirmation receipts and
import entry documents in order that a full ascertainment of the claimed amount
may be achieved.

"Petitioner should have taken the foresight to introduce in evidence all of the
missing documents abovementioned. Cases filed before this Court are litigated de
novo. This means that party litigants should endeavor to prove at the first instance
every minute aspect of their cases strictly in accordance with the Rules of Court,
most especially on documentary evidence." (pp. 37-42, Rollo)

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or
entity claiming the exemption. The taxpayer who claims for exemption must justify his
claim by the clearest grant of organic or statute law and should not be permitted to stand
on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil.
Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30
SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617;
Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).

There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-
destructive", as it finds comfort in the very SGV's stand, as follows:
"It is our understanding that the above procedure are sufficient for the purpose of
the Company. We make no presentation regarding the sufficiency of these
procedures for such purpose. We did not compare the total of the input tax
claimed each quarter against the pertinent VAT returns and books of accounts.
The above procedures do not constitute an audit made in accordance with
generally accepted auditing standards. Accordingly, we do not express an opinion
on the company's claim for input VAT refund or credit. Had we performed
additional procedures, or had we made an audit in accordance with generally
accepted auditing standards, other matters might have come to our attention that
we would have accordingly reported on."

The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent


auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed
each quarter against the VAT returns and books of accounts."38

Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner
corporation on its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate
court likewise found that petitioner corporation failed to sufficiently establish its claims. Already
disregarding the declarations made by the Court of Appeals on its erroneous application of
Revenue Regulations No. 2-88, quoted hereunder is the rest of the findings of the appellate court
after evaluating the evidence submitted in accordance with the requirements under Revenue
Regulations No. 3-88

The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant
to Sec. 245 of the National Internal Revenue Code, which recognized his power to
"promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code." Thus, it is incumbent upon a taxpayer intending to file a claim
for refund of input VATs or the issuance of a tax credit certificate with the BIR x x x to
prove sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the
same evidence should be presented in support of an action to recover taxes which have
been paid.

x x x Neither has [herein petitioner corporation] presented sales invoices or receipts


showing sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and
[PHILPHOS], respectively, and the dates and amounts of the same, nor any evidence of
actual receipt by the said buyers of the mineral products. It merely presented receipts of
purchases from suppliers on which input VATs were allegedly paid. Thus, the Court of
Tax Appeals correctly denied the claims for refund of input VATs or the issuance of tax
credit certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June
2000, this Court directed the parties to file memoranda discussing, among others, the
submission of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite to
buyers." Nevertheless, the parties, including the petitioner, failed to address this issue,
thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this
point.39

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-
settled is the general rule that the jurisdiction of this Court in cases brought before it from the
Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, is limited to reviewing or revising errors of law; findings of fact of the latter are
conclusive.40 This Court is not a trier of facts. It is not its function to review, examine and
evaluate or weigh the probative value of the evidence presented.41

The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the
law is on a certain state of facts; there is a question of fact when the doubt or difference arises as
to the truth or falsehood of alleged facts."42

Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on
these sales in the amount it had declared in its returns; whether all the input VAT subject of its
applications for refund/credit can be attributed to its zero-rated sales; and whether it had not
previously applied the input VAT against its output VAT liabilities, are all questions of fact
which could only be answered after reviewing, examining, evaluating, or weighing the probative
value of the evidence it presented, and which this Court does not have the jurisdiction to do in
the present Petitions for Review on Certiorari under Rule 45 of the revised Rules of Court.

Granting that there are exceptions to the general rule, when this Court looked into questions of
fact under particular circumstances,43 none of these exist in the instant cases. The Court of
Appeals, in both cases, found a dearth of evidence to support the claims for refund/credit of the
input VAT of petitioner corporation, and the records bear out this finding. Petitioner corporation
itself cannot dispute its non-compliance with the requirements set forth in Revenue Regulations
No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its arguments on its assertion
that the substantiation requirements under Revenue Regulations No. 2-88 should not have
applied to it, while being conspicuously silent on the evidentiary requirements mandated by other
relevant regulations.

Re-opening of cases/holding of new trial before the CTA

This Court now faces the final issue of whether the prayer of petitioner corporation for the re-
opening of its cases or holding of new trial before the CTA for the reception of additional
evidence, may be granted. Petitioner corporation prays that the Court exercise its discretion on
the matter in its favor, consistent with the policy that rules of procedure be liberally construed in
pursuance of substantive justice.

This Court, however, cannot grant the prayer of petitioner corporation.

An aggrieved party may file a motion for new trial or reconsideration of a judgment already
rendered in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration.
Within the period for taking an appeal, the aggrieved party may move the trial court to set
aside the judgment or final order and grant a new trial for one or more of the following
causes materially affecting the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the
result.

Within the same period, the aggrieved party may also move fore reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to
justify the decision or final order, or that the decision or final order is contrary to law.

In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its
cases and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel
to adduce the necessary evidence should be construed as excusable negligence or mistake which
should constitute basis for such re-opening of trial as for a new trial, as counsel was of the belief
that such evidence was rendered unnecessary by the presentation of unrebutted evidence
indicating that respondent [Commissioner] has acknowledged the sale of [sic] PASAR and
[PHILPHOS] to be zero-rated." 44 The CTA denied such motion on the ground that it was not
accompanied by an affidavit of merit as required by Section 2, Rule 37 of the revised Rules of
Court. The Court of Appeals affirmed the denial of the motion, but apart from this technical
defect, it also found that there was no justification to grant the same.

On the matter of the denial of the motion of the petitioner corporation for the re-opening of its
cases and/or holding of new trial based on the technicality that said motion was unaccompanied
by an affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which
should otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged
and incorporated in the motion itself; and this will be deemed a substantial compliance with the
formal requirements of the law, provided, of course, that the movant, or other individual with
personal knowledge of the facts, take oath as to the truth thereof, in effect converting the entire
motion for new trial into an affidavit.45 The motion of petitioner corporation was prepared and
verified by its counsel, and since the ground for the motion was premised on said counsel's
excusable negligence or mistake, then the obvious conclusion is that he had personal knowledge
of the facts relating to such negligence or mistake. Hence, it can be said that the motion of
petitioner corporation for the re-opening of its cases and/or holding of new trial was in
substantial compliance with the formal requirements of the revised Rules of Court.

Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation
for the re-opening of its cases and/or holding of new trial.

In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20 July 1998, by the
CTA in another case, CTA Case No. 5296, involving the claim of petitioner corporation for
refund/credit of input VAT for the third quarter of 1993. The said Resolution allowed the re-
opening of CTA Case No. 5296, earlier dismissed by the CTA, to give the petitioner corporation
the opportunity to present the missing export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial
court,47 may likewise be extended to the CTA. When the denial of the motion rests upon the
discretion of a lower court, this Court will not interfere with its exercise, unless there is proof of
grave abuse thereof.48

That the CTA granted the motion for re-opening of one case for the presentation of additional
evidence and, yet, deny a similar motion in another case filed by the same party, does not
necessarily demonstrate grave abuse of discretion or arbitrariness on the part of the CTA.
Although the cases involve identical parties, the causes of action and the evidence to support the
same can very well be different. As can be gleaned from the Resolution, dated 20 July 1998, in
CTA Case No. 5296, petitioner corporation was claiming refund/credit of the input VAT on its
zero-rated sales, consisting of actual export sales, to Mitsubishi Metal Corporation in Tokyo,
Japan. The CTA took into account the presentation by petitioner corporation of inward
remittances of its export sales for the quarter involved, its Supply Contract with Mitsubishi Metal
Corporation, its 1993 Annual Report showing its sales to the said foreign corporation, and its
application for refund. In contrast, the present Petitions involve the claims of petitioner
corporation for refund/credit of the input VAT on its purchases of capital goods and on its
effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for
the second, third, and fourth quarters of 1990 and first quarter of 1992. There being a difference
as to the bases of the claims of petitioner corporation for refund/credit of input VAT in CTA
Case No. 5926 and in the Petitions at bar, then, there are resulting variances as to the evidence
required to support them.

Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by
petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation to
present evidence "is applicable pro hac vice or in this occasion only as it is the finding of [the
CTA] that petitioner [corporation] has established a few of the aforementioned material points
regarding the possible existence of the export documents together with the prior and succeeding
returns for the quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present
cases, cannot be bound by its ruling in CTA Case No. 5296, when these cases do not involve the
exact same circumstances that compelled it to grant the motion of petitioner corporation for re-
opening of CTA Case No. 5296.

Finally, assuming for the sake of argument that the non-presentation of the required documents
was due to the fault of the counsel of petitioner corporation, this Court finds that it does not
constitute excusable negligence or mistake which would warrant the re-opening of the cases
and/or holding of new trial.

Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the
client. To follow a contrary rule and allow a party to disown his counsel's conduct would render
proceedings indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing
the counsel. What the aggrieved litigant should do is seek administrative sanctions against the
erring counsel and not ask for the reversal of the court's ruling.49

As elucidated by this Court in another case,50 the general rule is that the client is bound by the
action of his counsel in the conduct of his case and he cannot therefore complain that the result
of the litigation might have been otherwise had his counsel proceeded differently. It has been
held time and again that blunders and mistakes made in the conduct of the proceedings in the
trial court as a result of the ignorance, inexperience or incompetence of counsel do not qualify as
a ground for new trial. If such were to be admitted as valid reasons for re-opening cases, there
would never be an end to litigation so long as a new counsel could be employed to allege and
show that the prior counsel had not been sufficiently diligent, experienced or learned.

Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence
could not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15
February 1988, had been in effect more than two years prior to the filing by petitioner
corporation of its earliest application for refund/credit of input VAT involved herein on 21
August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995, after petitioner
corporation had filed its Petitions before the CTA, but still during the pendency of the cases of
petitioner corporation before the tax court. The counsel of petitioner corporation does not allege
ignorance of the foregoing administrative regulation and tax court circular, only that he no longer
deemed it necessary to present the documents required therein because of the presentation of
alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment
call made by the counsel as to which evidence to present in support of his client's cause, later
proved to be unwise, but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the non-presentation of
the required documentary evidence was due to the excusable mistake of its counsel, a ground
under Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as
it is referred to in the said rule, must be a mistake of fact, not of law, which relates to the case.52
In the present case, the supposed mistake made by the counsel of petitioner corporation is one of
law, for it was grounded on his interpretation and evaluation that Revenue Regulations No. 3-88
and CTA Circular No. 1-95, as amended, did not apply to his client's cases and that there was no
need to comply with the documentary requirements set forth therein. And although the counsel
of petitioner corporation advocated an erroneous legal position, the effects thereof, which did not
amount to a deprivation of his client's right to be heard, must bind petitioner corporation. The
question is not whether petitioner corporation succeeded in establishing its interests, but whether
it had the opportunity to present its side.53

Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on
the ground of mistake must show that ordinary prudence could not have guarded against it. A
new trial is not a refuge for the obstinate.54 Ordinary prudence in these cases would have dictated
the presentation of all available evidence that would have supported the claims for refund/credit
of input VAT of petitioner corporation. Without sound legal basis, counsel for petitioner
corporation concluded that Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95,
as amended, did not apply to its client's claims. The obstinacy of petitioner corporation and its
counsel is demonstrated in their failure, nay, refusal, to comply with the appropriate
administrative regulations and tax court circular in pursuing the claims for refund/credit, now
subject of G.R. Nos. 141104 and 148763, even though these were separately instituted in a span
of more than two years. It is also evident in the failure of petitioner corporation to address the
issue and to present additional evidence despite being given the opportunity to do so by the Court
of Appeals. As pointed out by the appellate court, in its Decision, dated 15 September 2000, in
CA-G.R. SP No. 46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to
file memoranda discussing, among others, the submission of proof for "its [petitioner's]
sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties,
including the petitioner, failed to address this issue, thereby necessitating the affirmance
of the ruling of the Court of Tax Appeals on this point.55

Summary

Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the date of
filing of the quarterly VAT return, and that sales to EPZA-registered enterprises operating within
economic processing zones were effectively zero-rated and were not covered by Revenue
Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its input
VAT on its purchases of capital goods and effectively zero-rated sales during the second, third,
and fourth quarters of 1990 and the first quarter of 1992, for not being established and
substantiated by appropriate and sufficient evidence. Petitioner corporation is also not entitled to
the re-opening of its cases and/or holding of new trial since the non-presentation of the required
documentary evidence before the BIR and the CTA by its counsel does not constitute excusable
negligence or mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.

WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and
the Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP
Nos. 47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-18125 May 31, 1963

BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,


vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY (NAWASA), respondents.

Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.


Manuel B. Roo for respondent National Waterworks and Sewerage Authority.
CONCEPCION, J.:

This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.

The question involved in this case is whether the water pipes, reservoir, intake and buildings
used by herein respondent, National Waterworks and Sewerage Authority hereinafter referred
to as NAWASA in the operation of its waterworks system in the municipalities of Cabuyao,
Sta. Rosa and Bian, province of Laguna, are subject to real estate tax.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1wph1.t

The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:

1. That the petitioner National Waterworks and Sewerage Authority (NWSA) is a public
corporation created by virtue of Republic Act No. 1383, and that it is owned by the
Government of the Philippines as well as all property comprising waterworks and
sewerage systems placed under it:.

2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over
all the property of the former Metropolitan Water District and all the existing local
government-owned waterworks and sewerage systems all over the Philippines, including
the Cabuyao-Sta. Rosa-Bian Waterworks System owned by the Province of Laguna
(Section 8, Republic Act No. 1283);

3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act
No. 1383, more particularly Section 2 thereof, are the same and identical with the
functions of the defunct Metropolitan Water District, particularly Section 2, Act 2832, is
amended;

4. That petitioner National Waterworks and Sewerage Authority (NWSA) has no capital
stock divided into shares of stocks, no stockholders, and is not authorized by its Charter
to distribute dividends; and, on the other hand, whatever surplus funds it has realized,
may and will after meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer services;

5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System was taken over
by petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but
that all its surplus income are not declared as profits as this surplus are or may be
invested for the expansion thereof;

6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Bian Waterworks System
and described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2
hereof, herein petitioner NWSA had taken over;

7. That against the above-mentioned assessment made by the Provincial Assessor of


Laguna, petitioner NWSA protested, claiming that the property described under Tax
Declaration No. 5987 (Exh. "A-l") are exempted from the payment of real estate taxes in
view of the nature and kind of said property and functions and activities of petitioner, as
provided in Republic Act No. 1383;.

8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;

xxx xxx xxx"

After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending that the properties in
question are subject to real estate tax because: (1) although said properties belong to the
Republic of the Philippines, the same holds it, not in its governmental, political or sovereign
capacity, but in a private, proprietary or patrimonial character, which, allegedly, is not covered
by the exemption contained in section 3(a) of Republic Act No. 470; and 2) this exemption, even
if applicable to patrimonial property, must yield to the provisions of section 1 of Republic Act
No. 104, under which all corporations, agencies or instrumentalities owned or controlled by the
Government are subject to taxation, according to petitioner appellant.

Sections 2 and 3(a) of Commonwealth Act No. 470 provide:

SEC. 2. Incidence of real property tax. Except in chartered cities, there shall be levied,
assessed, and collected, an annual ad valorem tax on real property, including land,
buildings, machinery, and other improvements not hereinafter specifically exempted.

SEC. 3. Property exempt from tax. The exemptions shall be as follows:

(a) Property owned by . . . the Republic of the Philippines, any province, city,
municipality or municipal district. . . .

It is conceded, in the stipulation of facts, that the property involved in this case "is owned by the
Government of the Philippines". Hence, it belongs to the Republic of the Philippines and falls
squarely within the letter of the above provision. This notwithstanding, petitioner Board
maintains that respondent NAWASA is not entitled to the benefits of the exemption established
in said section 3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-
12892, decided on April 30, 1960, we ruled that the assets of the water system of the City of
Cebu, which the NAWASA had sought to take over, pursuant to the provisions of Republic Act
No. 1383 as it did in the case at bar, with respect to the Cabuyao-Sta. Rosa-Bian Waterworks
System are patrimonial property of said city, which held it in a proprietary character, not in its
governmental capacity.
We did not declare, however, in the Cebu case that said assets were subject to taxation. In that
case we merely reiterated the doctrine, laid down in the case of City of Baguio vs. NAWASA, G.
R. No. L-12032, decided on August 31, 1959, that municipal corporations hold in their
proprietary character, the assets of their respective waterworks, which, accordingly, cannot be
taken or appropriated by the National Government and placed under the NAWASA without
payment of just compensation. Neither the Cebu case nor that of Baguio sustains the theory that
said assets are taxable.

Upon the other hand, in exempting from taxation "property owned by the Republic of the
Philippines, any province, city, municipality or municipal district . . .," said section 3(a) of
Republic Act No. 470 makes no distinction between property held in a sovereign, governmental
or political capacity and those possessed in a private, proprietary or patrimonial character. And
where the law does not distinguish neither may we, unless there are facts and circumstances
clearly showing that the lawmaker intended the contrary, but no such facts and circumstances
have been brought to our attention. Indeed, the noun "property" and the verb "owned" used in
said section 3(a) strongly suggest that the object of exemption is considered more from the view
point of dominion, than from that of domain. Moreover, taxes are financial burdens imposed for
the purpose of raising revenues with which to defray the cost of the operation of the
Government, and a tax on property of the Government, whether national or local, would merely
have the effect of taking money from one pocket to put it in another pocket (Cooley on Taxation,
Sec. 621, 4th Edition.) Hence, it would not serve, in the final analysis, the main purpose of
taxation. What is more, it would tend to defeat it, on account of the paper work, time and
consequently, expenses it would entail. (The Law on Local Taxation, by Justiniano Y. Castillo,
p. 13.)

Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:

. . . All corporations, agencies, or instrumentalities owned or controlled by the


government shall pay such duties, taxes, fees and other charges upon their transaction,
business, industries, sale, or income as are imposed by law upon individuals, associations
or corporations engaged in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief purposes as may be
determined by the President of the Philippines.

This provision is inapplicable to the case at bar for it refers only to duties, taxes, fees and other
charges upon "transaction, business, industry, sale or income" and does not include taxes on
property like real estate tax.

WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement
as to costs. It is so ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, and
Makalintal, JJ., concur.
Labrador, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,


vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN,
defendants-appellees.

Sabido, Sabido and Associates for plaintiff-appellant.


The City Attorney of Butuan City for defendants-appellees.

CONCEPCION, C.J.:

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing
plaintiff's complaint, with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices
and principal place of business in Quezon City. The defendants are the City of Butuan, its City
Mayor, the members of its municipal board and its City Treasurer. Plaintiff seeks to recover
the sums paid by it to the City of Butuan hereinafter referred to as the City and collected by
the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No.
122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement
thereof. Both parties submitted the case for decision in the lower court upon a stipulation to the
effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the
"Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the
municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled
in Cebu City and shipped to the Butuan City warehouse of plaintiff for distribution and
sale in the City of Butuan and all municipalities of Agusan. .

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was
subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy
of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as
Exhibits "A" and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of
P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount
of P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from
January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that if may later on pay until the termination of
this case on the ground that Ordinance No. 110 as amended of the City of Butuan is
illegal, that the tax imposed is excessive and that it is unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City,
has prepared a form to be accomplished by the plaintiff for the computation of the tax. A
copy of the form is enclosed herewith as Exhibit "C".

6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961
to July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to
"D-1" to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff
is not entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit
of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on
the claim of depreciation which the company claims to be P3,052.62. This is in
accordance with the findings of the representative of the undersigned City Attorney who
verified the records of the plaintiff.

7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was
increased to P1.92 which price is uniform throughout the Philippines. Said increase was
made due to the increase in the production cost of its manufacture.

8. That the parties reserve the right to submit arguments on the constitutionality and
illegality of Ordinance No. 110, as amended of the City of Butuan in their respective
memoranda.

xxx xxx x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the
purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any
dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates.
Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated
beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines
the meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides
that said taxes "shall be paid at the end of every calendar month." Pursuant to Section 5, the taxes
"shall be based and computed from the cargo manifest or bill of lading or any other record
showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks
received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to
pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful
refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the
City Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or
carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks,
liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the
ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for
Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the
nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and
confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No.
2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative
powers.

The second and last objections are manifestly devoid of merit. Indeed independently of
whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts
of Congress, amounts to double taxation, on which we need not and do not express any opinion -
double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as
part thereof, the injunction against double taxation found in the Constitution of the United States
and of some States of the Union.1 Then, again, the general principle against delegation of
legislative powers, in consequence of the theory of separation of powers2 is subject to one well-
established exception, namely: legislative powers may be delegated to local governments to
which said theory does not apply3 in respect of matters of local concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft
drinks or carbonated drinks in the production and sale of which plaintiff is engaged or less
than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.

The first and the fourth objections merit, however, serious consideration. In this connection, it is
noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was
imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem
that the intent was then to levy a tax upon the sale of said merchandise. As amended by
Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any
person, association, partnership, company or corporation engaged in selling ... soft drinks or
carbonated drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No.
122:

... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a
consignee of agent shall mean any person, association, partnership, company or
corporation who acts in the place of another by authority from him or one entrusted with
the business of another or to whom is consigned or shipped no less than 1,000 cases of
hard liquors or soft drinks every month for resale, either retail or wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not
subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very
nature of things, must be one engaged in business outside the City. Besides, the tax would not be
applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or
shipped to him every month. When we consider, also, that the tax "shall be based and computed
from the cargo manifest or bill of lading ... showing the number of cases" not sold but
"received" by the taxpayer, the intention to limit the application of the ordinance to soft drinks
and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed
from this angle, the tax partakes of the nature of an import duty, which is beyond defendant's
authority to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales, and even if the same exceeded those made by said agents
or consignees of producers or merchants established outside the City of Butuan, would be exempt
from the disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the authority to classify the objects
of taxation.5 The classification made in the exercise of this authority, to be valid, must, however,
be reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon
substantial distinctions which make real differences; (2) these are germane to the purpose of the
legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present; and (4) the classification applies
equally all those who belong to the same class.7

These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were
merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason
why sales thereof by sealers other than agents or consignees of producers or merchants
established outside the City of Butuan should be exempt from the tax.

WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered
annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of
Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the
latter, with interest thereon at the legal rate from the date of the promulgation of this decision, in
addition to the costs, and defendants herein are, accordingly, restrained and prohibited
permanently from enforcing said Ordinance, as amended. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
1wph1.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,


vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant
appellees.

Sabido, Sabido & Associates for appellant.

