Philex Mining vs CIR

GR. No. 125704 August 28, 1998

Facts:
Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991
in the amount of P119,977,037.02 plus interest. Therefore these claims for tax
credit/refund should be applied against the tax liabilities. The BIR found no merit in
Philex's position. Since these pending claims have not yet been established or
determined with certainty, it follows that no legal compensation can take place. Hence,
the BIR reiterated its demand that Philex settle the amount plus interest within 30 days
from the receipt of the letter. Philex raised the issue to the Court of Tax Appeals. The
Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since
claim for taxes is not a debt or contract. Philex appealed to the Court of Appeals and the
latter affirmed the decision of the Court of Tax Appeals.

Issue:
Whether or not taxes can be subject of compensation or set-off
Held:
No, taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other. There is a
material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. A
person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the
results of a lawsuit against the government and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off. The basic principle in tax law
that taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance.

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

GR Nos. 141104 & 148763, June 8, 2007

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:
Whether or not 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.

Domingo vs Garlitos
G.R. No. L-18994 June 29, 1963
Facts:
 It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-
14674, January 30, 1960, this Court declared as final and executory the order for the
payment by the estate of the estate and inheritance taxes, charges and penalties,
amounting to P40,058.55, issued by the Court of First Instance of Leyte. In order to
enforce the claims against the estate the fiscal presented a petition for the execution of
the judgment. The petition was, however, denied by the court which held that the
execution is not justifiable as the Government is indebted to the estate under
administration. The Court orders that the payment of inheritance taxes in the sum of
P40,058.55 due the Collector of Internal Revenue be deducted from the amount of
P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate, the
balance to be paid by the Government to her without further delay.

Issue:
Whether the tax and the debt may be compensated
Held:
Yes, the court having jurisdiction of the estate had found that the claim of the estate
against the Government has been recognized and an amount of P262,200 has already
been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under
the above circumstances, both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and
demandable is well as fully liquidated. Compensation, therefore, takes place by operation
of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and
both debts are extinguished to the concurrent amount. It is clear that the petitioner has
no clear right to execute the judgment for taxes against the estate of the deceased Walter
Scott Price.

Commissioner of Internal Revenue vs Algue

G.R. No. L-28896 February 17, 1988

Facts:

The Philippine Sugar Estate Development Company had earlier appointed Algue
Inc., as its agent, authorizing it to sell its land, factories and oil manufacturing process.As
such,the corporation worked for the formation of the Vegetable Oil Investment
Corporation, until they were able to purchase the PSEDC properties. For this sale, Algue
Inc., received as agent a commission of P126, 000.00, and it was from this commission
that the P75, 000.00 promotional fees were paid to Alberto Guevara, Jr., Eduardo
Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez. Commissioner of Internal
Revenue contends that the claimed deduction is not allowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen
it differently. Agreeing with Algue Inc., it held that the said amount had been legitimately
paid by the private respondent for actual services rendered. The payment was in the form
of promotional fees.

Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business
expenses in its income tax returns.
Held:

No, the private respondent has proved that the payment of the fees was necessary
and reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves
in a new business requiring millions of pesos. This was no mean feat and should be, as
it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government
would be paralyzed for lack of the motive power to activate and operate it. Hence, despite
the natural reluctance to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his share in the running of the
government. The government for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their
moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in
the seat of power.

National Power Corporation vs City of Cabanatuan

GR. No. 149110 April 9, 2003
Facts:

The petitioner is a government-owed and controlled corporation created under

Commonwealth Act 120. It is tasked to undertake the development of hydroelectric
generations of power and the production of electricity from nuclear, geothermal, and other
sources, as well as, the transmission of electric power on a nationwide basis. For many
years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92,
the respondent assessed the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the formers gross receipts for the preceding year. Petitioner,
whose capital stock was subscribed and wholly paid by the Philippine Government,
refused to pay the tax assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contend that as a non-profit
organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees in accordance with Sec. 13 of RA 6395, as amended. The respondent filed a
collection suit in the RTC of Cabanatuan City, demanding that petitioner pay the assessed
tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly interest.
Respondent alleged that petitioners exemption from local taxes has been repealed by
Sec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing
the case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered
the petitioner to pay the city government the tax assessment.

Issues:
1. Whether the NPC is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government and its charter
characterized is as a non-profit organization?
2. Whether the NPCs exemption from all forms of taxes is repealed by the provisions
of the Local Government Code
Held:
1. No, a franchise tax is imposed based not on the ownership but on the exercise by
the corporation of a privilege to do business. The taxable entity is the corporation
which exercises the franchise, and not the individual stockholders. By virtue of its
charter, petitioner was created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name, and can exercise all the
powers of a corporation under the Corporation Code.

2. Yes, One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the National Government from the
coverage of local taxation. Although as a general rule, LGUs cannot impose taxes,
fees, or charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e. when specific provisions
of the LGC authorize the LGUs to impose taxes, fees, or charges on the
aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed
under existing laws or charter is clearly manifested by the language used on Sec.
137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or
 privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been used.

Pablo Lorenzo vs Juan Posadas Jr.

G.R. No. L-43082 June 18, 1937
Facts:
One Thomas Hanley died in Zamboanga, Zamboanga, leaving a will and a
considerable amount of real and personal properties. During the incumbency of the
plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate
left by the deceased at the time of his death consisted of realty valued at P27,920 and
personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the
estate an inheritance tax in the amount of P1,434.24 together with the penalties which
amounted to P2,052.74. Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against
the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund
of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the
deceased. The defendant set up a counterclaim for P1,191.27 alleged to be interest due
on the tax in question and which was not included in the original assessment. The
properties under the will would be passed to Matthew Hanley after 10 years from the time
the executors were appointed trustee.

Issues:
1. When does the inheritance tax accrue and when must it be satisfied?
2. Should the inheritance tax be computed on the basis of the value at the time of
the testator's death or on its value ten years later?
3. In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees?
4. What law governs the case?
5. Has there been delinquency in the payment of the inheritance tax?

Held:
1. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of
that date. But it must be paid before the delivery of the properties in question to
PJM Moore as trustee on March 10, 1924.
 2. It should be computed at the time of the decedent's death, regardless of any
subsequent contingency value of any increase or decrease and notwithstanding
the postponement of the actual possession or enjoyment of the estate by the
beneficiary and the tax measured by the value of the property transmitted at that
time regardless of its appreciation or depreciation.

3. No. The compensation of a trustee, earned not in the administration of the estate,
but in the management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration expenses.

4. Act 3031 and not Act 3606 applies. Even if Act 3606 is more favorable to the
taxpayer, revenue laws, generally, which impose taxes collected by means
ordinarily resorted to for the collection of taxes are not classes as penal laws.

5. Yes. That taxes must be collected promptly is a policy deeply entrenched in our
tax system. Thus, no court is allowed to grant injunction to restrain the collection
of any internal revenue tax. The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or
exempt it from the payment of the inheritance tax.

