COMMISSIONER OF INTERNAL REVENUE,
petitioner,vs.MARUBENI CORPORATION,
respondent.
Taxation;TaxAmnesties;Section4(b)ofE.O.No.41
excepts from income tax amnesty those taxpayers with
incometaxcasesalreadyfiledincourtasoftheeffectivity
thereof on 22 August 1986.Petitioners claim cannot be
sustained. Section 4 (b) of E.O. No. 41 is very clear and
unambiguous. It excepts from income tax amnesty those
taxpayerswithincometaxcasesalreadyfiledincourtasof
the effectivity hereof. The point of reference is the date
ofeffectivityofE.O.No.41.Thefilingofincometaxcasesin
court must have been made before and as of the date of
effectivity of E.O. No. 41. Thus, for a taxpayer not to be
disqualified underSection4(b)theremust havebeenno
incometaxcasesfiledincourtagainsthimwhenE.O.No.
41tookeffect.Thisisregardlessofwhenthetaxpayerfiled
forincometaxamnesty,providedofcoursehefilesitonor
before the deadline for filing. E.O. No. 41 took effect on
August22,1986.CTACaseNo.4109questioningthe1985
deficiencyincome,branchprofitremittanceandcontractors
taxassessmentswasfiledbyrespondentwiththeCourtof
Tax Appeals on September 26, 1986. When E.O. No. 41
becameeffectiveonAugust22,1986,CTACaseNo.4109
hadnotyetbeenfiledincourt.Respondentcorporationdid
not fall under the said exception in Section 4 (b), hence,
respondent was not disqualified from availing of the
amnestyforincometaxunderE.O.No.41.
Same;Same;Branch Profit Remittance Taxes;A
branchprofitremittancetaxisataxonincome.Thesame
ruling also applies to the deficiency branch profit
remittancetaxassessment.Abranchprofitremittancetax
is defined and imposed in Section 24 (b) (2) (ii), Title II,
ChapterIIIoftheNationalInternalRevenueCode.Inthe
taxcode,thistaxfallsunderTitleIIonIncomeTax.Itisa
taxonincome.Respondentthereforedidnotfallunderthe
exceptioninSection4(b)whenitfiledforamnestyofits
deficiencybranchprofitremittancetaxassessment.
Same;Same;Statutory Construction;While an
amendmentisgenerallyconstruedasbecomingapartofthe
originalactasifithadalwaysbeencontainedtherein,it
maynotbegivenaretroactiveeffectunlessitissoprovided
expresslyorbynecessaryimplicationandnovestedrightor
obligationsorcontractaretherebyimpaired.Byvirtueof
Section8asaforequoted,theprovisionsofE.O.No.41not
contrarytoorinconsistentwiththeamendatoryactwere
reenactedinE.O.No.64.Thus,Section4ofE.O.No.41on
theexceptionstoamnestycoveragealsoappliedtoE.O.No.
64.WithrespecttoSection4(b)inparticular,thisprovision
excepts from tax amnesty coverage a taxpayer who has
incometax cases already filed in court as of the
effectivityhereof. As to what Executive Order the
exceptionrefersto,respondentarguesthatbecauseofthe
wordsincomeandhereof,theyrefertoExecutiveOrder
No.41.InviewoftheamendmentintroducedbyE.O.No.
64,Section4(b)cannotbeconstruedtorefertoE.O.No.41
and its date of effectivity. The general rule is that an
amendatory act operates prospectively. While an
amendment is generally construed as becoming a part of
theoriginalactasifithadalwaysbeencontainedtherein,
it may not be given a retroactive effect unless it is so
provided expressly or by necessary implication and no
vestedrightorobligationsofcontractaretherebyimpaired.
Same;Same;Same;Where a statute amending a tax
law is silent as to whether it operates retroactively, the
amendment will not be given a retroactive effect so as to
subjecttotaxpasttransactionsnotsubjecttotaxunderthe
originalacteverycaseofdoubtmustberesolvedagainst
itsretroactiveeffect.ThereisnothinginE.O.No.64that
providesthatitshouldretroacttothedateofeffectivityof
E.O.No.41,theoriginalissuance.Neitherisitnecessarily
implied from E.O. No. 64 that it or any of its provisions
should apply retroactively. Executive Order No. 64 is a
substantiveamendmentofE.O.No.41.Itdoesnotmerely
change provisions in E.O. No. 41. Itsupplementsthe
originalactbyaddingothertaxesnotcoveredinthefirst.It
hasbeenheldthatwhereastatuteamendingataxlawis
silent as to whether it operates retroactively, the
amendmentwillnotbegivenaretroactiveeffectsoasto
subjecttotaxpasttransactionsnotsubjecttotaxunderthe
originalact.Inanamendatoryact,everycaseofdoubtmust
beresolvedagainstitsretroactiveeffect.
Same;Same;Words and Phrases;A tax amnesty is a
generalpardonorintentionaloverlookingbytheStateofits
authoritytoimposepenaltiesonpersonsotherwiseguiltyof
evasionorviolationofarevenueortaxlawitpartakesof
an absolute forgiveness orwaive bythe government of its
righttocollectwhatisdueitandtogivetaxevaderswho
wish to relent a chance to start with a clean slate.E.O.
Nos.41and64aretaxamnestyissuances.Ataxamnestyis
ageneralpardonorintentionaloverlookingbytheStateof
its authority to impose penalties on persons otherwise
guilty of evasion or violation of a revenue or tax law. It
partakes of an absolute forgiveness or waiver by the
governmentofitsrighttocollectwhatisdueitandtogive
tax evaders who wish to relent a chance to start with a
cleanslate.Ataxamnesty,muchlikeataxexemption,is
neverfavorednorpresumedinlaw.Ifgranted,thetermsof
the amnesty, like that of a tax exemption, must be
construed strictly against the taxpayer and liberally in
favorofthetaxingauthority.For therightoftaxationis
inherentingovernment.TheStatecannotstripitselfofthe
mostessentialpoweroftaxationbydoubtfulwords.Hewho
claims an exemption (or an amnesty) from the common
burden must justify his claim by the clearest grant of
organicorstatelaw.Itcannotbeallowedtoexistupona
vagueimplication.Ifadoubtarisesastotheintentofthe
legislature, that doubt must be resolved in favor of the
state.