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and
Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for
appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil
Case No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969,
as involving only pure questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended,
June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the


Philippines, Inc., commenced a complaint with preliminary injunction before the Court of
First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264. 1
otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of
taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the
municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed therein are practically the same,
and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan,
Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in
said municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25,
1962, levies and collects "from soft drinks producers and manufacturers a tai of one-
sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of
computing the taxes due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report, of the total number of bottles
produced and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28,
1962, levies and collects "on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due,
the person, fun company, partnership, corporation or plant producing soft drinks shall
submit to the Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal


production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing
the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264]
declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay
the taxes due under the oft the said Ordinances; and to pay the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary
Act of 1948, as amended.

There are three capital questions raised in this appeal:

1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive?

2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage


or specific taxes?

3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging


as a matter of right to every independent government, without being expressly conferred
by the people. 6 It is a power that is purely legislative and which the central legislative
body cannot delegate either to the executive or judicial department of the government
without infringing upon the theory of separation of powers. The exception, however, lies
in the case of municipal corporations, to which, said theory does not apply. Legislative
powers may be delegated to local governments in respect of matters of local concern. 7
This is sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government carries with
it the power to confer on such local governmental agencies the power to tax. 9 Under the
New Constitution, local governments are granted the autonomous authority to create
their own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each
local government unit shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law." Withal, it cannot be said
that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the
legislative power to enact and vest in local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's
pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In
delegating the authority, the State is not limited 6 the exact measure of that which is
exercised by itself. When it is said that the taxing power may be delegated to
municipalities and the like, it is meant that there may be delegated such measure of
power to impose and collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for reasons of public policy the
State has not deemed wise to tax for more general purposes. 10 This is not to say
though that the constitutional injunction against deprivation of property without due
process of law may be passed over under the guise of the taxing power, except when
the taking of the property is in the lawful exercise of the taxing power, as when (1) the
tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either
the person or property taxed is within the jurisdiction of the government levying the tax;
and (4) in the assessment and collection of certain kinds of taxes notice and opportunity
for hearing are provided. 11 Due process is usually violated where the tax imposed is for
a private as distinguished from a public purpose; a tax is imposed on property outside
the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in
assessing and collecting taxes. But, a tax does not violate the due process clause, as
applied to a particular taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not require that the property
subject to the tax or the amount of tax to be raised should be determined by judicial
inquiry, and a notice and hearing as to the amount of the tax and the manner in which it
shall be apportioned are generally not necessary to due process of law. 12

There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the
delegating authority specifies the limitations and enumerates the taxes over which local
taxation may not be exercised. 13 The reason is that the State has exclusively reserved
the same for its own prerogative. Moreover, double taxation, in general, is not forbidden
by our fundamental law, since We have not adopted as part thereof the injunction
against double taxation found in the Constitution of the United States and some states
of the Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental entity 15 or by the same jurisdiction for
the same purpose, 16 but not in a case where one tax is imposed by the State and the
other by the city or municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double


taxation, because these two ordinances cover the same subject matter and impose
practically the same tax rate. The thesis proceeds from its assumption that both
ordinances are valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962, levies or collects from
soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was
discovered that the producer or manufacturer could increase the volume contents of the
bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance
No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two
ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it
was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal
of the latter, even without words to that effect. 18 Plaintiff-appellant in its brief admitted
that defendants-appellees are only seeking to enforce Ordinance No. 27, series of
1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer
of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the
provisions of said Ordinance No. 27, series of 1962. The aforementioned admission
shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-
appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his
brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No.
23 as the provisions of the latter are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend to
almost "everything, accepting those which are mentioned therein." As long as the text
levied under the authority of a city or municipal ordinance is not within the exceptions
and limitations in the law, the same comes within the ambit of the general rule, pursuant
to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19
The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor
impose taxes on articles subject to specific tax except gasoline, under the provisions of
the National Internal Revenue Code." For purposes of this particular limitation, a
municipal ordinance which prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null and void for being outside
the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks
produced or manufactured under Ordinance No. 27 does not partake of the nature of a
percentage tax on sales, or other taxes in any form based thereon. The tax is levied on
the produce (whether sold or not) and not on the sales. The volume capacity of the
taxpayer's production of soft drinks is considered solely for purposes of determining the
tax rate on the products, but there is not set ratio between the volume of sales and the
amount of the tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco
other than cigars and cigarettes, matches firecrackers, manufactured oils and other
fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards,
saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those
specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on
all softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, 23
cannot be considered unjust and unfair. 24 an increase in the tax alone would not
support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the reates of imposable taxes.
25 This is in line with the constutional policy of according the widest possible autonomy
to local governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive
as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if
the purpose of the law to further strengthen local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not
more than ten crowners or P2,000.00 with ten but not more than twenty crowners
imposed on manufacturers, producers, importers and dealers of soft drinks and/or
mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No.
41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of
the validity of Ordinance No. 27. Municipalities are empowered to impose, not only
municipal license taxes upon persons engaged in any business or occupation but also
to levy for public purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise


known as the Local Autonomy Act, as amended, is hereby upheld and Municipal
Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing
Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect.
Costs against petitioner-appellant.

SO ORDERED.

Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino
and Concepcion, Jr., JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,


vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in
his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as
Head of the Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY
REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.


NARVASA, C.J.:

The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule
65 of the Rules of Court, 2 upon the following posited grounds, viz.: 3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of
Energy (now, the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D.
No. 1956, as amended, "said creation of a trust fund being contrary to Section 29 (3),
Article VI of the . . Constitution; 4

2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by


Executive Order No. 137, for "being an undue and invalid delegation of legislative power
. . to the Energy Regulatory Board;" 5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price
Stabilization Fund, 6 because it contravenes 8, paragraph 2 (2) of
P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a
rollback of the pump prices and petroleum products to the levels prevailing prior to the
said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D.
1956 creating a Special Account in the General Fund, designated as the Oil Price
Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for
cost increases in crude oil and imported petroleum products resulting from exchange
rate adjustments and from increases in the world market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O.
1024, 7 and ordered released from the National Treasury to the Ministry of Energy. The
same Executive Order also authorized the investment of the fund in government
securities, with the earnings from such placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order
No. 137 on February 27, 1987, expanding the grounds for reimbursement to oil
companies for possible cost underrecovery incurred as a result of the reduction of
domestic prices of petroleum products, the amount of the underrecovery being left for
determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a
"Terminal Fund Balance deficit" of some P12.877 billion; 8 that to abate the worsening
deficit, "the Energy Regulatory Board . . issued an Order on December 10, 1990,
approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6)
months, but this notwithstanding, the respondents Oscar Orbos, in his capacity as
Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance;
Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman
Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept, process
and pay claims not authorized under P.D. 1956." 9

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special fund
was created has been fulfilled or abandoned, the balance, if any, shall be transferred to
the general funds of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended,
must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that
"if a special tax is collected for a specific purpose, the revenue generated therefrom
shall 'be treated as a special fund' to be used only for the purpose indicated, and not
channeled to another government objective." 10 Petitioner further points out that since "a
'special fund' consists of monies collected through the taxing power of a State, such
amounts belong to the State, although the use thereof is limited to the special
purpose/objective for which it was created." 11

He also contends that the "delegation of legislative authority" to the ERB violates 28
(2). Article VI of the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of
the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation,
"the limits, limitations and restrictions must be quantitative, that is, the law must
not only specify how to tax, who (shall) be taxed (and) what the tax is for, but
also impose a specific limit on how much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that
the monies collected, which form part of the OPSF, should be maintained in a special
account of the general fund for the reason that the Constitution so provides, and
because they are, supposedly, taxes levied for a special purpose. He assumes that the
Fund is formed from a tax undoubtedly because a portion thereof is taken from
collections of ad valorem taxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the
view that the powers granted to the ERB under P.D. 1956, as amended, partake of the
nature of the taxation power of the State. The Solicitor General observes that the
"argument rests on the assumption that the OPSF is a form of revenue measure
drawing from a special tax to be expended for a special purpose." 13 The petitioner's
perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the
Court recalls its holding in Valmonte v. Energy Regulatory Board, et al. 14

The foregoing arguments suggest the presence of misconceptions about the nature and
functions of the OPSF. The OPSF is a "Trust Account" which was established "for the
purpose of minimizing the frequent price changes brought about by exchange rate
adjustment and/or changes in world market prices of crude oil and imported petroleum
products." 15 Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27
February 1987, this Trust Account may be funded from any of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs duty
imposed on petroleum products subject to tax under this Decree arising
from exchange rate adjustment, as may be determined by the Minister of
Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax


exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to


augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons or
companies engaged in the business of importing, manufacturing and/or
marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs paid
by oil companies in the importation of crude oil and petroleum products is
less than the peso costs computed using the reference foreign exchange
rate as fixed by the Board of Energy.

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in Rotterdam,
vary from day to day is of judicial notice. Freight rates for hauling crude oil and petroleum
products from sources of supply to the Philippines may also vary from time to time. The
exchange rate of the peso vis-a-vis the U.S. dollar and other convertible foreign
currencies also changes from day to day. These fluctuations in world market prices and
in tanker rates and foreign exchange rates would in a completely free market translate
into corresponding adjustments in domestic prices of oil and petroleum products with
sympathetic frequency. But domestic prices which vary from day to day or even only from
week to week would result in a chaotic market with unpredictable effects upon the
country's economy in general. The OPSF was established precisely to protect local
consumers from the adverse consequences that such frequent oil price adjustments may
have upon the economy. Thus, the OPSF serves as a pocket, as it were, into which a
portion of the purchase price of oil and petroleum products paid by consumers as well as
some tax revenues are inputted and from which amounts are drawn from time to time to
reimburse oil companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism
through which the domestic consumer prices of oil and petroleum products are stabilized,
instead of fluctuating every so often, and oil companies are allowed to recover those
portions of their costs which they would not otherwise recover given the level of domestic
prices existing at any given time. To the extent that some tax revenues are also put into
it, the OPSF is in effect a device through which the domestic prices of petroleum products
are subsidized in part. It appears to the Court that the establishment and maintenance of
the OPSF is well within that pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and well-being of the
community, that comprehensive sovereign authority we designate as the police power of
the State. The stabilization, and subsidy of domestic prices of petroleum products and
fuel oil clearly critical in importance considering, among other things, the continuing
high level of dependence of the country on imported crude oil are appropriately
regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the
nature of which is not far different from the OPSF. In Gaston v. Republic Planters Bank,
16
this Court upheld the legality of the sugar stabilization fees and explained their nature
and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of the
State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . . .
The tax collected is not in a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide a means for the stabilization of the sugar industry. The
levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters and
producers for a special purpose that of "financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the
foreign market." The fact that the State has taken possession of moneys pursuant to law
is sufficient to constitute them state funds, even though they are held for a special
purpose (Lawrence v. American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am
Jur Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are
to be treated as a special fund, to be, in the language of the statute, "administered in
trust" for the purpose intended. Once the purpose has been fulfilled or abandoned, the
balance if any, is to be transferred to the general funds of the Government. That is the
essence of the trust intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from
the 1935 Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation
made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they
are exacted in the exercise of the police power of the State. Moreover, that the OPSF is
a special fund is plain from the special treatment given it by E.O. 137. It is segregated
from the general fund; and while it is placed in what the law refers to as a "trust liability
account," the fund nonetheless remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the constitutional description of
a "special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the
provision conferring the authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by which the authority must be
exercised. In addition to the general policy of the law to protect the local consumer by
stabilizing and subsidizing domestic pump rates, 8(c) of P.D. 1956 18 expressly
authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a
specific limit on how much to tax." 19 The Court is cited to this requirement by the
petitioner on the premise that what is involved here is the power of taxation; but as
already discussed, this is not the case. What is here involved is not so much the power
of taxation as police power. Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with
expediency in carrying out the objectives of the law which are embraced by the police
power of the State.