Philippine Airlines, Inc. vs Romeo Edu

G.R. No. L- 41383 August 15, 1988

Facts:
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of
the Philippines and engaged in the air transportation business under a legislative
franchise. Under its franchise, PAL is exempt from the payment of taxes. Appellee
Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities,
among them PAL to pay motor vehicle registration fees. Despite PAL's protestations, the
appellee refused to register the appellant's motor vehicles unless the amounts imposed
were paid. The appellant thus paid, under protest, the amount of P19,529.75 as
registration fees of its motor vehicles. PAL then wrote a letter to Commissioner Edu
demanding a refund of the amounts paid invoking the ruling in Calalang v. Lorenzo, where
it was held that motor vehicle registration fees are in reality taxes from the payment of
which PAL is exempt by virtue of its legislative franchise. Appellee Edu denied the request
for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines,
Inc., to the effect that motor vehicle registration fees are regulatory exceptional and not
revenue measures which do not come within the exemption granted to PAL under the
legislative franchise. PAL filed with the CFI but the case was dismissed and the CA
certified the case to the SC
Issue: Whether the motor vehicle registration fees are considered taxes
Held: Yes, under the Land Transportation Code, which governs motor vehicle registration
fees, monies collected under the provisions of the Act shall be deposited in a special trust
account in the National Treasury to constitute the Highway Special Fund. It appears clear
from the provisions that the legislative intent and purpose behind the law requiring owners
of vehicles to pay for their registration is mainly to raise funds for the construction and
maintenance of highways and to a much lesser degree, pay for the operating expenses
of the administering agency. If the purpose is primarily revenue, or if revenue is, at least,
one of the real and substantial purposes, then the exaction is properly called a tax. Such
is the case of motor vehicle registration fees.

Tolentino vs Secretary of Finance

G.R. No. 115455 August 25, 1994 October 30, 1995

FACTS: Herein various petitioners seek to declare RA 7166 as unconstitutional as it

seeks to widen the tax base of the existing VAT system and enhance its administration
by amending the National Internal Revenue Code. The value-added tax (VAT) is levied
on the sale, barter or exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross selling price or gross value in
money of goods or properties sold, bartered or exchanged or of the gross receipts from
the sale or exchange of services.

CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that
taxes should be uniform and equitable and that Congress shall "evolve a progressive
system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing
contracts of the sale of real property by installment or on deferred payment basis would
result in substantial increases in the monthly amortizations to be paid because of the 10%
VAT. The additional amount, it is pointed out, is something that the buyer did not
anticipate at the time he entered into the contract.

It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as
the sale of agricultural products, food items, petroleum, and medical and veterinary
services, it grants no exemption on the sale of real property which is equally essential.
The sale of real property for socialized and low-cost housing is exempted from the tax,
but CREBA claims that real estate transactions of "the less poor," i.e., the middle class,
who are equally homeless, should likewise be exempted.
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates
Art. VI, Section 28(1) which provides that "The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation."

ISSUE: Whether or not RA 7166 violates the principle of progressive system of taxation.

HELD: No, there is no justification for passing upon the claims that the law also violates
the rule that taxation must be progressive and that it denies petitioners' right to due
process and that equal protection of the laws. The reason for this different treatment has
been cogently stated by an eminent authority on constitutional law thus: "When freedom
of the mind is imperiled by law, it is freedom that commands a momentum of respect;
when property is imperiled it is the lawmakers' judgment that commands respect. This
dual standard may not precisely reverse the presumption of constitutionality in civil
liberties cases, but obviously it does set up a hierarchy of values within the due process
clause."

Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption
goods of those who are in the higher-income bracket, which before were taxed at a rate
higher than 10%, has been reduced, while basic commodities, which before were taxed
at rates ranging from 3% to 5%, are now taxed at a higher rate.

Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed
by respondents that in fact it distributes the tax burden to as many goods and services as
possible particularly to those which are within the reach of higher-income groups, even
as the law exempts basic goods and services. It is thus equitable. The goods and
properties subject to the VAT are those used or consumed by higher-income groups.
These include real properties held primarily for sale to customers or held for lease in the
ordinary course of business, the right or privilege to use industrial, commercial or scientific
equipment, hotels, restaurants and similar places, tourist buses, and the like. On the other
hand, small business establishments, with annual gross sales of less than P500,000, are
exempted. This, according to respondents, removes from the coverage of the law some
30,000 business establishments. On the other hand, an occasional paper of the Center
for Research and Communication cities a NEDA study that the VAT has minimal impact
on inflation and income distribution and that while additional expenditure for the lowest
income class is only P301 or 1.49% a year, that for a family earning P500,000 a year or
more is P8,340 or 2.2%.

Lacking empirical data on which to base any conclusion regarding these arguments, any
discussion whether the VAT is regressive in the sense that it will hit the "poor" and middle-
income group in society harder than it will the "rich," is largely an academic exercise. On
the other hand, the CUP's contention that Congress' withdrawal of exemption of
producers cooperatives, marketing cooperatives, and service cooperatives, while
maintaining that granted to electric cooperatives, not only goes against the constitutional
policy to promote cooperatives as instruments of social justice (Art. XII, 15) but also
denies such cooperatives the equal protection of the law is actually a policy argument.
The legislature is not required to adhere to a policy of "all or none" in choosing the subject
of taxation. 44

Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA),
petitioner in G.R. 115754, that the VAT will reduce the mark up of its members by as
much as 85% to 90% any more concrete. It is a mere allegation. On the other hand, the
claim of the Philippine Press Institute, petitioner in G.R. No. 115544, that the VAT will
drive some of its members out of circulation because their profits from advertisements will
not be enough to pay for their tax liability, while purporting to be based on the financial
statements of the newspapers in question, still falls short of the establishment of facts by
evidence so necessary for adjudicating the question whether the tax is oppressive and
confiscatory.

Indeed, regressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation." This is
a directive to Congress, just like the directive to it to give priority to the enactment of laws
for the enhancement of human dignity and the reduction of social, economic and political
inequalities (Art. XIII, 1), or for the promotion of the right to "quality education" (Art. XIV,
1). These provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.

-0-

B. Claims of Regressivity, Denial of Due Process, Equal Protection, and Impairment of

Contracts

There is basis for passing upon claims that on its face the statute violates the guarantees
of freedom of speech, press and religion. The possible "chilling effect" which it may have
on the essential freedom of the mind and conscience and the need to assure that the
channels of communication are open and operating importunately demand the exercise
of this Court's power of review.

There is, however, no justification for passing upon the claims that the law also violates
the rule that taxation must be progressive and that it denies petitioners' right to due
process and that equal protection of the laws. The reason for this different treatment has
been cogently stated by an eminent authority on constitutional law thus: "[W]hen freedom
of the mind is imperiled by law, it is freedom that commands a momentum of respect;
when property is imperiled it is the lawmakers' judgment that commands respect. This
dual standard may not precisely reverse the presumption of constitutionality in civil
liberties cases, but obviously it does set up a hierarchy of values within the due process
clause."