Same;Same;Same;The term income tax cases in
Section4(b)ofE.O.No.41,asamendedbyE.O.No.64,
shouldbereadtorefertoestateanddonorstaxesandtaxes
onbusinesswhilethewordhereof,toE.O.No.64.Inthe
instantcase,thevaguenessinSection4(b)broughtabout
by E.O. No. 64 should therefore be construed strictly
againstthetaxpayer.Thetermincometaxcasesshould
bereadastorefertoestateanddonorstaxesandtaxeson
business while the word hereof, to E.O. No. 64. Since
ExecutiveOrderNo.64tookeffectonNovember17,1986,
consequently, insofar as the taxes in E.O. No. 64 are
concerned,thedateofeffectivityreferredtoinSection4(b)
ofE.O.No.41shouldbeNovember17,1986.
 Same;Same;Same;An independent contractor is a
personwhoseactivityconsistsessentiallyofthesaleofall
kindsofservicesforafee,regardlessofwhetherornotthe
performanceoftheservicecallsfortheexerciseoruseofthe
physical or mental faculties of such contractors or their
employees.Under the aforequoted provision, an
independentcontractorisapersonwhoseactivityconsists
essentially of the sale of all kinds of services for a fee,
regardlessofwhetherornottheperformanceoftheservice
calls for the exercise or use of the physical or mental
facultiesofsuchcontractorsortheiremployees.Theword
contractor refers to a person who, in the pursuit of
independent business, undertakes to do a specific job or
pieceofworkforotherpersons,usinghisownmeansand
methods without submitting himself to control as to the
pettydetails.
Same;Same;Same;Acontractorstaxisataximposed
upontheprivilegeofengaginginbusinessitisgenerallyin
thenatureofanexcisetaxontheexerciseofaprivilegeof
sellingservicesorlaborratherthanasaleonproducts,and
is directly collectible from the person exercising the
privilege.A contractors tax is a tax imposed upon the
privilege of engaging in business. It is generally in the
nature of an excise tax on the exercise of a privilege of
sellingservicesorlaborratherthanasaleonproducts;and
is directly collectible from the person exercising the
privilege.Beinganexcisetax,itcanbeleviedbythetaxing
authority only when the acts, privileges or business are
doneorperformedwithinthejurisdictionofsaidauthority.
Likepropertytaxes,itcannotbeimposedonanoccupation
orprivilegeoutsidethetaxingdistrict.
Same;Same;Services for the design, fabrication,
engineering and manufacture of the materials and
equipment made and completed in Japan, thus rendered
outside the taxing jurisdiction of the Philippines, are not
subjecttocontractorstax.Clearly,theserviceofdesign
andengineering,supplyanddelivery,construction,erection
and installation, supervision, direction and control of
testing and commissioning, coordination . . . of the two
projects involved two taxing jurisdictions. These acts
occurred in two countriesJapan and the Philippines.
While the construction and installation work were
completedwithinthePhilippines,theevidenceisclearthat
some pieces of equipment and supplies were completely
designed and engineered in Japan. The two sets of ship
unloader andloader, the boats and mobile equipment for
the NDC project and the ammonia storage tanks and
refrigeration units were made and completed in Japan.
Theywerealreadyfinishedproductswhenshippedtothe
Philippines. The other construction supplies listed under
the Offshore Portion such as the steel sheets, pipes and
structures, electrical and instrumental apparatus, these
werenotfinishedproductswhenshippedtothePhilippines.
They,however,werelikewisefabricatedandmanufactured
bythesubcontractorsinJapan.Allservicesforthedesign,
fabrication,engineeringandmanufactureofthematerials
andequipmentunder JapaneseYenPortionIweremade
and completed in Japan. These services were rendered
outside the taxing jurisdiction of the Philippines and are
thereforenotsubjecttocontractorstax.
PETITIONforreviewoncertiorariofadecisionofthe
CourtofAppeals.
ThefactsarestatedintheopinionoftheCourt.
Litigation&ProsecutionDivisionforpetitioner.
Sycip,Salazar,Hernandez & Gatmaitanfor
respondentMarubeniCorp.
PUNO,J.:
In this petition for review, the Commissioner of
Internal Revenue assails thedecisiondatedJanuary
15, 1999 of the Court of Appeals inCAG.R. SP No.
42518whichaffirmedthedecisiondatedJuly29,1996
of the Court of Tax Appeals in CTA Case No. 4109.
The tax court ordered the Commissioner of Internal
Revenuetodesistfromcollectingthe1985deficiency
income, branch profit remittance and contractors
taxes from Marubeni Corporation after finding the
latter to have properly availed of the tax amnesty
underExecutiveOrdersNos.41and64,asamended.
Respondent Marubeni Corporation is a foreign
corporationorganizedandexistingunderthelawsof
Japan. It is engaged in general import and export
trading,financingandtheconstructionbusiness.Itis
duly registered to engage in such business in the
PhilippinesandmaintainsabranchofficeinManila.
Sometime in November 1985, petitioner
Commissioner ofInternal Revenue issued a letter of
authority to examine the books of accounts of the
Manilabranchofficeofrespondentcorporationforthe
fiscal year ending March 1985. In the course of the
examination, petitioner found respondent to have
undeclared income from two (2) contracts in the
Philippines, both of which were completed in 1984.
One of the contracts was with the National
DevelopmentCompany(NDC)inconnectionwiththe
constructionandinstallationofawharf/portcomplex
at the Leyte Industrial Development Estate in the
municipality of Isabel, province of Leyte. The other
contractwaswiththePhilippinePhosphateFertilizer
Corporation (Philphos) for the construction of an
ammoniastoragecomplexalsoattheLeyteIndustrial
DevelopmentEstate.
OnMarch1,1986,petitioners revenueexaminers
recommended an assessment for deficiency income,
branchprofitremittance,contractorsandcommercial
brokerstaxes.Respondentquestionedthisassessment
inaletterdatedJune5,1986.