The interplay and constant fluctuation of the various factors involved in the
determination of the price of oil and petroleum products, and the frequently shifting need
to either augment or exhaust the Fund, do not conveniently permit the setting of fixed or
rigid parameters in the law as proposed by the petitioner. To do so would render the
ERB unable to respond effectively so as to mitigate or avoid the undesirable
consequences of such fluidity. As such, the standard as it is expressed, suffices to
guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be
(1) complete in itself, that is it must set forth the policy to be executed by the delegate
and (2) it must fix a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must
be a standard, which implies at the very least that the legislature itself determines matters
of principle and lays down fundamental policy. Otherwise, the charge of complete
abdication may be hard to repel. A standard thus defines legislative policy, marks its
limits, maps out its boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. It is the criterion by
which the legislative purpose may be carried out. Thereafter, the executive or
administrative office designated may in pursuance of the above guidelines promulgate
supplemental rules and regulations. The standard may either be express or implied. If the
former, the non-delegation objection is easily met. The standard though does not have to
be spelled out specifically. It could be implied from the policy and purpose of the act
considered as a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there
can be no ground upon which to sustain the petition, inasmuch as the challenged law
sets forth a determinable standard which guides the exercise of the power granted to
the ERB. By the same token, the proper exercise of the delegated power may be tested
with ease. It seems obvious that what the law intended was to permit the additional
imposts for as long as there exists a need to protect the general public and the
petroleum industry from the adverse consequences of pump rate fluctuations. "Where
the standards set up for the guidance of an administrative officer and the action taken
are in fact recorded in the orders of such officer, so that Congress, the courts and the
public are assured that the orders in the judgment of such officer conform to the
legislative standard, there is no failure in the performance of the legislative functions." 22

This Court thus finds no serious impediment to sustaining the validity of the legislation;
the express purpose for which the imposts are permitted and the general objectives and
purposes of the fund are readily discernible, and they constitute a sufficient standard
upon which the delegation of power may be justified.

In relation to the third question respecting the illegality of the reimbursements to oil
companies, paid out of the Oil Price Stabilization Fund, because allegedly in
contravention of 8, paragraph 2 (2) of P.D. 1956, amended 23 the Court finds for the
petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum
companies (i.e., inventory losses, financing charges, fuel oil sales to the National Power
Corporation, etc.) because not authorized by law. Petitioner contends that "these claims
are not embraced in the enumeration in 8 of P.D. 1956 . . since none of them was
incurred 'as a result of the reduction of domestic prices of petroleum products,'" 24 and
since these items are reimbursements for which the OPSF should not have responded,
the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." 25 It is
argued "that under the principle of ejusdem generis . . . the term 'other factors' (as used
in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in
the reduction of domestic prices of petroleum products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the
restrictive confines of the rule of ejusdem generis would reduce (E.O. 137) to a
meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27
passed upon the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of persons
or things, by words of a particular and specific meaning, such general words are not to be
construed in their widest extent, but are held to be as applying only to persons or things
of the same kind or class as those specifically mentioned." 28 A reading of subparagraphs
(i) and (ii) easily discloses that they do not have a common characteristic. The first
relates to price reduction as directed by the Board of Energy while the second refers to
reduction in internal ad valorem taxes. Therefore, subparagraph (iii) cannot be limited by
the enumeration in these subparagraphs. What should be considered for purposes of
determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2)
of the Section which explicitly allows the cost underrecovery only if such were incurred as
a result of the reduction of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by
paragraph 2 of 8 of P.D. 1956, for the reason that they were not incurred as a result of
the reduction of domestic prices of petroleum products. Under the same provision,
however, the payment of inventory losses is upheld as valid, being clearly a result of
domestic price reduction, when oil companies incur a cost underrecovery for yet unsold
stocks of oil in inventory acquired at a higher price.

Reimbursement for cost underrecovery from the sales of oil to the National Power
Corporation is equally permissible, not as coming within the provisions of P.D. 1956, but
in virtue of other laws and regulations as held in Caltex 29 and which have been pointed
to by the Solicitor General. At any rate, doubts about the propriety of such
reimbursements have been dispelled by the enactment of R.A. 6952, establishing the
Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement
of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion


has been presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor
General taken any effort to defend the propriety of this refund. In fine, neither of the
parties, beyond the mere mention of overpayment refunds, has at all bothered to
discuss the arguments for or against the legality of the so-called overpayment refunds.
To be sure, the absence of any argument for or against the validity of the refund cannot
result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis
upon which to nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having
been rendered moot and academic. As of date hereof, the pump rates of gasoline have
been reduced to levels below even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the
reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all
other respects.

SO ORDERED.

Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon,
Bellosillo, Melo, Campos, Jr., and Quiason, JJ., concur.

Gutierrez, Jr., J., is on leave.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,


vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.

Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.

Sotero H. Laurel for respondents.

FERNANDEZ, J.:

This is a petition for certiorari to review tile decision dated September 17, 1968 of
respondent Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in
Civil Case No. 72797, the dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against the
respondents, declaring Ordinance No. 6 37 of the City of Manila null and void. The
preliminary injunction is made permanent. No pronouncement as to cost.

SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.)
FRANC
ISCO
ARCA

J
u
d
g
e
1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22,
1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE


PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE
ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE
CITY OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM
THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate
in any position or occupation or business enumerated therein, whether permanent, temporary or casual,
without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00
except persons employed in the diplomatic or consular missions of foreign countries, or in the technical
assistance programs of both the Philippine Government and any foreign government, and those working
in their respective households, and members of religious orders or congregations, sect or denomination,
who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6)
months or fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment,
upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition
with the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the
issuance of the writ of preliminary injunction and restraining order to stop the enforcement of Ordinance
No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance
declared null and void:

1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance


No. 6537 is discriminatory and violative of the rule of the uniformity in taxation;

2) As a police power measure, it makes no distinction between useful and non-useful


occupations, imposing a fixed P50.00 employment permit, which is out of proportion to
the cost of registration and that it fails to prescribe any standard to guide and/or limit the
action of the Mayor, thus, violating the fundamental principle on illegal delegation of
legislative powers:

3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus,
deprived of their rights to life, liberty and property and therefore, violates the due process
and equal protection clauses of the Constitution. 7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968
rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ of
preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present
petition on March 27, 1969. Petitioner assigned the following as errors allegedly committed by respondent
Judge in the latter's decision of September 17,1968: 9

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW


IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.
II

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF


LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST
UNDUE DESIGNATION OF LEGISLATIVE POWER.

III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR


OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS
AND EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground
that it violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to
purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an
exercise of the police power of the state, it being principally a regulatory measure in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal
purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien
shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in
the processing and approval or disapproval of applications for employment permits and therefore is
regulatory in character the second part which requires the payment of P50.00 as employee's fee is not
regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who
have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money
under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid
substantial differences in situation among individual aliens who are required to pay it. Although the equal
protection clause of the Constitution does not forbid classification, it is imperative that the classification
should be based on real and substantial differences having a reasonable relation to the subject of the
particular legislation. The same amount of P50.00 is being collected from every employed alien whether
he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid
executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his
discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up
any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a
permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon
the Mayor arbitrary and unrestricted power to grant or deny the issuance of building permits, such
ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity
per se lawful. 10

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the Supreme
Court ruled against the interpretation of uncontrolled power as it vested in the administrative officer an
arbitrary discretion to be exercised without a policy, rule, or standard from which it can be measured or
controlled.

It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of
all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled
discretion but legal discretion to be exercised within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the
mayor in the exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may
withhold or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to
engage in a means of livelihood. While it is true that the Philippines as a State is not obliged to admit
aliens within its territory, once an alien is admitted, he cannot be deprived of life without due process of
law. This guarantee includes the means of livelihood. The shelter of protection under the due process and
equal protection clause is given to all persons, both aliens and citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur.

Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.

Concepcion, Jr., J., took no part.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-34029 February 26, 1931

THE STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellant,


vs.
JUAN POSADAS, Jr., Collector of Internal Revenue of the Philippine Islands, defendant-
appellee.

Ross, Lawrence and Selph for appellant.


Attorney-General Jaranilla for appellee.
DeWitt, Perkins and Brady as amici curiae.

MALCOLM, J.:

This test case presents for decision the question of whether sales of merchandise made in the
Philippines to the United States Army and the United States Navy are subject to the sales tax. In
the lower court, the demurrer to the complaint was sustained, and the plaintiff having elected not
to amend its complaint, judgement was rendered upon the subject matter involved in the
pleadings, adjudging that the plaintiff take nothing by the action and defendant recover costs.
The Standard Oil Company of New York is a foreign corporation duly authorized to do business
in the Philippines. During the period from October 1, 1929, to December 31, 1929, the Standard
Oil Company sold and delivered in the Philippines to the Quartermaster Department of the
United States Army, for the use of the Army, fuel oil and asphalt of the value of P6,832.84. The
Collector of Internal Revenue of the Philippine Government, acting under authority of section
1459 of the Administrative Code and Act No. 3243 of the Philippine Legislature as ratified by
the Congress of the United States, demanded a tax of one and one-half per cent upon the value of
the merchandise, amounting to P102.49. During the identical period of time above-mentioned,
the Standard Oil Company likewise made delivery in the Philippines to the United States Navy,
under a contract executed in New York, United States, for the use of the Navy, of fuel oil of the
value of P172,059.36, which was paid in New York, and which contract provided that all internal
revenue taxes and charges under the laws of the Philippine Islands were to be assumed and paid
by the United States Navy. The Collector of Internal Revenue required payment of the sales tax
upon the value of the fuel oil, in the amount of P2,580.89. the Standard Oil Company paid the
taxes assessed under protest and is now suing to recover the corresponding refunds.

This court has recently decided the case entitled, Thirty First Infantry Post Exchange and First
Lieutenant David L. Hardee, Thirty-First Infantry, United States Army, plaintiffs, vs. Juan
Posadas, Jr., Collector of Internal Revenue, Philippine Islands, defendant ([1930], 54 Phil., 866).
There it was held that a tax may be levied by the Government of the Philippine Islands on sales
made by merchants to Post Exchanges of the United States Army in the Philippines. It was ruled
that the Acts of the Philippine Legislature imposing the sales tax, which have been confirmed by
Acts of Congress, form a part of the Philippine Organic Law. That same principle would again
apply to the facts before us. However, it was indicated that the waiver must be clear and that
every well-grounded doubt should be resolved in favor of the exemption, citing Austin vs.
Aldermen of Boston ([1869], 7 Wall., 694). That principle would likewise govern here.