Indeed, the absence of threat of immediate harm makes the need for judicial intervention
less evident and underscores the essential nature of petitioners' attack on the law on the
grounds of regressivity, denial of due process and equal protection and impairment of
contracts as a mere academic discussion of the merits of the law. For the fact is that there
have even been no notices of assessments issued to petitioners and no determinations
at the administrative levels of their claims so as to illuminate the actual operation of the
law and enable us to reach sound judgment regarding so fundamental questions as those
raised in these suits.

Thus, the broad argument against the VAT is that it is regressive and that it violates the
requirement that "The rule of taxation shall be uniform and equitable [and] Congress shall
evolve a progressive system of taxation." 42Petitioners in G.R. No. 115781 quote from a
paper, entitled "VAT Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan
A. Tait of the International Monetary Fund, that "VAT payment by low-income households
will be a higher proportion of their incomes (and expenditures) than payments by higher-
income households. That is, the VAT will be regressive." Petitioners contend that as a
result of the uniform 10% VAT, the tax on consumption goods of those who are in the
higher-income bracket, which before were taxed at a rate higher than 10%, has been
reduced, while basic commodities, which before were taxed at rates ranging from 3% to
5%, are now taxed at a higher rate.

Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed
by respondents that in fact it distributes the tax burden to as many goods and services as
possible particularly to those which are within the reach of higher-income groups, even
as the law exempts basic goods and services. It is thus equitable. The goods and
properties subject to the VAT are those used or consumed by higher-income groups.
These include real properties held primarily for sale to customers or held for lease in the
ordinary course of business, the right or privilege to use industrial, commercial or scientific
equipment, hotels, restaurants and similar places, tourist buses, and the like. On the other
hand, small business establishments, with annual gross sales of less than P500,000, are
exempted. This, according to respondents, removes from the coverage of the law some
30,000 business establishments. On the other hand, an occasional paper of the Center
for Research and Communication cities a NEDA study that the VAT has minimal impact
on inflation and income distribution and that while additional expenditure for the lowest
income class is only P301 or 1.49% a year, that for a family earning P500,000 a year or
more is P8,340 or 2.2%.

Lacking empirical data on which to base any conclusion regarding these arguments, any
discussion whether the VAT is regressive in the sense that it will hit the "poor" and middle-
income group in society harder than it will the "rich," as the Cooperative Union of the
Philippines (CUP) claims in G.R. No. 115873, is largely an academic exercise. On the
other hand, the CUP's contention that Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service cooperatives, while maintaining that
granted to electric cooperatives, not only goes against the constitutional policy to promote
cooperatives as instruments of social justice (Art. XII, 15) but also denies such
cooperatives the equal protection of the law is actually a policy argument. The legislature
is not required to adhere to a policy of "all or none" in choosing the subject of taxation.

Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA),
petitioner in G.R. 115754, that the VAT will reduce the mark up of its members by as
much as 85% to 90% any more concrete. It is a mere allegation. On the other hand, the
claim of the Philippine Press Institute, petitioner in G.R. No. 115544, that the VAT will
drive some of its members out of circulation because their profits from advertisements will
not be enough to pay for their tax liability, while purporting to be based on the financial
statements of the newspapers in question, still falls short of the establishment of facts by
evidence so necessary for adjudicating the question whether the tax is oppressive and
confiscatory.

Indeed, regressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation." This is
a directive to Congress, just like the directive to it to give priority to the enactment of laws
for the enhancement of human dignity and the reduction of social, economic and political
inequalities (Art. XIII, 1), or for the promotion of the right to "quality education" (Art. XIV,
1). These provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.
At all events, our 1988 decision in Kapatiran should have laid to rest the questions now
raised against the VAT. There similar arguments made against the original VAT Law
(Executive Order No. 273) were held to be hypothetical, with no more basis than
newspaper articles which this Court found to be "hearsay and [without] evidentiary value."
As Republic Act No. 7716 merely expands the base of the VAT system and its coverage
as provided in the original VAT Law, further debate on the desirability and wisdom of the
law should have shifted to Congress.

Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that
the imposition of the VAT on the sales and leases of real estate by virtue of contracts
entered into prior to the effectivity of the law would violate the constitutional provision that
"No law impairing the obligation of contracts shall be passed." It is enough to say that the
parties to a contract cannot, through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are existing laws read into contracts
in order to fix obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal order. The
policy of protecting contracts against impairment presupposes the maintenance of a
government which retains adequate authority to secure the peace and good order of
society.

In truth, the Contract Clause has never been thought as a limitation on the exercise of the
State's power of taxation save only where a tax exemption has been granted for a valid
consideration. Such is not the case of PAL in G.R. No. 115852, and we do not understand
it to make this claim. Rather, its position, as discussed above, is that the removal of its
tax exemption cannot be made by a general, but only by a specific, law.

The substantive issues raised in some of the cases are presented in abstract, hypothetical
form because of the lack of a concrete record. We accept that this Court does not only
adjudicate private cases; that public actions by "non-Hohfeldian" 48 or ideological plaintiffs
are now cognizable provided they meet the standing requirement of the Constitution; that
under Art. VIII, 1, 2 the Court has a "special function" of vindicating constitutional
rights. Nonetheless the feeling cannot be escaped that we do not have before us in these
cases a fully developed factual record that alone can impart to our adjudication the impact
of actuality 49 to insure that decision-making is informed and well grounded. Needless to
say, we do not have power to render advisory opinions or even jurisdiction over petitions
for declaratory judgment. In effect we are being asked to do what the Conference
Committee is precisely accused of having done in these cases to sit as a third
legislative chamber to review legislation.

We are told, however, that the power of judicial review is not so much power as it is duty
imposed on this Court by the Constitution and that we would be remiss in the performance
of that duty if we decline to look behind the barriers set by the principle of separation of
powers. Art. VIII, 1, 2 is cited in support of this view:
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.

To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said
so in 1803, to justify the assertion of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial department to say
what the law is. Those who apply the rule to particular cases must of
necessity expound and interpret that rule. If two laws conflict with each
other, the courts must decide on the operation of each. 50

Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:

And when the judiciary mediates to allocate constitutional boundaries, it
does not assert any superiority over the other departments; it does not in
reality nullify or invalidate an act of the legislature, but only asserts the
solemn and sacred obligation assigned to it by the Constitution to determine
conflicting claims of authority under the Constitution and to establish for the
parties in an actual controversy the rights which that instrument secures and
guarantees to them. 51

This conception of the judicial power has been affirmed in several cases 52 of this Court
following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention
in what is essentially a case that at best is not ripe for adjudication. That duty must still
be performed in the context of a concrete case or controversy, as Art. VIII, 5(2) clearly
defines our jurisdiction in terms of "cases," and nothing but "cases." That the other
departments of the government may have committed a grave abuse of discretion is not
an independent ground for exercising our power. Disregard of the essential limits imposed
by the case and controversy requirement can in the long run only result in undermining
our authority as a court of law. For, as judges, what we are called upon to render is
judgment according to law, not according to what may appear to be the opinion of the
day.
 _______________________________
In the preceeding pages we have endeavored to discuss, within limits, the validity of
Republic Act No. 7716 in its formal and substantive aspects as this has been raised in
the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied with by
Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes
beyond those prescribed by the Constitution have been observed is precluded by the
principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor
interfere with the free exercise of religion, nor deny to any of the parties the right to an
education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law is
regressive, oppressive and confiscatory and that it violates vested rights protected under
the Contract Clause are prematurely raised and do not justify the grant of prospective
relief by writ of prohibition.