On August 27, 1986, respondent corporation received a letter
dated August 15, 1986 from petitioner assessing respondent several
deficiency taxes. The assessed deficiency internal revenue taxes,
inclusive of surcharge and interest, were as follows:
I. DEFICIENCY INCOME TAX
FY ended March 31, 1985
Undeclared gross income (Philphos
and and NDC construction P967,269,811.1
projects) ............... 4
Less: Cost and expenses 483,634,905.57
(50%) ..................................
Net undeclared 483,634,905.57
income ..............................................
Income tax due 169,272,217.00
thereon .............................................
I. DEFICIENCY INCOME TAX II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
FY ended March 31, 1985 FY ended March 31, 1985
Add: 50% 84,636,108.50 Undeclared net income from
surcharge ................................................. Philphos and NDC
.. construction projects.........................................
20% int. p.a. fr. 7-15-85 to Less: Income tax thereon ..........................................
to 8-15- Amount subject to Tax ..............................................
86 ................................................ 36,675,646.90 Tax due thereon .........................................................
TOTAL AMOUNT P290,583,972.4 25% surcharge for late 9,672,69
DUE ............................................ 0 payment ...................................
II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX Sub- 67,708,88
FY ended March 31, 1985 total .......................................................................
Undeclared net income from Add: 20% int. p.a. fr. 4-21-85 to 8-15- 17,854,73
Philphos and NDC 86.......................
construction projects......................................... TOTAL AMOUNT P 85,563,62
Less: Income tax thereon .......................................... DUE .............................................
Amount subject to Tax .............................................. IV. DEFICIENCY COMMERCIAL BROKERS TAX
Tax due thereon ......................................................... FY ended March 31, 1985
Add: 50% surcharge...................................................
20% int. p.a. fr. 4-26-85 Undeclared share from commission income
to 8-15-86 ........................................................... (denominated as subsidy from Home P
TOTAL AMOUNT DUE ............................................ Office)................................................................ 24,683,114.50
III. DEFICIENCY CONTRACTORS TAX Tax due 1,628,569.00
thereon ...........................................................
FY ended March 31, 1985 Add: 50% surcharge for non- 814,284.50
Undeclared gross receipts/gross income from declaration .....................
Philphos and NDC construction projects ....... P967,269,811.14
25% surcharge for late 407,142.25
Contractors tax due thereon payment ..................................
(4%) ............................... Sub- 2,849,995.75
Add: 50% surcharge for non- total .......................................................................
declaration ..................... Add: 20% int. p.a. fr. 4-21-85 to 8-15- 751,539.98
II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX On September 26, 1986, respondent filed two (2)
FY ended March 31, 1985 petitions for review with the Court of Tax Appeals.
Undeclared net income from Thefirstpetition,CTACaseNo.4109,questionedthe
Philphos and NDC deficiency income, branch profit remittance and
construction projects......................................... contractorstaxassessmentsinpetitionersassessment
Less: Income tax thereon .......................................... letter.Thesecond,CTACaseNo.4110,questionedthe
Amount subject to Tax .............................................. deficiencycommercialbrokersassessmentinthesame
Tax due thereon ......................................................... letter.
86 ...................... Earlier,onAugust2,1986,ExecutiveOrder(E.O.)No.
TOTAL AMOUNT 2
41 declaring a onetime amnesty covering unpaid
DUE .............................................. 3,600,535.68
incometaxesfortheyears1981to1985wasissued.
The50%surchargewasimposedforyourclientsfailureto
UnderthisE.O.,ataxpayerwhowishedtoavailofthe
reportfortaxpurposestheaforesaidtaxablerevenueswhile
the 25% surcharge was imposed because of your clients
incometaxamnestyshould,onorbeforeOctober31,
failure to pay on time the above deficiency percentage 1986: (a) file a sworn statement declaring his net
taxes. worthasofDecember31,1985;(b)fileacertifiedtrue
xxxxxxxxx.
1 copy of his statement declaring his net worth as of
December 31, 1980 on record with the Bureau of
PetitionerfoundthattheNDCandPhilphoscontracts InternalRevenue(BIR),orifnosuchrecordexists,file
were made on a turnkey basis and that the gross astatementofsaidnetworthsubjecttoverificationby
income from the two projects amounted to theBIR;and(c)fileareturnandpayataxequivalent
P967,269,811.14.Eachcontractwasforapieceofwork totenpercent(10%)oftheincreaseinnetworthfrom
andsincetheprojectscalledfortheconstructionand December31,1980toDecember31,1985.
installationoffacilitiesinthePhilippines,theentire In accordance with the terms of E.O. No. 41,
incometherefromconstitutedincomefromPhilippine respondentfileditstaxamnestyreturndatedOctober
sources,hence,subjecttointernalrevenuetaxes.The 30,1986andattachedtheretoitsswornstatementof
assessment letter further stated that the same was assetsandliabilitiesandnetworthasofFiscalYear
petitioners final decision and that if respondent (FY)1981andFY1986.Thereturnwasreceivedby
disagreedwithit,respondentmayfileanappealwith theBIRonNovember3,1986andrespondentpaidthe
theCourtofTaxAppealswithinthirty(30)daysfrom amount of P2,891,273.00 equivalent to ten percent
receiptoftheassessment. (10%)ofitsnetworthincreasebetween1981and1986.
 TheperiodoftheamnestyinE.O.No.41waslater
extendedfromOctober31,1986toDecember5,1986
byE.O.No.54datedNovember4,1986.
OnNovember17,1986,thescopeandcoverageof
E.O.No.41wasexpandedbyExecutiveOrder(E.O.)
No.64.Inadditiontotheincometaxamnestygranted
byE.O.No.41fortheyears1981to1985,E.O.No.
64 included estate and donors taxes under Title III
3
andthetaxonbusinessunderChapterII,TitleVof
theNationalInternalRevenueCode,alsocoveringthe
years1981to1985.E.O.No.64furtherprovidedthat
theimmunitiesandprivilegesunderE.O.No.41were
extendedtotheforegoingtaxliabilities,andtheperiod
withinwhichthetaxpayercouldavailoftheamnesty
wasextendedtoDecember15,1986.Thosetaxpayers
whoalreadyfiledtheiramnestyreturnunderE.O.No.