In the course of the decision in the Post Exchange case, the United States Army was mentioned,
and properly so, as an instrumentality of the United States Government. Regarding the
correctness of this proposition, there could, of course, be no real dispute. The United States
Army and the United States Navy derive their powers from the Constitution of the United States.
The Congress of the United States has created two agencies, or more correctly stated, three
agencies to serve the United States in the Philippine Islands. Two of these agencies are the
United States Army and the United States Navy, and the third is the Government of the
Philippine Islands. The military establishment and the civil government stand side by side but
independent of each other in the Philippines. The tax collected from the plaintiff by one of these
agencies, the Philippine Government, is in reality a tax on the United States Army and the United
States Navy in other words, on the United States Government for the consumer pays the
tax as part of the purchase price. (Tan Te vs. Bell [1914], 27 Phil., 354; U. S. vs. Smith [1919],
39 Phil., 533.).

It would further appear perfectly clear that the principle which prohibits a State from taxing the
instrumentalities of the Federal Government applies with equal force to the Philippine Islands. At
least, that was our holding in the Post Exchange case. Nevertheless the Attorney-General persists
in assuming a difference in tax powers between the relations of the Philippine Government to the
National Government and of a State Government to the National Government. We are frank to
say that we are unable to see eye to eye with the Attorney-General. It would be absurd to think
that a derivative sovereignty like the Government of the Philippine Islands, could tax the
instrumentalities of the very Government which brought it into existence. If a sovereign State of
the American Union cannot abridge or restrict the activities of the United States Government,
much less can a creature of that Government, as the Philippine Government is, do so. (Note the
well-considered opinion of Attorney-General Wickersham of June 8, 1912, appearing in 29
Opinions, Attorneys-General, United States, 442.)

The case before us is readily distinguishable on the facts from the Post Exchange case. The
theory of the Post Exchange case was that a tax on sales, which ultimately passed on to the
consumers, individuals in the Army, was not a tax on the United States Government or with the
operations of the United States Army to such an extent or in such a manner as to render the tax
illegal. There is no such condition in this case. The goods which were claimed to be subject to
tax are for the use of the United States itself in its own operations in the Philippines.

The case at bar is more nearly analogous to the case of Panhandle Oil Co. vs. Knox ([1928], 277
U. S., 218), than was the Post Exchange case. The Panhandle Oil case and the case at bar differ
in that in the Panhandle Oil case, the United States Supreme Court dealt with a State law that had
never been ratified by Congress, whereas there is now to be applied an Act of the Philippine
Legislature which had been ratified by Congress. On the other hand, the Panhandle Oil case at
bar are similar in that both concern privilege taxes the amount of which is measured by the
amount of the sale; in that in both cases the sales were made to instrumentalities of the Federal
Government; and in that in both cases, the party to suit was the merchant and not the United
States Government or an agency within the United States Army like a Post Exchange. Inasmuch,
however, as the distinction between a State law and an Act of a territorial legislature is no
distinction at all, and inasmuch as the ratification by Congress failed to grant any express waiver
of the exemption in favor of the United States Government, it would require more than ordinary
ingenuity to avoid the consequences of the decision of the United States Supreme Court in the
Panhandle Oil Case.

Not long since, the District of Columbia endeavored to recover taxes on gasoline imported into
the District of Columbia by the American Oil Company, under a contract with the Secretary of
the Treasury, for use by the executive departments and governmental agencies. In both the
Supreme Court of the District of Columbia and the Court of Appeals, the seller was held not
liable for the tax. In the opinion of the appellate court, it was said: "While for convenience, the
tax is levied upon the importer, it is apparent that the tax is really to be paid by the consumer. . . .
To sustain the contention of appellant, it must clearly appear that the United States intended to
tax itself. See Dollar Savings Bank vs. United States, 19 Wall., 227; 22 L. ed., 80." (District of
Columbia vs. American Oil Co. [1930], 39 Fed. 2nd., 510.).

The Asiatic Petroleum Company began suit in the Court of Claims against the United States for
the recovery of more than $100,000 due on the purchase price of fuel oil sold by the company for
the use of the Navy. The defendant admitted the claim but interposed a counterclaim for the
same amount, alleged to be due and owing to the Philippine Government as customs duties on oil
under this contract. In the Philippines the Tariff Act in force was the Act of Congress of August
5, 1909, which was silent on the question. It was the holding of the Court of Claims that this Act
of Congress did not require the United States to pay duty on oil owned by it and imported into
the Philippine Islands for use in the Military or Naval Establishments. The court said: "The
purpose of the statute providing for customs duties on importations into the Philippine Islands
was to provide revenue for the use of the Philippine Government, for the protection, and partial
support of which the United States held itself responsible. It is inconceivable that Congress in the
enactment of the said statute should have intended that the United States would be required to
pay duty on its own oil imported into the Philippine Islands, for its own use, in supplying its
Navy vessels used in the protection of the Philippine Government, as well as for the maintenance
of its own Military and Naval Establishments in the national defense." (Asiatic Petroleum Co. vs.
U. S. [1928],65 Ct. of Cl. Rep., 100.).

We sustain the first, second, third, and fifth errors assigned, going to the proposition that the
lower court erred in not deciding that sales made in the Philippines to the United States Army
and the United States Navy are made to instrumentalities of the United States Government, and,
therefore, are not subject to tax by the Philippine Government. This holding makes unnecessary
any reference to the fourth error assigned, relating to the additional question having to do with
the contract with the United States Navy, and to the point that this question was not mentioned in
the protest filed with the Bureau of Internal Revenue and so may not be raised on appeal. It is
sufficient to state that, in our opinion, the assessment and collection by the Philippine
Government of the tax on sales of merchandise made in the Philippines to the United States
Army and the United States Navy is illegal.

Judgment reversed, and the record ordered returned to the court of origin for further proceedings,
without express finding as to costs in either instance.

Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ.,
concur.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-18125 May 31, 1963

BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,


vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY (NAWASA), respondents.

Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.


Manuel B. Roo for respondent National Waterworks and Sewerage Authority.

CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.

The question involved in this case is whether the water pipes, reservoir, intake and buildings
used by herein respondent, National Waterworks and Sewerage Authority hereinafter referred
to as NAWASA in the operation of its waterworks system in the municipalities of Cabuyao,
Sta. Rosa and Bian, province of Laguna, are subject to real estate tax.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1wph1.t

The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:

1. That the petitioner National Waterworks and Sewerage Authority (NWSA) is a public
corporation created by virtue of Republic Act No. 1383, and that it is owned by the
Government of the Philippines as well as all property comprising waterworks and
sewerage systems placed under it:.

2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over
all the property of the former Metropolitan Water District and all the existing local
government-owned waterworks and sewerage systems all over the Philippines, including
the Cabuyao-Sta. Rosa-Bian Waterworks System owned by the Province of Laguna
(Section 8, Republic Act No. 1283);

3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act
No. 1383, more particularly Section 2 thereof, are the same and identical with the
functions of the defunct Metropolitan Water District, particularly Section 2, Act 2832, is
amended;

4. That petitioner National Waterworks and Sewerage Authority (NWSA) has no capital
stock divided into shares of stocks, no stockholders, and is not authorized by its Charter
to distribute dividends; and, on the other hand, whatever surplus funds it has realized,
may and will after meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer services;

5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System was taken over
by petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but
that all its surplus income are not declared as profits as this surplus are or may be
invested for the expansion thereof;

6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Bian Waterworks System
and described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2
hereof, herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the Provincial Assessor of
Laguna, petitioner NWSA protested, claiming that the property described under Tax
Declaration No. 5987 (Exh. "A-l") are exempted from the payment of real estate taxes in
view of the nature and kind of said property and functions and activities of petitioner, as
provided in Republic Act No. 1383;.

8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;

xxx xxx xxx"

After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending that the properties in
question are subject to real estate tax because: (1) although said properties belong to the
Republic of the Philippines, the same holds it, not in its governmental, political or sovereign
capacity, but in a private, proprietary or patrimonial character, which, allegedly, is not covered
by the exemption contained in section 3(a) of Republic Act No. 470; and 2) this exemption, even
if applicable to patrimonial property, must yield to the provisions of section 1 of Republic Act
No. 104, under which all corporations, agencies or instrumentalities owned or controlled by the
Government are subject to taxation, according to petitioner appellant.

Sections 2 and 3(a) of Commonwealth Act No. 470 provide:

SEC. 2. Incidence of real property tax. Except in chartered cities, there shall be levied,
assessed, and collected, an annual ad valorem tax on real property, including land,
buildings, machinery, and other improvements not hereinafter specifically exempted.

SEC. 3. Property exempt from tax. The exemptions shall be as follows:

(a) Property owned by . . . the Republic of the Philippines, any province, city,
municipality or municipal district. . . .

It is conceded, in the stipulation of facts, that the property involved in this case "is owned by the
Government of the Philippines". Hence, it belongs to the Republic of the Philippines and falls
squarely within the letter of the above provision. This notwithstanding, petitioner Board
maintains that respondent NAWASA is not entitled to the benefits of the exemption established
in said section 3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-
12892, decided on April 30, 1960, we ruled that the assets of the water system of the City of
Cebu, which the NAWASA had sought to take over, pursuant to the provisions of Republic Act
No. 1383 as it did in the case at bar, with respect to the Cabuyao-Sta. Rosa-Bian Waterworks
System are patrimonial property of said city, which held it in a proprietary character, not in its
governmental capacity.

We did not declare, however, in the Cebu case that said assets were subject to taxation. In that
case we merely reiterated the doctrine, laid down in the case of City of Baguio vs. NAWASA, G.
R. No. L-12032, decided on August 31, 1959, that municipal corporations hold in their
proprietary character, the assets of their respective waterworks, which, accordingly, cannot be
taken or appropriated by the National Government and placed under the NAWASA without
payment of just compensation. Neither the Cebu case nor that of Baguio sustains the theory that
said assets are taxable.

Upon the other hand, in exempting from taxation "property owned by the Republic of the
Philippines, any province, city, municipality or municipal district . . .," said section 3(a) of
Republic Act No. 470 makes no distinction between property held in a sovereign, governmental
or political capacity and those possessed in a private, proprietary or patrimonial character. And
where the law does not distinguish neither may we, unless there are facts and circumstances
clearly showing that the lawmaker intended the contrary, but no such facts and circumstances
have been brought to our attention. Indeed, the noun "property" and the verb "owned" used in
said section 3(a) strongly suggest that the object of exemption is considered more from the view
point of dominion, than from that of domain. Moreover, taxes are financial burdens imposed for
the purpose of raising revenues with which to defray the cost of the operation of the
Government, and a tax on property of the Government, whether national or local, would merely
have the effect of taking money from one pocket to put it in another pocket (Cooley on Taxation,
Sec. 621, 4th Edition.) Hence, it would not serve, in the final analysis, the main purpose of
taxation. What is more, it would tend to defeat it, on account of the paper work, time and
consequently, expenses it would entail. (The Law on Local Taxation, by Justiniano Y. Castillo,
p. 13.)

Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:

. . . All corporations, agencies, or instrumentalities owned or controlled by the


government shall pay such duties, taxes, fees and other charges upon their transaction,
business, industries, sale, or income as are imposed by law upon individuals, associations
or corporations engaged in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief purposes as may be
determined by the President of the Philippines.

This provision is inapplicable to the case at bar for it refers only to duties, taxes, fees and other
charges upon "transaction, business, industry, sale or income" and does not include taxes on
property like real estate tax.

WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement
as to costs. It is so ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, and
Makalintal, JJ., concur.
Labrador, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 51593 November 5, 1992

NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,


vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-appellants.

