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G.R. No.

L-29059 December 15, 1987


APPEALS, respondents.

The argument that the assessment cannot as yet be enforced because it is still
being contested loses sight of the urgency of the need to collect taxes as "the
lifeblood of the government." If the payment of taxes could be postponed by
simply questioning their validity, the machinery of the state would grind to a halt
and all government functions would be paralyzed. That is the reason why, save for
the exception already noted, the Tax Code provides:

Sec. 291. Injunction not available to restrain collection of tax. — No

court shall have authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge
imposed by this Code.

G.R. Nos. 89898-99 October 1, 1990



In this jurisdiction, well-settled is the rule that public funds are not subject to
levy and execution, unless otherwise provided for by statute. More particularly,
the properties of a municipality, whether real or personal, which are necessary for
public use cannot be attached and sold at execution sale to satisfy a money
judgment against the municipality. Municipal revenues derived from taxes,
licenses and market fees, and which are intended primarily and exclusively for the
purpose of financing the governmental activities and functions of the municipality,
are exempt from execution.

Nevertheless, this is not to say that private respondent and PSB are left with no
legal recourse. Where a municipality fails or refuses, without justifiable reason, to
effect payment of a final money judgment rendered against it, the claimant may
avail of the remedy of mandamus in order to compel the enactment and approval of
the necessary appropriation ordinance, and the corresponding disbursement of
municipal funds therefor.

It cannot be over-emphasized that, within the context of the State's inherent power
of eminent domain,

. . . [j]ust compensation means not only the correct determination of the

amount to be paid to the owner of the land but also the payment of the land
within a reasonable time from its taking. Without prompt payment,
compensation cannot be considered "just" for the property owner is made to
suffer the consequence of being immediately deprived of his land while
being made to wait for a decade or more before actually receiving the
amount necessary to cope with his loss.

The State's power of eminent domain should be exercised within the bounds
of fair play and justice.

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


The test of deductibility in the case of compensation payments is whether they

are reasonable and are, in fact, payments purely for service. This test and
deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service.

The Solicitor General is correct when he says that the burden is on the
taxpayer to prove the validity of the claimed deduction.

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.

But even as we concede the inevitability and indispensability of taxation, it is a

requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a right
to complain and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.

G.R. No. 122480 April 12, 2000


If the State expects its taxpayers to observe fairness and honesty in paying their
taxes, so must it apply the same standard against itself in refunding excess
payments. When it is undisputed that a taxpayer is entitled to a refund, the State
should not invoke technicalities to keep money not belonging to it. No one, not
even the State, should enrich oneself at the expense of another.

True, strict procedural rules generally frown upon the submission of the
Return after the trial.1âwphi1 The law creating the Court of Tax Appeals,
however, specifically provides that proceedings before it "shall not be
governed strictly by the technical rules of evidence." 13 The paramount
consideration remains the ascertainment of truth. Verily, the quest for orderly
presentation of issues is not an absolute. It should not bar courts from
considering undisputed facts to arrive at a just determination of a

It should be stressed that the rationale of the rules of procedure is to secure a

just determination of every action. They are tools designed to facilitate the
attainment of justice. 14 But there can be no just determination of the present action
if we ignore, on grounds of strict technicality, the Return submitted before the
CTA and even before this Court. 15 To repeat, the undisputed fact is that petitioner
suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax
credit could be applied. Consequently, there is no reason for the BIR and this Court
to withhold the tax refund which rightfully belongs to the petitioner.

As a rule, "courts are not authorized to take judicial notice of the contents of
the records of other cases, even when such cases have been tried or are
pending in the same court, and notwithstanding the fact that both cases may
have been heard or are actually pending before the same judge." 20

Finally, respondents argue that tax refunds are in the nature of tax exemptions and
are to be construed strictissimi juris against the claimant.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities
and legalisms, however exalted, should not be misused by the government to keep
money not belonging to it and thereby enrich itself at the expense of its law-
abiding citizens. If the State expects its taxpayers to observe fairness and
honesty in paying their taxes, so must it apply the same standard against itself
in refunding excess payments of such taxes. Indeed, the State must lead by its
own example of honor, dignity and uprightness.