41,asamended,couldavailthemselvesofthebenefits,
immunities and privilegesunder the new E.O. by
filinganamendedreturnandpayinganadditional5%
ontheincreaseinnetworthtocoverbusiness,estate
anddonorstaxliabilities.
The period of amnesty under E.O. No. 64 was
extended to January 31, 1987 by E.O. No. 95 dated
December17,1986.
On December 15, 1986, respondent filed a
supplementaltaxamnestyreturnunderthebenefitof
E.O. No. 64 and paid a further amount of
P1,445,637.00 to the BIR equivalent to five percent
(5%)oftheincreaseofitsnetworthbetween1981and
1986.
OnJuly29,1996,almostten(10)yearsafterfiling
of the case, the Court of Tax Appeals rendered a
decisioninCTACaseNo.4109.Thetaxcourtfound
that respondent had properly availed of the tax
amnestyunderE.O.Nos.41and64anddeclaredthe
deficiency taxes subject of said case as deemed
cancelled and withdrawn. The Court of Tax Appeals
disposedofasfollows:
WHEREFORE, therespondent CommissionerofInternal
Revenue is hereby ORDERED to DESIST from collecting
the1985deficiencytaxesithadassessedagainstpetitioner
and the same are deemed considered [sic] CANCELLED
and WITHDRAWN by reason of the proper availment by
petitioneroftheamnestyunderExecutiveOrderNo.41,as
amended. 4
Petitionerchallengedthedecisionofthetaxcourtby
filingCAG.R.SPNo.42518withtheCourtofAppeals.
On January 15, 1999, the Court of Appeals
dismissedthepetitionandaffirmedthedecisionofthe
CourtofTaxAppeals.Hence,thisrecourse.
Beforeus,petitionerraisesthefollowingissues:
1. (1)WhetherornottheCourtofAppealserredin
affirming the Decision of the Court of Tax
Appealswhichruledthathereinrespondents
deficiency tax liabilities were extinguished
upon respondents availment of tax amnesty
underExecutiveOrdersNos.41and64.
 1. (2)Whetherornotrespondentisliabletopay
the income, branch profit remittance, and
contractorstaxesassessedbypetitioner. 5 hereof as a result of information furnished under
The main controversy in this case lies in the
interpretation of the exception to the amnesty
coverageofE.O.Nos.41and64.Therearethree(3)
types of taxes involved hereinincome tax, branch
profitremittancetaxandcontractorstax.Thesetaxes
arecoveredbytheamnestiesgrantedbyE.O.Nos.41
and64.Petitionerclaims,however,thatrespondentis
disqualified from availing of the said amnesties
becausethelatterfallsundertheexceptioninSection
4(b)ofE.O.No.41.
Section 4 of E.O. No. 41 enumerates which
taxpayers cannot avail of the amnesty granted
thereunder,viz.:
Sec.4.Exceptions.Thefollowingtaxpayersmaynotavail
themselvesoftheamnestyhereingranted:
1. a)Those falling under the provisions of Executive
OrderNos.1,2and14;
2. b)ThosewithincometaxcasesalreadyfiledinCourt
asoftheeffectivityhereof;
3. c)Those with criminal cases involving violations of
theincometaxlawalreadyfiledincourtasofthe
effectivityhereof;
4. d)Thosethathavewithholdingtaxliabilitiesunder
theNationalInternalRevenueCode,asamended,
insofarasthesaidliabilitiesareconcerned;
5. e)Thosewithtaxcasespendinginvestigationbythe
Bureau of Internal Revenue as of the effectivity
Section316oftheNationalInternalRevenueCode,
asamended;
6. f)Thosewithpendingcasesinvolvingunexplainedor
unlawfully acquired wealth before the
Sandiganbayan;
7. g)Those liable under Title Seven, Chapter Three
(Frauds, Illegal Exactions and Transactions) and
Chapter Four (Malversation of Public Funds and
Property)oftheRevisedPenalCode,asamended.
Petitionerarguesthatatthetimerespondentfiledfor
income tax amnesty onOctober 30, 1986, CTA Case
No. 4109 had already been filed and was pending
beforetheCourtofTaxAppeals.Respondenttherefore
fellundertheexceptioninSection4(b)ofE.O.No.41.
Petitionersclaimcannotbesustained.Section4(b)
of E.O. No. 41 is very clear and unambiguous. It
excepts from income tax amnesty those taxpayers
withincometaxcasesalreadyfiledincourtasofthe
effectivityhereof. Thepoint ofreferenceisthedate
ofeffectivityof E.O. No. 41. The filing of income tax
casesincourtmusthavebeenmadebeforeandasof
the date of effectivity of E.O. No. 41. Thus, for a
taxpayer not to be disqualified under Section 4 (b)
there must have been no income tax cases filed in
courtagainsthimwhenE.O.No.41tookeffect.Thisis
regardlessofwhenthetaxpayerfiledforincometax
amnesty,providedofcoursehefilesitonorbeforethe
deadlineforfiling.
E.O. No. 41 took effect on August 22, 1986. CTA
CaseNo.4109questioningthe1985deficiencyincome,
branch profit remittance and contractors tax
assessmentswasfiledbyrespondentwiththeCourtof
TaxAppealsonSeptember26,1986.WhenE.O.No.41
became effective on August 22, 1986, CTA Case No.
4109 had not yet been filed in court. Respondent
corporation did not fall under the said exception in
Section4(b),hence,respondentwasnotdisqualified
from availing of the amnesty for income tax under
E.O.No.41.
The same ruling also applies to the deficiency
branch profit remittance tax assessment. A branch
profitremittancetaxisdefinedandimposedinSection
24 (b) (2) (ii), Title II, Chapter III of the National
InternalRevenueCode. Inthetaxcode,thistaxfalls
6
underTitleIIonIncomeTax.Itisataxonincome.
Respondentthereforedidnotfallundertheexception
in Section 4 (b) when it filed for amnesty of its
deficiencybranchprofitremittancetaxassessment.
The difficulty herein is with respect to the
contractors tax assessment and respondents
availmentoftheamnestyunderE.O.No.64.E.O.No.