Osmena vs Orbos

G.R. No. 99886 March 31, 1993

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 establishments 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: Whether there is an undue delegation of the legislative power of taxation?

HELD: No. 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. It is levied with a regulatory
purpose, to provide a means for the stabilization of the petroleum products industry. The
levy is primarily 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.

Caltex vs Commissioner on Audit

208 SCRA 755
Facts:
The COA sent a letter to Caltex Philippines, Inc. directing the latter to remit to the
Oil Price Stabilization Fund (OPSF) its collection, excluding that unremitted for the years
1986 and 1988, of the additional tax on petroleum products authorized under the
aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to
P335,037,649.00 and informing it that, pending such remittance, all of its claims for
reimbursement from the OPSF shall be held in abeyance. The COA sent another letter to
petitioner informing it that partial verification with the Office of Energy Affairs (OEA)
showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, directing it to remit the same, with interest and surcharges, advising
it that the COA will hold in abeyance the audit of all its claims for reimbursement from the
OPSF; and directing it to desist from further offsetting the taxes collected against
outstanding claims in 1989 and subsequent periods. Petitioner requested the COA for an
early release of its reimbursement certificates from the OPSF covering claims with the
Office of Energy Affairs since June 1987 up to March 1989, invoking in support thereof
COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national
government agencies and government-owned or controlled corporations. Such request
was denied by COA. Petitioner submitted to the COA a proposal for the payment of the
collections and the recovery of claims, since the outright payment of the sum of P1.287
billion to the OEA as a prerequisite for the processing of said claims against the OPSF
will cause a very serious impairment of its cash position.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against Caltexs
outstanding claims from said funds

RULING:
No. Taxation is no longer envisioned as a measure merely to raise revenue to support
the existence of government. Taxes may be levied with a regulatory purpose to provide
means for the rehabilitation and stabilization of a threatened industry which is affected
with public interest as to be within the police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation.
A taxpayer may not offset taxes due from the claims he may have against the government.
Taxes cannot be subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt,
demand,, contract or judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltexs claim for reimbursement of
underrecovery arising from sales to the National Power Corporation is allowed.

Esso Standard Eastern vs Commissioner of Internal Revenue

178 SCRA 236
Facts: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from
its gross income for 1959, as part of its ordinary and necessary business expenses, the
amount it had spent for drilling and exploration of its petroleum concessions. This claim
was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the
expenses should be capitalized and might be written off as a loss only when a "dry hole"
should result. Esso then filed an amended return where it asked for the refund of
P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also
claimed as ordinary and necessary expenses in the same return was the amount of
P340,822.04, representing margin fees it had paid to the Central Bank on its profit
remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the
claimed deduction for the margin fees paid on the ground that the margin fees paid to the
Central Bank could not be considered taxes or allowed as deductible business expenses.

Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had
earlier paid contending that the margin fees were deductible from gross income either as
a tax or as an ordinary and necessary business expense. However, Essos appeal was
denied.

Issues:
(1) Whether or not the margin fees are taxes.

(2) Whether or not the margin fees are necessary and ordinary business expenses.

Held:
(1) No. A tax is levied to provide revenue for government operations, while
the proceeds of the margin fee are applied to strengthen our country's international
reserves. The margin fee was imposed by the State in the exercise of its police power
and not the power of taxation.
(2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is
appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when
it connotes a payment which is normal in relation to the business of the taxpayer and the
surrounding circumstances. Since the margin fees in question were incurred for the
remittance of funds to Esso's Head Office in New York, which is a separate and distinct
income taxpayer from thebranch in the Philippines, for its disposal abroad, it can never
be said therefore that the margin fees were appropriate and helpful in the development
of Esso's business in the Philippines exclusively or were incurred for purposes proper to
the conduct of the affairs of Esso's branch in the Philippines exclusively or for the purpose
of realizing a profit or of minimizing a loss in the Philippines exclusively. If at all, the margin
fees were incurred for purposes proper to the conduct of the corporate affairs of Esso in
New York, but certainly not in the Philippines.

Maceda vs Macaraig

G.R. No. 88291 June 8, 1993

FACTS:

A Chronological review of the relevant NPC laws, especially with respect to its tax
exemption provisions, at the risk of being repetitious is, therefore, in order.
Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the
development of hydraulic power and the production of power from other sources. On
June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the
Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment
of any and all NPC loans. He was also authorized to contract on behalf of the NPC with
the International Bank for Reconstruction and Development (IBRD) for NPC loans for the
accomplishment of NPC's corporate objectives and for the reconstruction and
development of the economy of the country. It was expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines, its provinces, cities and
municipalities. On the same date, R.A. No. 358 was enacted expressly authorizing the
NPC, for the first time, to incur other types of indebtedness, aside from indebtedness
incurred by flotation of bonds. As to the pertinent tax exemption provision, the law stated
as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt
from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities. On June 2, 1954, R.A. No. 987 was
enacted specifically to withdraw NPC's tax exemption for real estate taxes. On September
10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as
amended. A new section was added to the charter, now known as Section 13, R.A. No.
6395, which declares the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital
investment, as well as excess revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act, the Corporation is
hereby declared exempt: library

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees
in any court or administrative proceedings in which it may be a party, restrictions and
duties to the Republic of the Philippines, its provinces, cities, and municipalities and other
government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities; virtual law library

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage
fees on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and sale of
electric power. On January 22, 1974, P.D. No. 380 was issued giving extra powers to the
NPC to enable it to fulfill its role under aforesaid P.D. No. 40. PD 380 (1974) specified
that NAPOCORs exemption includes all taxes, etc. imposed directly or indirectly. PD
938 integrated the exemptions in favor of GOCCs including their subsidiaries; however,
empowering the President or the Minister of Finance, upon recommendation of the Fiscal
Incentives Review Board (FIRB) to restore, partially or completely, the exemptions
withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985) restoring the
duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June
1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1
July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87
(24 June 1987) restoring NAPOCORs exemption, which was approved by the President
on 5 October 1987.

Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad
valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR
claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was
approved and released by way of a tax credit memo. The claim for refund of taxes paid
by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR
moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR
are tax exempt, regardless of the period of delivery.