BELLOSILLO, J.:

Is a public land reserved by the President for warehousing purposes in favor of a


government-owned or controlled corporation, 1 as well as the warehouse subsequently
erected thereon, exempt from real property tax?

Petitioner National Development Company (NDC), a government-owned or controlled


corporation (GOCC) existing by virtue of C.A. 182 2 and E.O. 399, 3 is authorized to
engage in commercial, industrial, mining, agricultural and other enterprises necessary
or contributory to economic development or important to public interest. It also operates,
in furtherance of its objectives, subsidiary corporations one of which is the now defucnt
National Warehousing Corporation (NWC). 4

On August 10, 1939, the President issued Proclamation No. 430 5 reserving Block no. 4,
Reclamation Area No. 4, of Cebu City, consisting of 4,599 square meters, for
warehousing purposes under the administration of NWC. 6 Subsequently, in 1940, a
warehouse with a floor area of 1,940 square meters more or less, was constructed
thereon. 7
On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets and
functions. 9

Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate
taxes on the land and the warehouse thereon. 10 By the first quarter of 1970, a total of
P100,316.31 was paid by NDC 11 of which only P3,895.06 was under protest. 12

On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real
estate taxes paid to CEBU claiming that the land and the warehouse standing thereon
belonged to the Republic and therefore exempt from taxation. 13 CEBU did not
acquiesce in the demand, hence, the present suit filed 25 October 1972 in the Court of
First Instance of Manila.

On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a
decision 14 the dispositive portion of which reads

WHEREFORE, judgment is hereby rendered sentencing the City of Cebu, thru the
Treasurer of said City, to refund to the plaintiff, National Development Company, the real
estate taxes paid by it for the parcel of land covered by Presidential Proclamation No.
430 of August 10, 1939, and the warehouse erected thereon from and after October 25,
1966, with interests thereon at the legal rate from the date of the filing of the complaint
and the costs of the suit.

The defendants appealed to the Court of Appeals which however certified the case to
Us as one involving pure questions of law, pursuant to Sec. 17, R.A. 296.

In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which may be
synopsized into whether NDC is exempted from payment of the real estate taxes on the
land reserved by the President for warehousing purposes as well as the warehouse
constructed thereon, and in the affirmative, whether NDC may recover in refund
unprotested real estate taxes it paid from 1948 to 1970.

On the first question, CEBU insists on taxability of the subject properties, claiming that
no law grants NDC exemption from real estate taxes, and that NDC, as recipient of the
land reserved by the President pursuant to Sec. 83 of the Public Land Act, 16 is liable for
payment or ordinary (real estate) taxes under Sec. 115 therefore. CEBU contends that
the properties have ceased to be tax exempt under the Assessment Law. 17 when the
government disposed of them in favor of NDC, and even assuming that title to the land
remains with the government (ownership being the basis for real estate taxability under
the Assessment Law), the Supreme Court rulings establish increasing rather than
"ownership" as basis for real estate tax liability.

On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which exempts
properties owned by the Republic from real estate tax, includes subject properties in the
exemption. It invokes the ruling in Board of Assessment Appeals vs. CTA & NWSA 18
which held that properties of NWSA, a GOCC, were exempt from real estate tax
because Sec. 3 of the Assessment Law applied to all government properties whether
held in governmental or proprietary capacity. NDC rejects the applicability of Sec. 115 of
the Public Land Act to the subject land, claiming that provision contemplates
dispositions of public land with eventual transfer of title. In addition, NDC believes that it
is neither a grantee of a public land nor an applicant within the purview of the same
provision.

As already adverted to, one of the principal issues before Us is the interpretation of a
provision of the Assessment Law, the precursor of the then Real Property Tax Code
and the Local Government Code, where "ownership" of the property and not "use" is the
test of tax liability. 19

Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax
exemption, provides

Section 3. Property exempt from tax. The exemptions shall be as follows: (a) Property
owned by the United States of America, the Commonwealth of the Philippines, any
province, city, municipality at municipal district . . .

The same opinion of NDC was passed upon in National Development Co. v. Province of
Nueva Ecija 20 where We held that its properties were not comprehended in Sec. 3, par
(a), of the Assessment Law. In part, We stated:

1. Commonwealth Act No. 182 which created NDC contains no provision exempting it
from the payment of real estate tax on properties it may acquire . . . There is justification
in the contention of plaintiff-appellee that . . . [I]t is undeniable that to any municipality the
principal source of revenue with which it would defray its operation will came from real
property taxes. If the National Development Company would be exempt from paying real
property taxes over these properties, the town of Gabaldon will bee deprived of much
needed revenues with which it will maintain itself and finance the compelling needs of its
inhabitants (p. 6, Brief of Plaintiff-Appellee).

2. Defendant-appellant NDC does not come under classification of municipal or public


corporation in the sense that it may sue and be sued in the same manner as any other
private corporations, and in this sense, it is an entity different from the government,
defendant corporation may be sued without its consent, and is subject to taxation. In the
case NDC vs. Jose Yulo Tobias, 7 SCRA 692, it was held that . . . plaintiff is neither the
Government of the Republic nor a branch or subdivision thereof, but a government
owned and controlled corporation which cannot be said to exercise a sovereign function
(Association Cooperativa de Credito Agricola de Miagao vs. Monteclaro, 74 Phil. 281). it
is a business corporation, and as such, its causes of action are subject to the statute of
limitations. . . . That plaintiff herein does not exercise sovereign powers and, hence,
cannot invoke the exemptions thereof but is an agency for the performance of purely
corporate, proprietary or business functions, is apparent from its Organic Act
(Commonwealth Act 182, as amended by Commonwealth Act 311) pursuant to Section 3
of which it "shall be subject to the provisions of the Corporation Law insofar as they are
not inconsistent" with the provisions of said Commonwealth Act, "and shall have the
general powers mentioned in said" Corporation Law, and, hence, "may engage in
commercial, industrial, mining, agricultural, and other enterprises which may be
necessary or contributory to the economic development of the country, or important in the
public interest," as well as "acquire, hold, mortgage and alienate personal and real
property in the Philippines or elsewhere; . . . make contracts of any kind and description",
and "perform any and all acts which a corporation or natural persons is authorized to
perform under the laws now existing or which may be enacted hereafter."
We find no compelling reason why the foregoing ruling, although referring to lands
which would eventually be transferred to private individuals, should not apply equally to
this case.

NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeal
and National Waterworks and Sewerage Authority (NWSA). In that case, We held that
properties of NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par
(c), of R.A. 470 did not distinguish between those possessed by the government in
sovereign/governmental/political capacity and those in private/proprietary/patrimonial
character.

The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra, is
more superficial than real. The NDC decision speaks of properties owned by NDC,
while the BAA ruling concerns properties belonging to the Republic. The latter case
appears to be exceptional because the parties therein stipulated

1. That the petitioner National Waterworks and Sewerage Authority (NAWASA) is a


public corporation created by virtue of Republic Act. No. 1383, and that it is owned by the
Government of the Philippines as well as all property comprising waterworks and
sewerage systems placed under it (Emphasis supplied).

There, the Court observed: "It is conceded, in the stipulation of facts, that the property
involved in this case "is owned by the Government of the Philippines." Hence, it belongs
to the Republic of the Philippines and falls squarely within letter of the above provision."

In the case at bar, no similar statement appears in the stipulation of facts, hence,
ownership of subject properties should first be established. For, while it may be stated
that the Republic owns NDC, it does not necessary follow that properties owned by
NDC, are also owned by Republic in the same way that stockholders are not ipso
facto owners of the properties of their corporation.

The Republic, like any individual, may form a corporation with personality and existence
distinct from its own. The separate personality allows a GOCC to hold and possess
properties in its own name and, thus, permit greater independence and flexibility in its
operations. It may, therefore, be stated that tax exemption of property owned by the
Republic of the Philippines "refers to properties owned by the Government and by its
agencies which do not have separate and distinct personalities (unincorporated
entities). We find the separate opinion of Justice Bautista-Angelo in Gonzales v.
Hechanova, et al., 21 appropriate and enlightening

. . . The Government of the Republic of the Philippines under the Revised Administrative
Code refers to that entity through which the functions of government are exercised,
including the various arms through which political authority is made effective whether
they be provincial, municipal or other form of local government, whereas a government
instrumentality refers to corporations owned or controlled by the government to promote
certain aspects of the economic life of our people. A government agency therefore, must
necessarily after refer to the government itself to the Republic, as distinguished from any
government instrumentality which has a personality distinct and separate from it (Section
2).
The foregoing discussion does not mean that because NDC, like most GOCC's
engages in commercial enterprises all properties of the government and its
unincorporated agencies possessed in propriety character are taxable. Similarly, in the
case at bar, NDC proceeded on the premise that the BAA ruling declared all properties
owed by GOCC's as properties in the name of the Republic, hence, exempt under Sec.
3 of the Assessment Law. 22

To come within the ambit of the exemption provided in Art. 3, par. (a), of the
Assessment Law, it is important to establish that the property is owned by the
government or its unincorporated agency, and once government ownership is
determined, the nature of the use of the property, whether for proprietary or sovereign
purposes, becomes immaterial. What appears to have been ceded to NWC (later
transferred to NDC), in the case before Us, is merely the administration of the property
while the government retains ownership of what has been declared reserved for
warehousing purposes under Proclamation No. 430.

Incidentally, the parties never raised the issued the issue of ownership from the court a
quo to this Court.

A reserved land is defined as a "[p]ublic land that has been withheld or kept back from
sale or disposition." 23 The land remains "absolute property of the government." 24 The
government "does not part with its title by reserving them (lands), but simply gives
notice to all the world that it desires them for a certain purpose." 25 Absolute disposition
of land is not implied from reservation; 26 it merely means "a withdrawal of a specified
portion of the public domain from disposal under the land laws and the appropriation
thereof, for the time being, to some particular use or purpose of the general
government." 27 As its title remains with the Republic, the reserved land is clearly
recovered by the tax exemption provision.

CEBU nevertheless contends that the reservation of the property in favor of NWC or
NDC is a form of disposition of public land which, subjects the recipient (NDC ) to real
estate taxation under Sec. 115 of the Public Land Act. as amended by R.A. 436, 28
which estate:

Sec 115. All lands granted by virtue of this Act, including homesteads upon which final
proof has not been made or approved shall, even though and while the title remains in
the State, be subject to the ordinary taxes, which shall be paid by the grantee or the
applicant, beginning with the year next following the one in which the homestead
application has been filed, or the concession has been approved, or the contract has
been signed, as the case may be, on the basis of the value fixed in such filing, approval
or signing of the application, concession or contract.

The essential question then is whether lands reserved pursuant to Sec. 83 are
comprehended in Sec. 115 and, therefore, taxable.

Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a),
of the Assessment Law. While ordinary public lands are tax exempt because title
thereto belongs to the Republic, Sec. 115 subjects them to real estate tax even before
ownership thereto is transferred in the name of the beneficiaries. Sec. 115
comprehends three (3) modes of disposition of Lands under the Public Land Act, to wit:
homestead, concession, and contract.

Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead
application, (b) approval of concession and, (c) signing of contract. Significantly, without
these words, the date of the accrual of the real estate tax would be indeterminate. Since
NDC is not a homesteader and no "contract" (bilateral agreement) was signed, it would
appear, then, that reservation under Sec. 83, being a unilateral act of the President, falls
under "concession".