64expandedthecoverageofE.O.No.41byincluding
estateanddonorstaxesandtaxonbusiness.Estate
anddonorstaxesfallunderTitleIIIoftheTaxCode
whilebusinesstaxesfallunderChapterII,TitleVof
thesame.ThecontractorstaxisprovidedinSection
205,ChapterII,TitleVoftheTaxCode;itisdefined
andimposedunderthetitleonbusinesstaxes,andis
thereforeataxonbusiness. 7
WhenE.O.No.64tookeffectonNovember17,1986,
itdidnotprovideforexceptionstothecoverageofthe
amnesty for business, estate and donors taxes.
Instead,Section8ofE.O.No.64providedthat:
Section8.TheprovisionsofExecutiveOrdersNos.41and
54 which are not contrary to or inconsistent with this
amendatoryExecutiveOrdershallremaininfullforceand
effect.
ByvirtueofSection8asaforequoted,theprovisionsof
E.O. No. 41 not contrary toorinconsistent with the
amendatoryactwerereenactedinE.O.No.64.Thus,
Section4ofE.O.No.41ontheexceptionstoamnesty
coveragealsoappliedtoE.O.No.64.Withrespectto
Section4(b)inparticular,thisprovisionexceptsfrom
taxamnestycoverageataxpayerwhohasincometax
casesalreadyfiledincourtasoftheeffectivityhereof.
As to what Executive Order the exception refers to,
respondentarguesthatbecauseofthewordsincome
andhereof,theyrefertoExecutiveOrderNo.41. 8
InviewoftheamendmentintroducedbyE.O.No.
64,Section4(b)cannotbeconstruedtorefertoE.O.
No.41anditsdateofeffectivity.Thegeneralruleis
thatanamendatoryactoperatesprospectively. While 9
anamendmentisgenerallyconstrued asbecominga
part of the original act as if it had always been
contained therein, it may not be given a retroactive
10
effectunlessitissoprovidedexpresslyorbynecessary
implication and no vested right or obligations of
contractaretherebyimpaired. 11
ThereisnothinginE.O.No.64thatprovidesthatit
shouldretroacttothedateofeffectivityofE.O.No.41,
theoriginalissuance.Neitherisitnecessarilyimplied
fromE.O.No.64thatitoranyofitsprovisionsshould
apply retroactively. Executive Order No. 64 is a
substantive amendment of E.O. No. 41. It does not
merely change provisions in E.O. No. 41.
Itsupplementsthe original act by adding other taxes
notcoveredinthefirst. Ithasbeenheldthatwherea
12
statuteamendingataxlawissilentastowhetherit
operates retroactively, the amendment will not be
givenaretroactiveeffectsoastosubjecttotaxpast
transactions not subject to tax under the original
act. Inanamendatoryact,everycaseofdoubtmustbe
13
resolvedagainstitsretroactiveeffect. 14
Moreover, E.O. Nos. 41 and 64 are tax amnesty
issuances. A tax amnesty is a general pardon or
intentionaloverlookingbytheStateofitsauthorityto
impose penalties on persons otherwise guilty of
evasion or violation of a revenue or tax law. It15
partakesofanabsoluteforgivenessorwaiverbythe
governmentofitsrighttocollectwhatisdueitandto
givetaxevaderswhowishtorelentachancetostart
with a clean slate. A tax amnesty, much like a tax
16
exemption,is neverfavorednorpresumedinlaw. If 17
granted,thetermsoftheamnesty,likethatofatax
exemption, must be construed strictly against the
taxpayer and liberally in favor of the taxing
authority. For the right of taxation is inherent in
18
government.TheStatecannotstripitselfofthemost
essentialpoweroftaxationbydoubtfulwords.Hewho
claimsanexemption(oranamnesty)fromthecommon
burdenmustjustifyhisclaimbytheclearestgrantof
organicorstatelaw.Itcannotbeallowedtoexistupon
avagueimplication.Ifadoubtarisesastotheintent
ofthelegislature,thatdoubtmustberesolvedinfavor
ofthestate. 19
Intheinstantcase,thevaguenessinSection4(b)
brought about by E.O. No. 64 should therefore be
construed strictly against the taxpayer. The term
incometaxcasesshouldbereadastorefertoestate
and donors taxes and taxes on business while the
wordhereof,toE.O.No.64.SinceExecutiveOrder
No.64tookeffectonNovember17,1986,consequently,
insofarasthetaxesinE.O.No.64areconcerned,the
dateofeffectivityreferredtoinSection4(b)ofE.O.
No.41shouldbeNovember17,1986.
RespondentfiledCTACaseNo.4109onSeptember
26,1986.WhenE.O.No.64tookeffectonNovember
17, 1986, CTA Case No. 4109 was already filed and
pending in court. By the time respondent filed its
supplementary tax amnesty return on December 15,
1986, respondent already fell under theexception in
Section 4 (b) of E.O. Nos. 41 and 64 and was
disqualifiedfromavailingofthebusinesstaxamnesty
grantedtherein.
 Itisrespondentsotherargumentthatassumingit
did not validly avail of the amnesty under the two
ExecutiveOrders,itisstillnotliableforthedeficiency
contractorstaxbecausetheincomefromtheprojects
camefromtheOffshorePortionofthecontracts.The
two contracts were divided into two parts,i.e., the
Onshore Portion and the Offshore Portion. All
materials and equipment in the contract under the
OffshorePortionweremanufacturedandcompleted
inJapan,notinthePhilippines,andarethereforenot
subjecttoPhilippinetaxes.
Before going into respondents arguments, it is
necessary to discuss the background of the two
contracts, examine their pertinent provisions and
implementation.
The NDC and Philphos are two government
corporations. In 1980, the NDC, as the corporate
investment arm of the Philippine Government,
establishedthePhilphostoengageinthelargescale
manufactureofphosphaticfertilizerforthelocaland
foreign markets. The Philphos plant complex which
20
wasenvisionedtobethelargestphosphaticfertilizer
operationinAsia,andamongthelargestintheworld,
coveredanareaof180hectareswithinthe435hectare
Leyte Industrial Development Estate in the
municipalityofIsabel,provinceofLeyte.