G.R. No. L-68252 May 26, 1995, COMMISSIONER OF INTERNAL

REVENUE, vs. TOKYO SHIPPING CO. LTD., represented by

There is no dispute about the applicable law. It is section 24 (b) (2) of the National
Internal Revenue Code which at that time provides as follows:

A corporation organized, authorized, or existing under the laws of any

foreign country, engaged in trade or business within the Philippines,
shall be taxable as provided in subsection (a) of this section upon the
total net income derived in the preceding taxable year from all sources
within the Philippines: Provided, however, That international carriers
shall pay a tax of two and one-half per cent (2 1/2%) on their gross
Philippine billings: "Gross Philippine Billings" include gross
revenue realized from uplifts anywhere in the world by any
international carrier doing business in the Philippines of passage
documents sold therein, whether for passenger, excess baggage or
mail, provided the cargo or mail originates from the Philippines.
The gross revenue realized from the said cargo or mail include the
gross freight charge up to final destination. Gross revenue from
chartered flights originating from the Philippines shall likewise form
part of "Gross Philippine Billings" regardless of the place or payment
of the passage documents . . . . .

Pursuant to this provision, a resident foreign corporation engaged in the transport

of cargo is liable for taxes depending on the amount of income it derives from
sources within the Philippines. Thus, before such a tax liability can be enforced the
taxpayer must be shown to have earned income sourced from the Philippines.

We agree with petitioner that a claim for refund is in the nature of a claim for
exemption8 and should be construed in strictissimi juris against the
taxpayer.9 Likewise, there can be no disagreement with petitioner's stance that
private respondent has the burden of proof to establish the factual basis of its claim
for tax refund.

The respondent court held that sufficient evidence has been adduced by the private
respondent proving that it derived no receipt from its charter agreement with
NASUTRA. This finding of fact rests on a rational basis, and hence must be
sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel M/V
"Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load
and returned to Japan without any cargo laden on board. Exhibit "E" is the
Clearance Vessel to a Foreign Port issued by the District Collector of Customs,
Port of Iloilo while Exhibit "F" is the Certification by the Officer-in-Charge,
Export Division of the Bureau of Customs Iloilo. The correctness of the contents of
these documents regularly issued by officials of the Bureau of Customs cannot be
doubted as indeed, they have not been contested by the petitioner. The records also
reveal that in the course of the proceedings in the court a quo, petitioner hedged
and hawed when its turn came to present evidence. At one point, its counsel
manifested that the BIR examiner and the appellate division of the BIR have both
recommended the approval of private respondent's claim for refund. The same
counsel even represented that the government would withdraw its opposition to the
petition after final approval of private respondents' claim. The case dragged on but
petitioner never withdrew its opposition to the petition even if it did not present
evidence at all. The insincerity of petitioner's stance drew the sharp rebuke of
respondent court in its Decision and for good reason. Taxpayers owe honesty to
government just as government owes fairness to taxpayers.

In its last effort to retain the money erroneously prepaid by the private respondent,
petitioner contends that private respondent suppressed evidence when it did not
present its charter agreement with NASUTRA. The contention cannot succeed. It
presupposes without any basis that the charter agreement is prejudicial evidence
against the private respondent. 10 Allegedly, it will show that private respondent
earned a charter fee with or without transporting its supposed cargo from Iloilo to
Japan. The allegation simply remained an allegation and no court of justice will
regard it as truth. Moreover, the charter agreement could have been presented by
petitioner itself thru the proper use of a subpoena duces tecum. It never did either
because of neglect or because it knew it would be of no help to bolster its
position. 11 For whatever reason, the petitioner cannot take to task the private
respondent for not presenting what it mistakenly calls "suppressed evidence."

We cannot but bewail the unyielding stance taken by the government in refusing to
erroneously prepaid by private respondent. The tax was paid way back in 1980 and
despite the clear showing that it was erroneously paid, the government succeeded
in delaying its refund for fifteen (15) years. After fifteen (15) long years and the
expenses of litigation, the money that will be finally refunded to the private
respondent is just worth a damaged nickel. This is not, however, the kind of
success the government, especially the BIR, needs to increase its collection of
taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands
that BIR should refund without any unreasonable delay what it has erroneously
collected. Our ruling in Roxas v. Court of Tax Appeals 12 is apropos to recall:

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

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals,

dated September 15, 1983, is AFFIRMED in toto. No costs.


G.R. No. L-54908 January 22, 1990


TAX APPEALS, respondents.

G.R. No. 80041 January 22, 1990


TAX APPEALS, respondents.