"Concession" as a technical term under the Public Land Act is synonymous with
"alienation" and "disposition", and is defined in Sec. 10 as "any of the methods
authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public
domain other than timber or mineral lands." Logically, where Sec. 115 contemplates
authorized methods for acquisition, lease, use, or benefit under the Act, the taxability of
the land would depend on whether reservation under Sec. 83 is one such method of
acquisition, etc. Tersely put, is reservation synonymous with alienation? Or, are the two
terms antithetical and mutually exclusive? Indeed, reservation connotes retention, while
concession (alienation) signifies cession.

Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from
that may be subject of disposition, to wit

Sec. 8. Only those lands shall be declared open to disposition or concession which have
been officially delimited and classified and, when practicable, surveyed, and which have
not been reserved for public or quasi-public uses, nor appropriated by the Government,
nor in any manner become private property , nor those on which a private right
authorized and recognized by this Act or any valid law may be claimed, or which, having
been reserved or appropriated, have ceased to be so.

Sec. 88. The tract or tracts of land reserved under the provisions of section eighty-three
shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions of this Act or by
proclamation of the President (Emphasis supplied)

As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public
land and transform it into non-alienable or non-disposable under the Public Land Act.
Section 115, on the other hand, applies to disposable public lands. Clearly, therefore,
Sec. 115 does not apply to lands reserved under Sec. 83. Consequently, the subject
reserved public land remains tax exempt.

However, as regards the warehouse constructed on a public reservation, a different rule


should apply because "[t]he exemption of public property from taxation does not extend
to improvements on the public lands made by pre-emptioners, homesteaders and other
claimants, or occupants, at their own expense, and these are taxable by the state . . ." 29
Consequently, the warehouse constructed on the reserved land by NWC (now under
administration by NDC), indeed, should properly be assessed real estate tax as such
improvement does not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected
by CEBU should be refunded to NDC. This is in consonance with Sec. 40, par. (a) of the
former Real Property Tax Code which exempted from taxation real property owned by
the Republic of the Philippines or any of its political subdivisions, as well as any GOCC
so exempt by its charter. 30

As regards the requirement of paying under protest before judicial recourse, CEBU
argues that in any case NDC is not entitled to refund because Sec. 75 of R.A. 3857, the
Revised Charter of the City of Cebu, 31 requires payment under protest before resorting
to judicial action for tax refund; that it could not have acted on the first demand letter of
NDC of 20 May 1970 because it was sent to the City Assessor and not to the City
Treasurer; that, consequently, there having been no appropriate prior demand, resort to
judicial remedy is premature; and, that even on the premise that there was proper
demand, NDC has yet to exhaust administrative remedies by way of appeal to the
Department of Finance and/or Auditor General before taking judicial action.

NDC does not agree. It disputes the applicability of the payment-under-protest


requirement is Sec. 75 of the Revised Cebu City Charter because the issue is not the
validity of tax assessment but recovery of erroneous payments under Arts. 2154 and
2155 of the Civil Code. 32 It cites the case of East Asiatic Co., Ltd. v. City of Davao 33
which held that where the tax is unauthorized, "it is not a tax assessed under the charter
of the appellant City of Davao and for that reason no protest is necessary for a claim or
demand for its refund." In Ramie Textiles, Inc. vs. Mathay, Sr., 34 We held

. . . Protest is not a requirement in order that a taxpayer who paid under a mistaken belief
that it is required by law, may claim for a refund. Section 54 35 of Commonwealth Act No.
470 does not apply to petitioner which could conceivably not have been expected to
protest a payment it honestly believed to be due. The same refers only to the case where
the taxpayer, despite his knowledge of the erroneous or illegal assessment, still pays and
fails to make the proper protest, for in such case, he should manifest an unwillingness to
pay, and failing so, the taxpayer is deemed to have waved his right to claim a refund.

In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had
no knowledge of the fact that it was exempted from payment of the realty tax under
Commonwealth Act No. 470. Payment was made through error or mistake, in the honest
belief that petitioner was liable, and therefore could not have been made under protest,
but with complete voluntariness. In any case, a taxpayer should not be held to suffer loss
by his good intention to comply with what he believes is his legal obligation, where such
obligation does not really exist . . . The fact that petitioner paid thru error or mistake, and
the government accepted the payment, gave rise to the application of the principle of
solutio indebiti under Article 2154 of the New Civil Code, which provides that "if
something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises." There is, therefore, created a tie or
juridical relation in the nature of solutio indebiti, expressly classified as quasi-contract
under Section 2, Chapter I of Title XVII of the New Civil code.

The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of another . . . Hence, it
would seem unedifying for the government, that knowing it has no right at all to collect or
to receive money for alleged taxes paid by mistake, it would be reluctant to return the
same . . . Petitioner is not unsatisfied in the assessment of its property. Assessment
having been made, it paid the real estate taxes without knowing that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty (20) years,
We also said in Ramie Textiles that

Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio
indebiti, the claim for refund must be commenced within six (6) years from date of
payment pursuant to Article 1145 (2) of the New Civil Code 36 . . .

We sustain the appellate court to the extent that its decision covers improperly collected
taxes on the reserved land under Proclamation No. 430, thus

The defense of prescription invoked by the defendant which counsel for the plaintiff,
however, did not answer in its memorandum, is partly well-taken. Actions for refund of
taxes illegally collected must be commenced within six (6) years from the date of
collection. . . . .

The stipulation of facts and the pleadings filed by the parties do not contain data
specifying when and how much were paid by the year, of the taxes sought to be
refunded. Accordingly, the Court has no other alternative but to order the refund of an
undetermined amount based, however, on the date of payment counted six (6) years
backward from October 25, 1972, when the complaint in this case was filed. 37

As regards exhaustion of administrative remedies, We agree with the trial court that the
case constitutes an exception to the rule, as it involves purely question of law. 38
Specifically, on the requirement of appeal to the Secretary of Finance, We further held
in the same Ramie Textiles that "[E]qually not applicable is Section 17 of
Commonwealth Act No. 470 39 cited by respondent in relation to the right of a, property
owner to contest the validity of assessment . . ."

Respondent CEBU likewise invites Our attention to the availability of appeal to the
Government Auditing Office although no authority is cited to Us. We do not find any
either to sustain the procedure.

WHEREFORE, finding that National Development Company (NDC) is exempt from real
estate tax on the reserved land but liable for the warehouse erected thereon, the
decision appealed from is accordingly MODIFIED. Consequently, let this case be
remanded to the court of origin, now the Regional Trial Court of Manila, to determine the
proper liability of NDC, particularly on its warehouse, and effect the corresponding
refund, payment or set-off, as the case may be, conformably with this decision. No
costs.

SO ORDERED.

Cruz, Padilla and Grio-Aquino, JJ., concur.

Medialdea, J., is on leave.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21841 October 28, 1966

ESSO STANDARD EASTERN, INC., petitioner-appellant,


vs.
ACTING COMMISSIONER OF CUSTOMS, respondent-appellee.

Ross, Selph and Carrascoso for petitioners.


Office of the Solicitor General for respondents.

SANCHEZ, J.:

Claim for the refund of P722.84 paid in 1956 as special import tax on pump parts imported by
petitioner. Petitioner's ground: The imported articles "consist of equipment and spare parts for its
own exclusive use and therefore were exempt from special import tax", by the terms of Section
6, Republic Act 1394.1 The Collector of Customs of Manila rejected the claim. Respondent
Acting Commissioner of Customs, on appeal, affirmed the rejection. Petitioner's case suffered
the same fate in the Court of Tax Appeals.2 We are asked to review the Court on Tax Appeals'
judgment.

The interrelated errors assigned in petitioner's brief funnel down to one controlling legal issue:
Are the imported pump parts exempt from the payment of special import tax?

By Section 1 of Republic Act 1394, a special import tax is imposed "on all goods, articles or
products imported or brought into the Philippines" during the period from 1956 up to and
including 1965 in accordance with the schedule of rates therein provided. Exempt from this tax,
by express mandate of Section 6 of the same law, inter alia, are "machinery, equipment,
accessories, and spare parts, for the use of industries, miners, mining enterprises, planters and
farmers".

Petitioner is engaged in the industry of processing gasoline, and manufacturing lubricating oil,
grease and tin containers. Petitioner owns gasoline stations with pumps, which are leased to and
operated by gasoline dealers. It sells gasoline to these dealers. The pump parts imported by
petitioner in 1956 were intended, installed and actually used by gasoline dealers in pumping
gasoline from under around tanks into customers' motor vehicles. These pump parts, in other
words, are used in the sale at retail of gasoline not by petitioner but by lessees of gasoline
stations. In this factual environment, it is quite evident that the pump parts are not used in
petitioner's industry of processing gasoline, or manufacturing lubricating oil, grease and tin
containers.
The drive of petitioner's argument is that marketing of its gasoline product "is corollary to or
incidental to its industrial operations."3 But this contention runs smack against the familiar rules
that exemption from taxation is not favored,4 and that exemptions in tax statutes are never
presumed.5 Which are but statements in adherence to the ancient rule that exemptions from
taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.6 Tested by this precept, we cannot indulge in expansive construction and write into the
law an exemption not therein set forth. Rather, we go by the reasonable assumption that where
the State has granted in express terms certain exemptions, those are the exemptions to be
considered, and no more. Since the law states that, to be tax exempt, equipment and spare parts
should be "for the use of industries", the coverage herein should not be enlarged to include
equipment and spare parts for use in dispensing gasoline at retail. In comparable factual
backdrop, this Court has held that tax exemption in connection with the manufacture of asbestos
roof does not extend to the installation thereof.7

Upon the facts and the law, we vote to affirm the decision of the Court of Tax Appeals under

TAX 1 DIGESTED CASES 2ND BATCH


TIO vs. VRB
151 SCRA 208
GR No. L-75697, June 18, 1987
"The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another."

FACTS: The petitioner assails the validity of PD 1987 entitled an "Act creating the Videogram Regulatory
Board," citing especially Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to
the local government. Petitioner contends that aside from its being a rider and not germane to the
subject matter thereof, and such imposition was being harsh, confiscatory, oppressive and/or unlawfully
restraints trade in violation of the due process clause of the Constitution.

ISSUE: Is PD 1987 a valid exercise of taxing power of the state?

HELD: Yes. It is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one
so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as those rest in the discretion of the authority which
exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another.

CITY OF BAGUIO vs. DE LEON


25 SCRA 938
GR No. L-24756, October 31, 1968
"There is no double taxation where one tax is imposed by the state and the other is imposed by the
city."

FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329, thereby
amending the city charter empowering it to fix the license fee and regulate businesses, trades and
occupations as may be established or practiced in the City. De Leon was assessed for P50 annual fee it
being shown that he was engaged in property rental and deriving income therefrom. The latter assailed
the validity of the ordinance arguing that it is ultra vires for there is no statury authority which expressly
grants the City of Baguio to levy such tax, and that there it imposed double taxation, and violates the
requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of revenue,
thus the ordinance cannot be considered ultra vires for there is more than ample statury authority for
the enactment thereof.
Second, an argument against double taxation may not be invoked where one tax is imposed by the
state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double taxation results.
And third, violation of uniformity is out of place it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof.

BAGATSING vs. RAMIREZ


74 SCRA 306
GR No. L-41631, December 17, 1976
"The entrusting of the collection of the fees to private entities does not destroy the public purpose of
a tax ordinance."

FACTS: Aside from the issue on publication, private respondent bewails that the market stall fees
imposed in the disputed City Ordinance No. 7522, which regulates public markets and prescribes fees
for rentals of stalls, 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."