In 1982, the NDC opened for public bidding a
project to construct and install a modern, reliable,
efficient and integrated wharf/port complex at the
LeyteIndustrialDevelopmentEstate.Thewharf/port
complexwasintendedtobeoneofthemajorfacilities
for the industrial plants at the Leyte Industrial
DevelopmentEstate.Itwastobespecificallyadapted
tothesiteforthehandlingofphosphaterock,bagged
orbulkfertilizerproducts,liquidmaterialsandother
products of Philphos, the Philippine Associated
SmeltingandRefiningCorporation(Pasar), andother 21
industrialplantswithintheEstate.Thebiddingwas
participatedinbyMarubeniHeadOfficeinJapan.
Marubeni, Japan prequalified and on March 22,
1982, the NDC and respondent entered into an
agreement entitled TurnKey Contract for Leyte
Industrial Estate Port Development Project Between
National Development Company and Marubeni
Corporation. The Port Development Project would
22
consistofawharf,berths,causeways,mechanicaland
liquidsunloadingandloadingsystems,fueloildepot,
utilitiessystems,storageandservicebuildings,offsite
facilities, harbor service vessels, navigational aid
system, firefighting system, area lighting, mobile
equipment, spare parts and other related
facilities. Thescopeoftheworks under thecontract
23
covered turnkey supply, which included grants of
licenses and the transfer of technology and know
how, and:
24
x x x the design and engineering, supply and delivery,
construction, erection and installation, supervision,
direction andcontrol of testing and commissioningof the
WharfPort Complex as set forth in Annex I of this
Contract, as well as the coordination of tieins at
boundariesandscheduleoftheuseofapartorthewholeof
the Wharf/Port Complex through the Owner, with the
designandconstructionofotherfacilitiesaroundthesite.
Thescopeofworksshallalsoincludeanyactivity,workand
supply necessary for, incidental to or appropriate under
presentinternationalindustrialportpractice,forthetimely
and successful implementation of the object of this
Contract, whether or not expressly referred to in the
abovementionedAnnexI. 25
The contract price for the wharf/port complex was
12,790,389,000.00 and P44,327,940.00. In the
contract, theprice in Japanesecurrency was broken
downintotwoportions:(1)theJapaneseYenPortionI;
(2) the Japanese Yen Portion II, while the price in
PhilippinecurrencywasreferredtoasthePhilippine
Pesos Portion. The Japanese Yen Portions I and II
werefinancedintwo(2)ways:(a)byyencreditloan
providedbytheOverseasEconomicCooperationFund
(OECF); and (b) by suppliers credit in favor of
MarubenifromtheExportImportBankofJapan.The
OECF is a Fund under the Ministry of Finance of
Japan extended by the Japanese government as
assistancetoforeigngovernmentstopromoteeconomic
development. The OECF extended to the Philippine
26
Governmentaloanof7,560,000,000.00fortheLeyte
Industrial Estate Port Development Project and
authorized the NDC to implement the same. The 27
othertypeoffinancingisanindirecttypewherethe
supplier,i.e., Marubeni, obtained a loan from the
ExportImportBankofJapantoadvancepaymentto
itssubcontractors. 28
Under the financing schemes, the Japanese Yen
Portions I and II and the Philippine Pesos Portion
werefurtherbrokendownandsubdividedaccordingto
thematerials,equipmentandservicesrenderedonthe
project. The price breakdown and the corresponding
materials,equipmentandserviceswerecontainedina
listattachedasAnnexIIItothecontract. 29
AfewmonthsafterexecutionoftheNDCcontract,
Philphos opened for public bidding a project to
construct and install two ammonia storage tanks in
Isabel.LiketheNDCcontract,itwasMarubeniHead
Office in Japan that participated in and won the
bidding. Thus, on May 2, 1982, Philphos and
respondent corporation entered into an agreement
entitled TurnKey Contract for Ammonia Storage
Complex Between Philippine Phosphate Fertilizer
CorporationandMarubeniCorporation. Theobjectof
30
the contract was to establish and place in operating
conditionamodern,reliable,efficient andintegrated
ammoniastoragecomplexadaptedtothesiteforthe
receiptandstorageofliquidanhydrousammonia and 31
forthedeliveryofammoniatoanintegratedfertilizer
plantadjacenttothestoragecomplexandtovesselsat
the dock. The storage complex was to consist of
32
ammonia storage tanks, refrigeration system, ship
unloading system, transferpumps,ammonia heating
system,firefightingsystem,arealighting,spareparts,
and other related facilities. The scope of the works
33
required for the completion of the ammonia storage
complex covered the supply, including grants of
licenses and transfer of technology and know
how, and:
34
x x x the design and engineering, supply and delivery,
construction, erection and installation, supervision,
direction andcontrol of testing and commissioningof the
AmmoniaStorageComplexassetforthinAnnexIofthis
Contract, as well as the coordination of tieins at
boundariesandscheduleoftheuseofapartorthewholeof
theAmmoniaStorageComplexthroughtheOwnerwiththe
designandconstructionofotherfacilitiesatandaroundthe
Site. The scope of works shall also include any activity,
workandsupplynecessaryfor,incidentaltoorappropriate
under present international industrial practice, for the
timelyandsuccessfulimplementationoftheobjectofthis
Contract, whether or not expressly referred to in the
abovementionedAnnexI. 35
The contract price for the project was
3,255,751,000.00andP17,406,000.00.LiketheNDC
contract,thepricewasdividedintothreeportions.The
priceinJapanesecurrencywasbrokendownintothe
JapaneseYenPortionIandJapaneseYenPortionII
whilethepriceinPhilippinecurrencywasclassifiedas
the Philippine Pesos Portion. Both Japanese Yen
Portions I and II were financed by suppliers credit
from the ExportImport Bank of Japan. The price
statedinthethreeportionswerefurtherbrokendown
into the corresponding materials, equipment and
servicesrequiredfortheprojectandtheirindividual
prices.LiketheNDCcontract,thebreakdowninthe
Philphoscontractiscontainedinalistattachedtothe