ISSUES:
 1. Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938
stated the exemption in general terms
2. Whether or not oil companies have to absorb the taxes they add to the bunker fuel
oil they sell to NPC in view of the indirect tax exemption of the NAPOCOR

RULING:

1. Yes, it should be noted that section 13, R.A. No. 6395, provided for tax exemptions
for the following items:

13(a) : court or administrative proceedings; chanrobles virtual law library

13(b) : income, franchise, realty taxes; chanrobles virtual law library

13(c) : import of foreign goods required for its operations and projects; chanrobles virtual
law library

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES,
ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as
qualified for tax exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order
of enactment or issuance as narrated above. President Marcos must have considered all
the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No.
395 and P.D. No. 759, AND came up with a very simple Section 13, R.A. No. 6395, as
amended by P.D. No. 938. virtual law library

One common theme in all these laws is that the NPC must be enable to pay its
indebtedness which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness,
at any one time, and U$4 Billion in total foreign loans at any one time. The NPC must be
and has to be exempt from all forms of taxes if this goal is to be achieved. l law library

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395 and further
amended by P.D. No. 380 which provides: The loans, credits and indebtedness
contracted this subsection and the payment of the principal, interest and other charges
thereon, as well as the importation of machinery, equipment, materials, supplies and
services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all direct and indirect taxes, fees,
imposts, other charges and restrictions, including import restrictions previously and
presently imposed, and to be imposed by the Republic of the Philippines, or any of its
agencies and political subdivisions.

P.D. No. 938 did not amend the same and so the tax exemption provision in Section 8
(b), R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of
this particular Section 8 (b) had to do only with loans and machinery imported, paid for
from the proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT MATTER
TO LUMP IT UP WITH, and so, the tax exemption stood as is - with the express mention
of "direct and indirect" tax exemptions. And this "direct and indirect" tax exemption
privilege extended to "taxes, fees, imposts, other charges . . . to be imposed" in the future
- surely, an indication that the lawmakers wanted the NPC to be exempt from ALL FORMS
of taxes - direct and indirect. virtual law library

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both
direct and indirect taxes under P.D. No. 938.

2. On the second issue, according to the Court, tax exemptions are undoubtedly to
be construed strictly but not so grudgingly as knowledge that many impositions
taxpayers have to pay are in the nature of indirect taxes. To limit the exemption
granted the National Power Corporation to direct taxes notwithstanding the general
and broad language of the statue will be to thwart the legislative intention in giving
exemption from all forms of taxes and impositions without distinguishing between
those that are direct and those that are not. (Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which
supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil
sold to NPC. By the very nature of indirect taxation, the economic burden of such taxation
is expected to be passed on through the channels of commerce to the user or consumer
of the goods sold. Because, however, the NPC has been exempted from both direct and
indirect taxation, the NPC must beheld exempted from absorbing the economic burden
of indirect taxation. This means, on the one hand, that the oil companies which wish to
sell to NPC absorb all or part of the economic burden of the taxes previously paid to BIR,
which could they shift to NPC if NPC did not enjoy exemption from indirect taxes. This
means also, on the other hand, that the NPC may refuse to pay the part of the "normal"
purchase price of bunker fuel oil which represents all or part of the taxes previously paid
by the oil companies to BIR. If NPC nonetheless purchases such oil from the oil
companies - because to do so may be more convenient and ultimately less costly for NPC
than NPC itself importing and hauling and storing the oil from overseas - NPC is entitled
to be reimbursed by the BIR for that part of the buying price of NPC which verifiably
represents the tax already paid by the oil company-vendor to the BIR. virtual law library

Commissioner of Internal Revenue vs John Gotamco

G.R. No. L-31092 February 27, 1987

Facts: The World Health Organization (WHO for short) is an international organization
which has a regional office in Manila. An agreement was entered into between
the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of
that Agreement provides, inter alia, that "the Organization, its assets, income and other
properties shall be: (a) exempt from all direct andindirect taxes. The WHO decided to
construct a building to house its own offices, as well as the other United Nations offices
stationed in Manila. A bidding was held for the building construction. The WHO informed
the bidders that the building to be constructed belonged to an international organization
exempted from the payment of all fees, licenses, and taxes, and that therefore
their bids"must take this into account and should not include items for such taxes, licenses
and other payments to Government agencies." Thereafter, the construction contract was
awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the
Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding
payment of for the 3% contractor's tax plus surcharges on the gross receipts it received
from the WHO in the construction of the latter's building. WHO. The WHO issued a
certification that the bid of John Gotamco & Sons, should be exempted from any taxes in
connection with the construction of the World Health Organization office buildingbecause
such can be considered as an indirect tax to WHO. However, The Commissioner of
Internal Revenue contends that the 3% contractor's tax is not a direct nor an indirect
tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered
by the tax exemption agreement

Issue: Whether or not the said 3% contractors tax imposed upon petitioner is covered by
the direct and indirect tax exemption granted to WHO by the government.

Held: Yes. The 3% contractors tax imposed upon petitioner is covered by the
direct and indirect tax exemption granted to WHO. Hence, petitioner cannot be held
liable for such contractors tax. The Supreme Court explained that direct taxes are those
that are demanded from the very person who, it is intended or desired, should pay them;
while indirect taxes are those that are demanded in the first instance from one person in
the expectation and intention that he can shift the burden to someone else. While it is true
that the contractor's tax is payable by the contractor, However in the last analysis it is the
owner of the building that shoulders the burden of the tax because the same is shifted by
the contractor to the owner as a matter of self-preservation. Thus, it is an indirect
tax against the WHO because, although it is payable by the petitioner, the latter can
shift its burden on the WHO.

G.R. No. 173594 February 6, 2008

SILKAIR (SINGAPORE) PTE, LTD., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

Facts:
Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the
laws of Singapore which has a Philippine representative office, is an online international
air carrier operating the Singapore-Cebu-Davao-Singapore routes. Silkair filed with the
Bureau of Internal Revenue (BIR) a written application for the refund of P4,567,450.79
excise taxes it claimed to have paid on its purchases of jet fuel from Petron Corporation
from January to June 2000. As the BIR had not yet acted on the application as of
December 26, 2001, Silkair filed a Petition for Review before the CTA. Respondent
Commissioner on Internal Revenue (CIR) alleged in his Answer that petitioner failed to
prove that the sale of the petroleum products was directly made from a domestic oil
company to the international carrier. The excise tax on petroleum products is the direct
liability of the manufacturer/producer, and when added to the cost of the goods sold to
the buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain
the article. The CTA denied Silkairs petition on the ground that as the excise tax was
imposed on Petron Corporation as the manufacturer of petroleum products, any claim for
refund should be filed by the latter; and where the burden of tax is shifted to the purchaser,
the amount passed on to it is no longer a tax but becomes an added cost of the goods
purchased.