A thorough analysis of the factual and legal ambience of these cases impels us to
give weight to the following arguments of petitioner:

The nature of the above contract shows that the same is not just a simple
contract of loan. It is not a mere creditor-debtor relationship. It is more of a
reciprocal obligation between ATLAS and MITSUBISHI where the latter
shall provide the funds in the installation of a new concentrator at the
former's Toledo mines in Cebu, while ATLAS in consideration of which,
shall sell to MITSUBISHI, for a term of 15 years, the entire copper
concentrate that will be produced by the installed concentrator.
Suffice it to say, the selling of the copper concentrate to MITSUBISHI
within the specified term was the consideration of the granting of the amount
of $20 million to ATLAS. MITSUBISHI, in order to fulfill its part of the
contract, had to obtain funds. Hence, it had to secure a loan or loans from
other sources. And from what sources, it is immaterial as far as ATLAS in
concerned. In this case, MITSUBISHI obtained the $20 million from the
EXIMBANK, of Japan and the consortium of Japanese banks financed
through the EXIMBANK, of Japan.

When MITSUBISHI therefore secured such loans, it was in its own

independent capacity as a private entity and not as a conduit of the
consortium of Japanese banks or the EXIMBANK of Japan. While the loans
were secured by MITSUBISHI primarily "as a loan to and in consideration
for importing copper concentrates from ATLAS," the fact remains that it
was a loan by EXIMBANK of Japan to MITSUBISHI and not to ATLAS.

Thus, the transaction between MITSUBISHI and EXIMBANK of Japan was

a distinct and separate contract from that entered into by MITSUBISHI and
ATLAS. Surely, in the latter contract, it is not EXIMBANK, that was
intended to be benefited. It is MITSUBISHI which stood to profit. Besides,
the Loan and Sales Contract cannot be any clearer. The only signatories to
the same were MITSUBISHI and ATLAS. Nowhere in the contract can it be
inferred that MITSUBISHI acted for and in behalf of EXIMBANK, of Japan
nor of any entity, private or public, for that matter.

Corollary to this, it may well be stated that in this jurisdiction, well-settled is

the rule that when a contract of loan is completed, the money ceases to be
the property of the former owner and becomes the sole property of the
obligor (Tolentino and Manio vs. Gonzales Sy, 50 Phil. 558).

In the case at bar, when MITSUBISHI obtained the loan of $20 million from
EXIMBANK, of Japan, said amount ceased to be the property of the bank
and became the property of MITSUBISHI.
The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the
sole creditor of ATLAS, the former being the owner of the $20 million upon
completion of its loan contract with EXIMBANK of Japan.

The interest income of the loan paid by ATLAS to MITSUBISHI is

therefore entirely different from the interest income paid by MITSUBISHI
to EXIMBANK, of Japan. What was the subject of the 15% withholding tax
is not the interest income paid by MITSUBISHI to EXIMBANK, but the
interest income earned by MITSUBISHI from the loan to ATLAS. . . . 13

To repeat, the contract between Eximbank and Mitsubishi is entirely different. It is

complete in itself, does not appear to be suppletory or collateral to another contract
and is, therefore, not to be distorted by other considerations aliunde. The
application for the loan was approved on May 20, 1970, or more than a month after
the contract between Mitsubishi and Atlas was entered into on April 17, 1970. It is
true that under the contract of loan with Eximbank, Mitsubishi agreed to use the
amount as a loan to and in consideration for importing copper concentrates from
Atlas, but all that this proves is the justification for the loan as represented by
Mitsubishi, a standard banking practice for evaluating the prospects of due
repayment. There is nothing wrong with such stipulation as the parties in a contract
are free to agree on such lawful terms and conditions as they see fit. Limiting the
disbursement of the amount borrowed to a certain person or to a certain purpose is
not unusual, especially in the case of Eximbank which, aside from protecting its
financial exposure, must see to it that the same are in line with the provisions and
objectives of its charter.

Respondents postulate that Mitsubishi had to be a conduit because Eximbank's

charter prevents it from making loans except to Japanese individuals and
corporations. We are not impressed. Not only is there a failure to establish such
submission by adequate evidence but it posits the unfair and unexplained
imputation that, for reasons subject only of surmise, said financing institution
would deliberately circumvent its own charter to accommodate an alien borrower
through a manipulated subterfuge, but with it as a principal and the real obligee.