latterasAnnexIII. 36
ThedivisionofthepriceintoJapaneseYenPortions
IandIIandthePhilippinePesosPortionunderthe
twocontractscorrespondstothetwopartsintowhich
the contracts were classifiedthe Foreign Offshore
Portion andthePhilippine Onshore Portion. In both
contracts,theJapaneseYenPortionIcorrespondsto
theForeignOffshorePortion. JapaneseYenPortionII
37
and the Philippine Pesos Portion correspond to the
PhilippineOnshorePortion. 38
UnderthePhilippineOnshorePortion,respondent
doesnotdenyitsliabilityforthecontractors taxon
theincomefromthetwoprojects.Infactrespondent
claims, which petitioner has not denied, that the
incomeitderivedfromtheOnshorePortionofthetwo
projects had been declared for tax purposes and the
taxes thereon already paid to the Philippine
government. It is with regard to the gross receipts
39
fromtheForeignOffshorePortionofthetwocontracts
thattheliabilitiesinvolvedintheassessmentssubject
ofthiscasearose.Petitionerarguesthatsincethetwo
agreements are turnkey, they call forthesupply of
40
both materials and services to the client, they are
contractsforapieceofworkandareindivisible.The
situsofthetwoprojectsisinthePhilippines,andthe
materials provided and services rendered were all
doneandcompletedwithintheterritorialjurisdiction
of the Philippines. Accordingly, respondents entire
41
receiptsfromthecontracts,includingitsreceiptsfrom
the Offshore Portion, constitute income from
Philippine sources. The total gross receipts covering
both labor and materials should be subjected to
contractors tax in accordance with the ruling
inCommissioner of Internal Revenue v. Engineering
Equipment&SupplyCo. 42
A contractors tax is imposed in the National
InternalRevenueCode(NIRC)asfollows:
Sec. 205. Contractors, proprietors or operators of
dockyards,andothers.Acontractorstaxoffourpercentof
the gross receipts is hereby imposed on proprietors or
operators of the following business establishments and/or
personsengagedinthebusinessofsellingorrenderingthe
followingservicesforafeeorcompensation:
1. (a)General engineering, general building and specialty
contractors, as defined in Republic Act No. 4566;
xxxxxxxxx natureofanexcisetaxontheexerciseofaprivilegeof
2. (q)Otherindependentcontractors.Thetermindependent
contractors includes persons (juridical or natural) not
enumeratedabove(butnotincludingindividualssubject
totheoccupationtaxundertheLocalTaxCode)whose
activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the
performanceoftheservicecallsfortheexerciseoruseof
the physical or mental faculties of such contractors or
their employees. It does not include regional or area
headquarters established in the Philippines by
multinational corporations, including their alien
executives, and which headquarters do not earn or
derive income from the Philippines and which act as
supervisory, communications and coordinating centers
fortheiraffiliates,subsidiariesorbranchesintheAsia
Pacific Region.
xxxxxxxxx. 43
Under the aforequoted provision, an independent
contractor is a person whose activity consists
essentiallyofthesaleofallkindsofservicesforafee,
regardless of whether or not the performance of the
servicecallsfortheexerciseoruseofthephysicalor
mental faculties of such contractors or their
employees. The word contractor refers to a person
who, in the pursuit of independent business,
undertakes to do a specific job or piece of work for
other persons, using his own means and methods
withoutsubmittinghimselftocontrolastothepetty
details. 44
A contractors tax is a tax imposed upon the
privilegeofengaginginbusiness. Itisgenerallyinthe
45
selling services or labor rather than a sale on
products; and is directly collectible from the person
46
exercisingtheprivilege. Beinganexcisetax,itcanbe
47
levied by the taxing authority only when the acts,
privileges or business are done or performed within
thejurisdictionofsaidauthority. Likepropertytaxes,
48
it cannot be imposed on an occupation or privilege
outsidethetaxingdistrict. 49
Inthecaseatbar,itisundisputedthatrespondent
wasanindependentcontractorunderthetermsofthe
twosubjectcontracts.
Respondent, however, argues that the work therein
were not all performed in the Philippines because
someofthemwerecompletedinJapaninaccordance
withtheprovisionsofthecontracts.
AnexaminationofAnnexIIItothetwocontracts
revealsthatthematerialsandequipmenttobemade
and the works and services to be performed by
respondent are indeed classified into two. The first
part,entitledBreakdownofJapaneseYenPortionI
provides:
Japanese Yen Portion I of the Contract Price has
beensubdividedaccordingtodiscreteportionsofmaterials
andequipmentwhichwillbeshippedtoLeyteasunitsand
lots. This subdivision of price is to be used by owner to
verifyinvoiceforProgressPaymentsunderArticle19.2.1of
the Contract. The agreed subdivision of Japanese Yen
PortionIisasfollows:
xxxxxxxxx. 50
The subdivision of Japanese Yen Portion I covers
materialsandequipmentwhileJapaneseYenPortion
IIandthePhilippinePesosPortionenumerateother
materials and equipment and the construction and
installation workontheproject.Inotherwords,the
suppliesfortheprojectarelistedunderPortionIwhile
labor and other supplies are listed under Portion II
and the Philippine Pesos Portion. Mr. Takeshi Hojo,
thenGeneralManageroftheIndustrialPlantSection
II of the Industrial Plant Department of Marubeni
Corporation in Japan who supervised the
implementation ofthe twoprojects, testified that all
the machines and equipment listed under Japanese
Yen Portion I in Annex III were manufactured in
Japan. The machines and equipment were designed,
51
engineered and fabricated by Japanese firms sub
contracted by Marubeni from the list of sub
contractors in the technical appendices to each
contract. Marubeni subcontracted a majority of the
52
equipment and supplies to Kawasaki Steel
Corporation which did the design, fabrication,
engineeringandmanufacturethereof; Yashima&Co.