Issues:
1. WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY TO CLAIM
FOR REFUND OR TAX CREDIT
2. Whether petitioner is exempt from indirect taxes
Held:
1. No, the proper party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "unless otherwise specifically allowed, the return shall be filed and
the excise tax paid by the manufacturer or producer before removal of domestic
products from place of production." Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and
Singapore. Even if Petron Corporation passed on to Silkair the burden of the tax,
the additional amount billed to Silkair for jet fuel is not a tax but part of the price
which Silkair had to pay as a purchaser.

2. No, Silkair argues that it is exempt from indirect taxes because the Air Transport
Agreement between RP and Singapore grants exemption "from the same customs
duties, inspection fees and other duties or taxes imposed in the territory of the first
Contracting Party. The exemption granted under Section 135 (b) of the NIRC of
1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore
cannot, without a clear showing of legislative intent, be construed as including
indirect taxes. Statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority, and if an
exemption is found to exist, it must not be enlarged by construction.
Commissioner of Internal Revenue vs CA

G.R. No. 104151 March 10, 1995

FACTS: The Commissioner of Internal Revenue served two notices and demand for
payment of the respective deficiency ad valorem and buiness taxes for taxable years
1975 and 1976 against the respondent Atlas Consolidated Mining and Development
Corporation (ACMDC). The latter protested both assessments but the same were denied,
hence it filed two separate petitions for review in the Court of Tax Appeals. The CTA
rendered a consolidated decision holding, inter alia, that ACMDC was not liable for
deficiency ad valorem taxes on copper and silver for 1975 and 1976 thereby effectively
sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral,
the refining and smelting charges should be deducted, in addition to freight and insurance
charges.
However, the tax court held ACMDC liable for the amount consisting of 25% surcharge
for late payment of the ad valorem tax and late filing of notice of removal of silver, gold
and pyrite extracted during certain periods, and for alleged deficiency manufacturer's
sales tax and such contractor's tax for leasing out of its personal properties. ACDMC
elevated the matter to the Supreme Court claiming that the leasing out was a mere
isolated transaction, hence should not be subjected to contractor's tax.

ISSUE: Is the claim of the private respondent, with respect to the contractor's tax,
impressed with merit?

HELD: No. It is being held that ACMDC was not a manufacturer subject to the percentage
tax imposed by Section 186 of the tax code. However such conclusion cannot be made
with respect to the contractor's tax being imposed on ACMDC. It cannot validly claim that
the leasing out of its personal properties was merely an isolated transaction. Its book of
accounts shows that several distinct payments were made for the use of its personal
properties such as its plane, motor boat and dump truck. The series of transactions
engaged in by ACMDC for the lease of its aforesaid properties could also be deduced
from the fact that during the period there were profits earned and reported therefor. The
allegation of ACMDC that it did not realize any profit from the leasing out of its said
personal properties, since its income therefrom covered only the costs of operation such
as salaries and fuel, is not supported by any documentary or substantial evidence.
Assessments are prima facie presumed correct and made in good faith. Contrary to
the theory of ACMDC, it is the taxpayer and not the BIR who has the duty of proving
otherwise. It is an elementary rule that in the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. All presumptions are
in favor of tax assessments. Verily, failure to present proof of error in assessments will
justify judicial affirmance of said assessment.
G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA vs. CITY OF ILOILO

Facts:

The municipal board of Iloilo City enacted Ordinance 86 imposing license tax fees
on the tenement house (casa de vecindad), P25.00 annually, tenement house, partly or
wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and
Aldeguer, P24.00 per apartment, tenement house, partly or wholly engaged in business
in any other streets, P12.00 per apartment. The validity of such ordinance was challenged
by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four
tenement houses containing 34 apartments. The court declared the ordinance ultra vires,
"it not appearing that the power to tax owners of tenement houses is one among those
clearly and expressly granted to the City of Iloilo by its Charter." The municipal board of
Iloilo City believed that with the passage of Republic Act 2264, otherwise known as the
Local Autonomy Act, it had acquired the authority or power to enact an ordinance
previously declared ultra vires by the court. By virtue of the ordinance in question, the
appellant City collected from the appellees. The plaintiffs-appellees filed a complaint
praying that Ordinance be declared "invalid for being beyond the powers of the Municipal
Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as
to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of
the Constitution," and that the City be ordered to refund the amounts collected from them
under the said ordinance. The lower court rendered judgment declaring the ordinance
illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose
apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it
penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only
double taxation, but treble at that and (d) it violates the rule of uniformity of taxation.

Issues:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a

penal clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

Held:
1. No, while it is true that the plaintiffs-appellees are taxable under the aforesaid
provisions of the National Internal Revenue Code as real estate dealers, and still
taxable under the ordinance in question, the argument against double taxation may
not be invoked. The same tax may be imposed by the national government as well
as by the local government. There is nothing inherently obnoxious in the exaction
of license fees or taxes with respect to the same occupation, calling or activity by
both the State and a political subdivision thereof. At all events, there is no
constitutional prohibition against double taxation in the Philippines. It is something
not favored, but is permissible, provided some other constitutional requirement is
not thereby violated, such as the requirement that taxes must be uniform.

2. Yes, Republic Act 2264 confer on local governments broad taxing authority which
extends to almost "everything, excepting those which are mentioned therein,"
provided that the tax so levied is "for public purposes, just and uniform," and does
not transgress any constitutional provision or is not repugnant to a controlling
statute. Thus, when a tax, levied under the authority of a city or municipal
ordinance, is not within the exceptions and limitations aforementioned, the same
comes within the ambit of the general rule, pursuant to the rules of expressio unius
est exclusio alterius, and exceptio firmat regulum in casibus non excepti. The
imposition by the ordinance of a license tax on persons engaged in the business
of operating tenement houses finds authority in section 2 of the Local Autonomy
Act which provides that chartered cities have the authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges within their respective territories, and "otherwise to levy for
public purposes, just and uniform taxes, licenses, or fees."

3. No, the tax in question is not oppressive. The charter of Iloilo City empowers its
municipal board to "fix penalties for violations of ordinances, which shall not
exceed a fine of two hundred pesos or six months' imprisonment, or both such fine
and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila,
supra, this Court overruled the pronouncement of the lower court declaring illegal
and void an ordinance imposing an occupation tax on persons exercising various
professions in the City of Manila because it imposed a penalty of fine and
imprisonment for its violation.