ISSUE: Does the delegation of the collection of taxes to a private entity invalidates a tax ordinance and
defeats its public purpose?

HELD: No. 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.

PASCUAL vs. SECRETARY OF PUBLIC WORKS


110 PHIL 331
GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from
such expenditure, is merely incidental in the promotion of a particular enterprise."

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

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

HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the expenditure which
must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor
the degree to which the general advantage of the community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental to the public or to the state, which results from the
promotion of private interest and the prosperity of private enterprises or business, does not justify their
aid by the use public money.
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is
designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public.

COMMISSIONER vs. BOAC


149 SCRA 395
GR No. L-65773-74 April 30, 1987
"The source of an income is the property, activity or service that produced the income. For such source
to be considered as coming from the Philippines, it is sufficient that the income is derived from activity
within the Philippines."

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of
deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal
years 1959 to 1971. BOAC is a 100% British Government-owned corporation organized and existing
under the laws of the United Kingdom, and is engaged in the international airline business. During the
periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic
purposes in the Philippines. Consequently, it did not carry passengers and/or cargo to or from the
Philippines, although during the period covered by the assessments, it maintained a general sales agent
in the Philippines Wamer Barnes and Company, Ltd., and later Qantas Airways which was
responsible for selling BOAC tickets covering passengers and cargoes. The CTA sided with BOAC citing
that the proceeds of sales of BOAC tickets do not constitute BOAC income from Philippine sources since
no service of carriage of passengers or freight was performed by BOAC within the Philippines and,
therefore, said income is not subject to Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where services are rendered determines the
source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no
landing rights here, constitute income of BOAC from Philippine sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced the income. For the
source of income to be considered as coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the
activity that produces the income. The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The site of the source of payments is the Philippines. The flow of
wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by
the Philippine government. In consideration of such protection, the flow of wealth should share the
burden of supporting the government.
ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR
524 SCRA 73, 103
GR Nos. 141104 & 148763, June 8, 2007
"The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or
statute law and should not be permitted to stand on vague implications."

"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."

FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of
various mineral products, filed claims with the BIR for refund/credit of input VAT on its purchases of
capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992. BIR did not
immediately act on the matter prompting the petitioner to file a petition for review before the CTA. The
latter denied the claims on the grounds that for zero-rating to apply, 70% of the company's sales must
consists of exports, that the same were not filed within the 2-year prescriptive period (the claim for
1992 quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to submit
substantial evidence to support its claim for refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR
and PHILPOS within the EPZA as zero-rated export sales; the 2-year prescriptive period should be
counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every
end of the applicable quarters; and that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers invoices or receipts examined, evaluated and
audited by said CPA should substantiate its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for
refund/credit of input VAT?

HELD: No. Although the Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of
the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as exports
because these export processing zones are to be managed as a separate customs territory from the rest
of the Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it still
denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods
and effectively zero-rated sales during the period claimed for not being established and substantiated by
appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign
authority, and should be construed in strictissimi juris against the person or entity claiming the
exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of
organic or statute law and should not be permitted to stand on vague implications.
BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA
8 SCRA 224
GR No. L-18125, May 31, 1963
"A tax on property of the Government, whether national or local, would merely have the effect of
taking money from one pocket to put it in another pocket."

FACTS: National Waterworks and Sewerage Authority (NWSA), a public corporation owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage systems
placed under it, took over the Cabuyao-Sta. Rosa-Bian Waterworks System in 1956. It was assessed by
the Provincial Assessor of Laguna, for purposes of real estate taxes, on the real properties owned by
Cabuyao Waterworks. The respondent protested claiming it is exempted from the payment of real
estate taxes in view of the nature and kind of said property and functions and activities of petitioner.
The petitioner denied the protest arguing that such real properties are subject to real estate tax because
although said properties belong to the Republic of the Philippines, the same holds it, not in its
governmental, political or sovereign capacity, but in a private, proprietary or patrimonial character,
which, allegedly, is not covered by the exemption contained in section 3(a) of Republic Act No. 470.

ISSUE: Are the real properties owned by the respondent public corporation subject to real estate tax?

HELD: No. Republic Act No. 470 makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private, proprietary or patrimonial
character. And where the law does not distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention. Indeed, the noun "property" and the verb "owned"
used in said section 3(a) strongly suggest that the object of exemption is considered more from the view
point of dominion, than from that of domain.
Moreover, taxes are financial burdens imposed for the purpose of raising revenues with which to
defray the cost of the operation of the Government, and a tax on property of the Government, whether
national or local, would merely have the effect of taking money from one pocket to put it in another
pocket. Hence, it would not serve, in the final analysis, the main purpose of taxation. What is more, it
would tend to defeat it, on account of the paper work, time and consequently, expenses it would entail.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN


24 SCRA 789
GR No. L-22814, August 28, 1968
"The classification made in the exercise of power to tax, to be valid, must be reasonable ."

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

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

HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a tax on the
sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity
required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside
dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same exceeded those made by said
agents or consignees of producers or merchants established outside the City of Butuan, would be
exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of taxation.
The classification made in the exercise of this authority, to be valid, must, however, be reasonable and
this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which make
real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to future conditions substantially
identical to those of the present; and (4) the classification applies equally to all those who belong to the
same class.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF TANAUAN


69 SCRA 460
GR No. L-31156, February 27, 1976
"Legislative power to create political corporations for purposes of local self-government carries with it
the power to confer on such local governmental agencies the power to tax.

FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to declare


Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27 denominated as
"municipal production tax" of the Municipality of Tanauan, Leyte, null and void. Ordinance 23 levies and
collects "from soft drinks producers and manufacturers a tax of one-sixteenth (1/16) of a centavo for
every bottle of soft drink corked, and Ordinance 27 levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity. Aside from the undue delegation of authority,
appellant contends that it allows double taxation, and that the subject ordinances are void for they
impose percentage or specific tax.

ISSUE: Are the contentions of the appellant tenable?


HELD: No. On the issue of undue delegation of taxing power, it is settled that the power of taxation is an
essential and inherent attribute of sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people. It is a power that is purely legislative and
which the central legislative body cannot delegate either to the executive or judicial department of the
government without infringing upon the theory of separation of powers. The exception, however, lies in
the case of municipal corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. By necessary implication, the
legislative power to create political corporations for purposes of local self-government carries with it the
power to confer on such local governmental agencies the power to tax.
Also, there is no validity to the assertion that the delegated authority can be declared unconstitutional
on the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that
the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental law, so that double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other
by the city or municipality.
On the last issue raised, the ordinances do not partake of the nature of a percentage tax on sales, or
other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not
on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set ratio between the volume of
sales and the amount of the tax.

OSMEA vs. ORBOS


220 SCRA 703
GR No. 99886, March 31, 1993
" To avoid the taint of unlawful delegation of the power to tax, there must be a standard which
implies that the legislature determines matter of principle and lays down fundamental policy."

FACTS: Senator John Osmea assails the constitutionality of paragraph 1c of PD 1956, as amended by EO
137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose
additional amounts on petroleum products which proceeds shall accrue to the Oil Price Stabilization
Fund (OPSF) established for the reimbursement to ailing oil companies in the event of sudden price
increases. The petitioner avers that the collection on oil products establishment is an undue and invalid
delegation of legislative power to tax. Further, the petitioner points out that since "a 'special fund'
consists of monies collected through the taxing power of a State, such amounts belong to the State,
although the use thereof is limited to the special purpose/objective for which it was created. It thus
appears that the challenge posed by the petitioner is premised primarily on the view that the powers
granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the
State.
ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. It seems clear that while the funds collected may be referred to as taxes, they are exacted
in the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed
in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the
scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." With regard to the alleged undue delegation of
legislative power, the Court finds that the provision conferring the authority upon the ERB to impose
additional amounts on petroleum products provides a sufficient standard by which the authority must
be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose additional amounts
to augment the resources of the Fund.

VILLEGAS vs. HIU CHIONG


86 SCRA 270
GR No. L-29646, November 10, 1978
"A tax law should be declared invalid if it fails to lay down standards to guide or limit the actions of
the taxing authority."

FACTS: The Municipal Board of Manila enacted Ordinance No. 6537 which prohibits aliens from being
employed or to engage or participate in any position or occupation or business, without first securing an
employment permit from the Mayor of Manila and paying the permit fee of P50.00. The repondent
challenged the validity of the ordinance upon the contention that it does not qualify as a valid exercise
of the power to tax for as a revenue measure imposed on aliens employed in the City of Manila, the
ordinance is discriminatory and violative of the rule of the uniformity in taxation, and as a police power
measure, it makes no distinction between useful and non-useful occupations, imposing a fixed P50.00
employment permit, which is out of proportion to the cost of registration and that it fails to prescribe
any standard to guide and/or limit the action of the Mayor, thus, violating the fundamental principle on
illegal delegation of legislative powers:

ISSUE: Is there a valid exercise of the taxing power of the local government?

HELD: None. First, the ordinance is not a regulatory or police power measure; it is but a revenue
measure guise in a police power measure. Second, the P50.00 fee is unreasonable not only because it is
excessive but because it fails to consider valid substantial differences in situation among individual
aliens who are required to pay it. Although the equal protection clause of the Constitution does not
forbid classification, it is imperative that the classification should be based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. The same amount of
P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full
time or whether he is a lowly employee or a highly paid executive.
On the illegal delegation part of the argument, Ordinance No. 6537 is void for it does not lay down any
criterion or standard to guide the Mayor in the exercise of his discretion. It has been held that where an
ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the
mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions
for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and
unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid, being an
undefined and unlimited delegation of power to allow or prevent an activity per se lawful.

ESSO STANDARD EASTERN, INC. vs. ACTING COMMISSIONER OF CUSTOMS


18 SCRA 488
GR No. L-21841, October 28, 1966
"Exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor
of the taxing authority."

FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc., claims for the refund of
special import taxes paid pursuant to the provision of RA 1394 which imposed a special import tax "on
all goods, articles or products imported or brought into the Philippines." Exempt from this tax, by
express mandate of Section 6 of the same law are "machinery, equipment, accessories, and spare parts,
for the use of industries, miners, mining enterprises, planters and farmers". Petitioner argued that the
importation it made of gas pumps used by their gasoline station operators should fall under such
exemptions, being directly used in its industry. The Collector of Customs of Manila rejected the claim,
and so as the Court on Tax Appeals. The CTA noted that the pumps imported were not used in the
processing of gasoline and other oil products but by the gasoline stations, owned by the petitioner, for
pumping out, from underground barrels, gasoline sold on retail to customers.

ISSUE: Is the contention of the petitioner tenable? Does the subject imports fall into the exemptions?

HELD: No. The contention runs smack against the familiar rules that exemption from taxation is not
favored, and that exemptions in tax statutes are never presumed. Which are but statements in
adherence to the ancient rule that exemptions from taxation are construed in strictissimi juris against
the taxpayer and liberally in favor of the taxing authority. Tested by this precept, we cannot indulge in
expansive construction and write into the law an exemption not therein set forth. Rather, we go by the
reasonable assumption that where the State has granted in express terms certain exemptions, those are
the exemptions to be considered, and no more. Since the law states that, to be tax exempt, equipment
and spare parts should be "for the use of industries", the coverage herein should not be enlarged to
include equipment and spare parts for use in dispensing gasoline at retail.