53
Ltd. which manufactured the mobile equipment;
Bridgestonewhichprovidedtherubberfendersofthe
mobile equipment; and B.S. Japan for the supply of
54
radio equipment. The engineering and design works
55
madebyKawasakiSteelCorporationincludedthelay
outoftheplantfacilityandcalculationofthedesignin
accordance with the specifications given by
respondent. Allsubcontractorsandmanufacturersare
56
JapanesecorporationsandarebasedinJapanandall
engineeringanddesignworkswereperformedinthat
country. 57
ThematerialsandequipmentunderPortionIofthe
NDCPortProjectisprimarilycomposedoftwo(2)sets
ofshipunloaderandloader;severalboatsandmobile
equipment. The ship unloader unloads bags or bulk
58
products from the ship to the port while the ship
loaderloads productsfromtheport totheship.The
unloaderandloaderarebigsteelstructuresontopof
eachisalargecraneandacompartmentforoperation
of the crane. Two sets of these equipment were
completely manufactured in Japan according to the
specifications of theproject.Aftermanufacture, they
were rolledon toa barge andtransported to Isabel,
Leyte. UponreachingIsabel,theunloaderandloader
59
wererolledoffthebargeandpulledtothepiertothe
spot where they were installed. Their installation
60
simplyconsistedofboltingthemontothepier. 61
Like the ship unloader and loader, the three
tugboats and a line boat were completely
manufacturedinJapan.TheboatssailedtoIsabelon
theirownpower.Themobileequipment,consistingof
three to four sets of tractors, cranes and dozers,
trailers and forklifts, were also manufactured and
completedinJapan.Theywereloadedontoashipping
vesselandunloadedattheIsabelPort.Thesepiecesof
equipmentwereallonwheelsandselfpropelled.Once
unloadedattheport,theywerereadytobedrivenand
performwhattheyweredesignedtodo. 62
Inadditiontotheforegoing,thereareotheritems
listedinJapaneseYenPortionIinAnnexIIItothe
NDC contract. These other items consist of supplies
and materials for five (5) berths, two (2) roads, a
causeway, a warehouse, a transit shed, an
administrationbuildingandasecuritybuilding.Most
of the materials consist of steel sheets, steel pipes,
channels and beams and other steel structures,
navigationalandcommunicationaswellaselectrical
equipment. 63
InconnectionwiththePhilphoscontract,themajor
piecesofequipmentsuppliedbyrespondentwerethe
ammonia storage tanks and refrigeration units. The 64
steelplatesforthetankweremanufacturedandcutin
Japan according to drawings and specifications and
then shipped to Isabel. Once there, respondents
employees put the steel plates together to form the
storagetank.Astotherefrigerationunits,theywere
completed and assembled in Japan and thereafter
shipped to Isabel. The units were simply installed
there. Annex III to thePhilphos contract lists down
65
undertheJapaneseYenPortionIthematerialsforthe
ammonia storage tank, incidental equipment, piping
facilities, electrical and instrumental apparatus,
foundationmaterialandspareparts.
Allthematerialsandequipmenttransportedtothe
PhilippineswereinspectedandtestedinJapanprior
to shipment in accordance with the terms of the
contracts. The inspection was made by
66
representativesofrespondentcorporation,ofNDCand
Philphos. NDC, in fact, contracted the services of a
private consultancy firm to verify the correctness of
the tests on the machines and equipment while 67
PhilphossentarepresentativetoJapantoinspectthe
storageequipment. 68
Thesubcontractorsofthematerialsandequipment
under Japanese Yen Portion I were all paid by
respondent in Japan. In his deposition upon oral
examination, Kenjiro Yamakawa, formerly the
AssistantGeneralManagerandManageroftheSteel
Plant Marketing Department, Engineering &
Construction Division, Kawasaki Steel Corporation,
testifiedthattheequipmentandsuppliesforthetwo
projects provided by Kawasaki under Japanese Yen
PortionIwerepaidbyMarubeniinJapan.Receiptsfor
such payments were duly issued by Kawasaki in
JapaneseandEnglish. Yashima&Co.Ltd.andB.S.
69
JapanwerelikewisepaidbyMarubeniinJapan.
Between Marubeni and the two Philippine
corporations, payments for all materials and
equipmentunderJapaneseYenPortionIweremade
toMarubenibyNDCandPhilphosalsoinJapan.The
NDC, through the Philippine National Bank,
established letters of credit in favor of respondent
throughtheBankofTokyo.Thelettersofcreditwere
financedbylettersofcommitmentissuedbytheOECF
with the Bank of Tokyo. The Bank of Tokyo, upon
respondents submission of pertinent documents,
releasedtheamountinthelettersofcreditinfavorof
respondent and credited the amount therein to
supplieswerecompletelydesignedandengineeredin
Japan.Thetwosetsofshipunloaderandloader,the
boatsandmobileequipmentfortheNDCprojectand
the ammonia storage tanks and refrigeration units
weremadeandcompletedinJapan.Theywerealready
finishedproductswhenshippedtothePhilippines.The
otherconstructionsupplieslistedundertheOffshore
70
Portionsuchasthesteelsheets,pipesandstructures,
electricalandinstrumentalapparatus,thesewerenot
finished products when shipped to the Philippines.
They, however, were likewise fabricated and
manufactured by the subcontractors in Japan. All
services for the design, fabrication, engineering and
manufacture of the materials and equipment under
JapaneseYenPortionIweremadeandcompletedin
Japan. These services were rendered outside the
taxingjurisdictionofthePhilippinesandaretherefore
notsubjecttocontractorstax.Contrarytopetitioners
claim,thecaseofCommissionerofInternalRevenuev.
EngineeringEquipment&SupplyCo isnotinpoint.
73

respondentsaccountwithinthesamebank. 71

In that case, the Court found that Engineering

Clearly, the service of design and engineering,
supply and delivery, construction, erection and
installation, supervision, direction and control of
testing and commissioning, coordination . . . of the
72
Equipment,althoughanindependentcontractor,was
not engaged in the manufacture of air conditioning
units in the Philippines. Engineering Equipment

designed, supplied and installed centralized

two projects involved two taxing jurisdictions. These
acts occurred in two countriesJapan and the
Philippines. While the construction and installation
work were completed within the Philippines, the
evidence is clear that somepieces of equipment and
airconditioningsystemsforclientswhocontractedits
services. Engineering, however, did not manufacture
all the materials for the airconditioning system. It
importedsomeitems for the system it designed and
installed. Theissuesinthatcasedealtwithservices
74

performed within the local taxing jurisdiction. There

was no foreign element involved in the supply of
materialsandservices.
Withtheforegoingdiscussion,itisunnecessaryto
discusstheotherissuesraisedbytheparties.
IN VIEW WHEREOF, the petition is denied. The
decisioninCAG.R.SPNo.42518isaffirmed.
SOORDERED.