4. No. The Court has ruled the tenement houses constitute a distinct class of property
and that taxes are uniform and equal when imposed upon all property of the same
class or character within the taxing authority.
The fact that the owners of the other classes of buildings in Iloilo are not imposed
upon by the ordinance, or that tenement taxes are imposed in other cities do not
violate the rule of equality and uniformity. The rule does not require that taxes for
the same purpose should be imposed in different territorial subdivisions at the
same time. So long as the burden of tax falls equally and impartially on all owners
or operators of tenement houses similarly classified or situated, equality and
uniformity is accomplished. The presumption that tax statutes are intended to
operate uniformly and equally was not overthrown therein.
Allied Banking Corporation vs The Quezon City Government

G.R. No. 154126 September 15, 2006

Facts:

Petitioner filed a motion for clarification of the decision the Supreme Court which declared
as invalid the third sentence of Section 3, Quezon City Ordinance No. 357 Series of 1995
for adopting a method of assessment or appraisal of real property contrary to the Local
Government Code and its Implementing Rules and Regulations and the Local
Assessment Regulations No. 1-92 issued by the Department of Finance. Petitioner
contends in its motion for clarification that the return of the real property tax erroneously
collected and paid is a necessary consequence of this Court's finding that the proviso is
invalid, hence, there is no need to claim for a refund with the Local Board of Assessment
Appeals. Prior to the filing before the trial court of the petition for declaration of nullity of
the proviso, petitioner commenced a claim for refund with the City Treasurer who referred
it to the City Assessor. The City Assessor denied petitioner's claim for refund and such is
presumed valid and legal unless declared otherwise by a court of competent jurisdiction.

Issue:

Whether the petitioner is entitled to a tax refund

Held:

Yes, the Court ruled that the assailed proviso is null and void ab initio for being ultra
vires and for contravening the provisions of the Local Government Code and its
Implementing Rules and Regulations and Local Assessment Regulations No. 1-92 and,
as such, it acquired no legal effect and conferred no rights from its inception. Clearly,
petitioner and all those similarly situated are entitled to a tax refund/credit corresponding
to the difference between the assessed value based on the proviso and the assessed
value based on the then prevailing schedule of fair market values prepared by the City
Assessor. However, that entitlement to a tax refund does not necessarily call for the
automatic payment of the sum claimed. The amount of the claim being a factual matter,
it must still be proven in the normal course and in accordance with the administrative
procedure for obtaining a refund of real property taxes, as provided under the Local
Government Code, which states that the claim for refund or credit for taxes must be filed
before the city treasurer who shall decide the claim based on the tax declarations,
affidavits, documents and other documentary evidence to be presented by petitioner.
CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.), Petitioner,
vs.
BASES CONVERSION DEVELOPMENT AUTHORITY

G.R. No. 173863 September 15, 2010

Facts:

The Board of Directors of respondent Clark Development Corporation (CDC) issued and
approved Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark
Special Economic Zone (CSEZ) which provided for fees and charges. The policy
guidelines were sent to petitioner Chevron informing the petitioner that a royalty fee of
0.50 per liter shall be assessed on its deliveries to Nanox Philippines. Petitioner
protested to the assessment for royalty fees claiming that nothing in the law authorizes
CDC to impose royalty fees or any fees based on a per unit measurement of any
commodity sold within the special economic zone. Petitioner nevertheless paid the fees
under protest. Petitioner elevated its protest before respondent Bases Conversion
Development Authority (BCDA) arguing that the royalty fees imposed had no reasonable
relation to the probable expenses of regulation and that the imposition on a per unit
measurement of fuel sales was for a revenue generating purpose, thus, akin to a "tax".
The protest was however denied by BCDA. Petitioner appealed to the Office of the
President, which was dismissed and thereafter to the CA, which was also dismissed. The
CA held that in imposing the challenged royalty fees, respondent CDC was exercising its
right to regulate the flow of fuel into CSEZ. The fact that revenue is incidentally also
obtained does not make the imposition a tax as long as the primary purpose of such
imposition is regulation.

Issue:

Whether CDC can impose royalty fees on sale of fuel inside the CSEZ

Held:

Yes, the purpose of the royalty fees is to regulate the flow of fuel to and from the CSEZ.
Such being its main purpose, and revenue is just an incidental product, the imposition
cannot be considered a tax. It is their position that the regulation is a valid exercise of
police power since it is aimed at promoting the general welfare of the public. Being the
administrator of the CSEZ, CDC is responsible for the safe distribution of fuel products
inside the CSEZ. In distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If the purpose is primarily
to raise revenue, then it will be deemed a tax even though the measure results in some
form of regulation. On the other hand, if the purpose is primarily to regulate, then it is
deemed a regulation and an exercise of the police power of the state, even though
incidentally, revenue is generated. In the case at bar, the royalty fee was imposed
primarily for regulatory purposes, and not for the generation of income or profits.
Commissioner of Internal Revenue vs Kudos Metal Corporation

GR. No. 178087 May 5, 2010

Facts:

In April 1999, Kudos Metal Corporation (KMC) filed its annual income tax return (ITR). In
September 1999, the Bureau of Internal Revenue (BIR) advised KMC that it will be
subjected to a tax audit. In September 2000, a subpoena duces tecum was issued against
KMC but the latter failed to comply. In December 2001, about 4 months before the
expiration of the government to make an assessment (April 2002), Nelia Pasco,
accountant of KMC, executed a waiver of the statute of limitations (SOL) in favor of BIR.
A tax audit then ensued. In February 2003, another such waiver was executed by Pasco.
The audit continued. Finally, in September 2003 more than three years from the filing
of KMC of its ITR, a formal assessment notice (FAN) was issued by the Commissioner of
Internal Revenue (CIR) demanding KMC to pay P25 million in taxes.
KMC protested the FAN on the ground that it was issued beyond the prescriptive period;
that it was issued beyond the prescriptive period because there was no valid waiver of
the SOL (in particular, the first waiver) because Pasco was not authorized by KMC to
execute the same; that even if Pasco is authorized, the same is still void because it did
not indicate the acceptance date of the BIR; that a copy of the waiver was not furnished
to KMC.
The CIR argued that KMC is already in estoppel because it acquiesced or it allowed the
audit conducted by the BIR after the two waivers executed by Pasco.
ISSUE: Whether or not KMC is in estoppels.
HELD: No. Apparently, Pasco was not authorized by KMC to execute the waiver. Even if
KMC allowed the subsequent tax audit after such waiver it did not bar KMC to raise the
issue of prescription. This is reinforced by the fact that the waiver is infirm because of the
lack of the date of acceptance as well as the fact that a copy thereof was not furnished to
KMC. These two are among the requirements provided for by Section 222 of the National
Internal Revenue Code (NIRC) as to a valid waiver of the SOL. The provisions in Section
222 of NIRC provides for a detailed procedure that must be strictly followed by the BIR in
order that the taxpayer will have a valid waiver. The BIR cannot now hide behind the
doctrine of estoppel to cover its failure to comply with the law.

Francisco Chavez vs Jaime Ongpin

G.R. No. 76778 June 6, 1990

Facts:
Petitioner Francisco Chavez is a taxpayer and an wner of 3 parcels of land. He alleges
that Executive Order No. 73 accelerated the application of the general revision of
assessments to January 1, 1987 thereby mandating an excessive increase in real
property taxes by 100% to 400% on improvements, and up to 100% on land; that any
increase in the value of real property brought about by the revision of real property values
and assessments would necessarily lead to a proportionate increase in real property
taxes; that sheer oppression is the result of increasing real property taxes at a period of
time when harsh economic conditions prevail; and that the increase in the market values
of real property as reflected in the schedule of values was brought about only by inflation
and economic recession. The intervenor Realty Owners Association of the Philippines,
Inc. (ROAP), which is the national association of owners-lessors, joins Chavez in his
petition to declare unconstitutional Executive Order No. 73. Petitioner Chavez and
intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the
revision of the assessments and the effectivity thereof are concerned.

Issue: Whether E.O 73 is constitutional

Held:

Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978
revision of property values. Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the increases in the value of real
properties that have occurred since then is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that
sources of revenue must be adequate to meet government expenditures and their
variations.

TAGANITO MINING CORPORATION VS. COMMISSIONER

CTA Case No. 4702 April 28, 1995

FACTS
Taganito Mining Corporation (TMC) is a domestic corporation expressly granted a permit
by the government via an operating contract to explore, develop and utilize mineral
deposits found in a specified portion of a mineral reservation area located in Surigao del
Norte and owned by the government. In exchange, TMC is obliged to pay royalty to the
government over and above other taxes. During July to December 1989, TMC removed,
shipped and sold substantial quantities of Beneficiated Nickel Silicate ore and chromite
ore and paid excise taxes in the amount of Php6,277,993.65 in compliance with
Sec.151(3) of the Tax Code. The 5% excise tax was based on the amount and weight
shown in the provisional invoice issued by TMC. The metallic minerals are then shipped
abroad to Japanese buyers where the minerals were analyzed allegedly by independent
surveyors upon unloading at its port of destination. Analysis abroad would oftentimes
reveal a different value for the metallic minerals from that indicated in the
temporary/provisional invoice submitted by TMC. Variance is in the market values in the
provisional invoice and that indicated in the final calculation sheet presented by the
buyers. Variances occur in the weight of the shipment or the price of the metallic minerals
per kilogram and sometimes in their metallic content resulting in discrepancies in the total
selling price. It is always the price indicated in the final invoice that is determinative of the
amount that the buyers will eventually pay TMC. TMC had no quarrel with the price they
would receive from the clients for the metallic minerals sold, but claims that there has
been overpayment of excise taxes already paid to the government declaring that the 5%
excise tax were based on the amount indicated in the provisional invoice, and if the excise
tax would be based on the final invoice, they would be paying less.
TMCs contention: TMC is entitled to a refund because the actual market value that
should be made the basis of the taxes is the amount specified in the independent surveyor
abroad
Commissioner defense: (1) claim for refund is subject pending administrative
investigation; (2) tax was collected in accordance with law; (3) burden of proof is upon the
taxpayer to establish the right to refund;(4) mere allegations of refundability do not ipso
facto merit refund claimed; (5) claims for refund of taxes are construed strictly against
claimant, it being in the nature of an exemption; (6) TMCs right to claim for
refund is already barred after failing to file it within the 2 year prescriptive period, which
should be counted from the time specified by law for payment and not on the date of
actual payment.
ISSUE:
1. WON TMC is entitled to refund
2. WON the actual market value that should be used should be the market value after the
assessment abroad was conducted
HELD:
1. NO. Tax refund partake of the nature of an exemption, and as such, tax exemption
cannot be allowed unless granted in the most explicit and categorical language. Taxes
are what we pay for civilized society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it.
2. NO. use market value right after removal from the bed or mines. Sec. 151(3) of the Tax
Code1: on all metallic minerals, a tax of five percent (5%) based on the actual market
value of the gross output thereof at the time of removal, in the case of those locally
extracted or produced: or the value used by the Bureau of Customs in determining tariff
and customs duties, net of excise tax and value-added tax, in case of importation. The
law refers to the actual market value of the minerals at the time these minerals were
moved away from the position it occupied, i.e. Philippine valuation and analysis because
it is in this country where these minerals were extracted, removed and eventually shipped
abroad. To reckon the actual market value at the time of removal is also consistent with
the essence of an excise tax. It is a charge upon the privilege of severing or extracting
minerals from the earth, and is due and payable upon removal of the mineral products
from its bed or mines (Republic Cement vs. Comm, 23 SCRA 967). The law is clear. It
does not speak of actual market value at the time the mineral products are unloaded at
the country of destination neither does it speak of the selling price as the basis of the
excise tax. The law even requires payment of excise taxes upon the removal of the
mineral product or quarry resources from the locality where mined or upon removal from
customs custody in the case of importations (Sec. 151 of
the Tax Code). It would then necessitate an analysis of these metallic minerals upon its
removal to be able to accomplish the payment of excise taxes as required by law.
Furthermore, it would be impossible for one to comply with the date prescribed by law for
payment of excise taxes if one has to wait for the final analysis to be done in the country
where it is to be shipped and certainly impractical. This set-up established by the
petitioner is contrary to the principle of administrative feasibility which is one of the basic
principles of a sound tax system. Tax laws should be capable of convenient, just and
effective administration which is why it fixes a standard or a uniform tax base upon which
taxes should be paid. In the case of excise taxes on mineral and mineral products, the
basis provided by law is the actual market value of these minerals at the time of removal.
Roxas vs CTA

G.R. No. L-25043 April 26, 1968

Facts:

Don Pedro Roxas and Dona Carmen Ayala transmitted to their grandchildren by
hereditary succession agricultural lands, a residential house, and shares of stocks of
different corporations. The grandchildren formed a partnership named Roxas y Cia to
manage such properties. The Commissioner of Internal Revenue demanded from Roxas
y Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus
P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities
for 1952 plus P10.00 compromise penalty for late payment. The assessment for real
estate dealer's tax was based on the fact that Roxas y Cia. received house rentals from
Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner
of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00
or more is considered a real estate dealer and is liable to pay the corresponding fixed tax.
In the same assessment, the Commissioner assessed deficiency income taxes resulting
from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for
1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants. The Roxas
brothers protested the assessment but such assessment was denied. They appealed to
the Court of Tax Appeals and such assessment was sustained.

Issue:

Whether petitioner is considered as a real estate dealer

Held:

No, the proposition of the Commissioner of Internal Revenue cannot be favorably

accepted in this isolated transaction. It should be borne in mind that the sale of the
Nasugbu farm lands to the very farmers who tilled them for generations was not only in
consonance with, but more in obedience to the request and pursuant to the policy of our
Government to allocate lands to the landless. It was the bounden duty of the Government
to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas,
and to subsequently subdivide them among the farmers at very reasonable terms and
prices. However, the Government could not comply with its duty for lack of funds.
Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and
sold lands directly to the farmers in the same way and under the same terms as would
have been the case had the Government done it itself. For this magnanimous act, the
municipal council of Nasugbu passed a resolution expressing the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should
be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must
be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the
golden egg". And, in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously. It does not conform
with Our sense of justice in the instant case for the Government to persuade the taxpayer
to lend it a helping hand and later on to penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question.
Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital
assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent
of 50%.