The allegation that the interest paid by Atlas was remitted in full by Mitsubishi to
Eximbank, assuming the truth thereof, is too tenuous and conjectural to support the
proposition that Mitsubishi is a mere conduit. Furthermore, the remittance of the
interest payments may also be logically viewed as an arrangement in paying
Mitsubishi's obligation to Eximbank. Whatever arrangement was agreed upon by
Eximbank and Mitsubishi as to the manner or procedure for the payment of the
latter's obligation is their own concern. It should also be noted that Eximbank's
loan to Mitsubishi imposes interest at the rate of 75% per annum, while
Mitsubishis contract with Atlas merely states that the "interest on the amount of the
loan shall be the actual cost beginning from and including other dates of releases
against loan." 14

It is too settled a rule in this jurisdiction, as to dispense with the need for citations,
that laws granting exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power. Taxation is the rule and
exemption is the exception. The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so claimed, which
onus petitioners have failed to discharge. Significantly, private respondents are not
even among the entities which, under Section 29 (b) (7) (A) of the tax code, are
entitled to exemption and which should indispensably be the party in interest in
this case.

Definitely, the taxability of a party cannot be blandly glossed over on the basis of a
supposed "broad, pragmatic analysis" alone without substantial supportive
evidence, lest governmental operations suffer due to diminution of much needed
funds. Nor can we close this discussion without taking cognizance of petitioner's
warning, of pervasive relevance at this time, that while international comity is
invoked in this case on the nebulous representation that the funds involved in the
loans are those of a foreign government, scrupulous care must be taken to avoid
opening the floodgates to the violation of our tax laws. Otherwise, the mere
expedient of having a Philippine corporation enter into a contract for loans or other
domestic securities with private foreign entities, which in turn will negotiate
independently with their governments, could be availed of to take advantage of the
tax exemption law under discussion.
WHEREFORE, the decisions of the Court of Tax Appeals in CTA Cases Nos.
2801 and 3015, dated April 18, 1980 and January 15, 1981, respectively, are


Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

G.R. No. 112024 January 28, 1999


and COURT OF APPEALS, respondent.

Petitioner argues that the government is barred from asserting a position contrary
to its declared circular if it would result to injustice to taxpayers. Citing ABS CBN
Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings
or circulars promulgated by the Commissioner of Internal Revenue have no
retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case, the
Court held that the government is precluded from adopting a position inconsistent
with one previously taken where injustice would result therefrom or where there
has been a misrepresentation to the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly
provides for this rules as follows:

Sec. 246 Non-retroactivity of rulings— Any revocation, modification

or reversal of any of the rules and regulations promulgated in
accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification or reversal will
be prejudicial to the taxpayers except in the following cases:

a). where the taxpayer deliberately misstates

or omits material facts from his return or in
any document required of him by the Bureau
of Internal Revenue;

b). where the facts subsequently gathered by

the Bureau of Internal Revenue are
materially different from the facts on which
the ruling is based;

c). where the taxpayer acted in bad faith.

Respondent Commissioner of Internal Revenue, through Solicitor General, argues

that the two-year prescriptive period for filing tax cases in court concerning
income tax payments of Corporations is reckoned from the date of filing the Final
Adjusted Income Tax Return, which is generally done on April 15 following the
close of the calendar year. As precedents, respondent Commissioner cited cases
which adhered to this principle, to wit ACCRA Investments Corp. vs. Court of
Appeals, et al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et
al.. 12 Respondent Commissioner also states that since the Final Adjusted Income
Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on
April 15, 1986, the latter had only until April 15, 1988 to seek relief from the
court. Further, respondent Commissioner stresses that when the petitioner filed the
case before the CTA on November 18, 1988, the same was filed beyond the time
fixed by law, and such failure is fatal to petitioner's cause of action.

After a careful study of the records and applicable jurisprudence on the matter, we
find that, contrary to the petitioner's contention, the relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards the two-year
prescriptive period set by law.

Basic is the principle that "taxes are the lifeblood of the nation." The primary
purpose is to generate funds for the State to finance the needs of the citizenry and
to advance the common weal. 13 Due process of law under the Constitution does
not require judicial proceedings in tax cases. This must necessarily be so because it
is upon taxation that the government chiefly relies to obtain the means to carry on
its operations and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little as
possible. 14

From the same perspective, claims for refund or tax credit should be exercised
within the time fixed by law because the BIR being an administrative body
enforced to collect taxes, its functions should not be unduly delayed or hampered
by incidental matters.

Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229,
NIRC of 1997) provides for the prescriptive period for filing a court proceeding for
the recovery of tax erroneously or illegally collected, viz.:

Sec. 230. Recovery of tax erroneously or illegally collected. — No

suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest
or duress.

In any case, no such suit or proceedings shall begun after the

expiration of two years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after
payment; Provided however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid. (Emphasis supplied)

The rule states that the taxpayer may file a claim for refund or credit with the
Commissioner of Internal Revenue, within two (2) years after payment of tax,
before any suit in CTA is commenced. The two-year prescriptive period provided,
should be computed from the time of filing the Adjustment Return and final
payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance
Co., 15 this Court explained the application of Sec. 230 of 1977 NIRC, as follows:

Clearly, the prescriptive period of two years should commence to run

only from the time that the refund is ascertained, which can only be
determined after a final adjustment return is accomplished. In the
present case, this date is April 16, 1984, and two years from this date
would be April 16, 1986. . . . As we have earlier said in the TMX
Sales case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate
Income Tax Payment and Section 321 should be considered in
conjunction with it 19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing
the prescriptive period of two years to ten years on claims of excess quarterly
income tax payments, such circular created a clear inconsistency with the provision
of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law;
rather it legislated guidelines contrary to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered

administrative rulings (in the sense of more specific and less general interpretations
of tax laws) which are issued from time to time by the Commissioner of Internal
Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the
courts. Nevertheless, such interpretation is not conclusive and will be ignored if
judicially found to be erroneous. 20 Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent and in
harmony with the law they seek to apply and implement. 21

In the case of People vs. Lim, 22 it was held that rules and regulations issued by
administrative officials to implement a law cannot go beyond the terms and
provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it

is not only inconsistent with but is contrary to the provisions and spirit
of Act. No 4003 as amended, because whereas the prohibition
prescribed in said Fisheries Act was for any single period of time not
exceeding five years duration, FAO No 37-1 fixed no period, that is to
say, it establishes an absolute ban for all time. This discrepancy
between Act No. 4003 and FAO No. 37-1 was probably due to an
oversight on the part of Secretary of Agriculture and Natural
Resources. Of course, in case of discrepancy, the basic Act prevails,
for the reason that the regulation or rule issued to implement a law
cannot go beyond the terms and provisions of the
latter. . . . In this connection, the attention of the technical men in the
offices of Department Heads who draft rules and regulation is called
to the importance and necessity of closely following the terms and
provisions of the law which they intended to implement, this to avoid
any possible misunderstanding or confusion as in the present case.23

Further, fundamental is the rule that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents. 24 As pointed out by the respondent
courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative interpretation which is not in harmony with
Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute.
Hence, his interpretation could not be given weight for to do so would, in effect,
amend the statute.

It is likewise argued that the Commissioner of Internal Revenue, after

promulgating RMC No. 7-85, is estopped by the principle of non-
retroactively of BIR rulings. Again We do not agree. The
Memorandum Circular, stating that a taxpayer may recover the excess
income tax paid within 10 years from date of payment because this is
an obligation created by law, was issued by the Acting Commissioner
of Internal Revenue. On the other hand, the decision, stating that the
taxpayer should still file a claim for a refund or tax credit and
corresponding petition fro review within the
two-year prescription period, and that the lengthening of the period of
limitation on refund from two to ten years would be adverse to public
policy and run counter to the positive mandate of Sec. 230, NIRC, -
was the ruling and judicial interpretation of the Court of Tax Appeals.
Estoppel has no application in the case at bar because it was not the
Commissioner of Internal Revenue who denied petitioner's claim of
refund or tax credit. Rather, it was the Court of Tax Appeals who
denied (albeit correctly) the claim and in effect, ruled that the RMC
No. 7-85 issued by the Commissioner of Internal Revenue is an
administrative interpretation which is out of harmony with or contrary
to the express provision of a statute (specifically Sec. 230, NIRC),
hence, cannot be given weight for to do so would in effect amend the

Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting

statutes as part of the legal system of the country. But administrative decisions do
not enjoy that level of recognition. A memorandum-circular of a bureau head could
not operate to vest a taxpayer with shield against judicial action. For there are no
vested rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place the
Government in estoppel to correct or overrule the same. 27 Moreover, the non-
retroactivity of rulings by the Commissioner of Internal Revenue is not applicable
in this case because the nullity of RMC No. 7-85 was declared by respondent
courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted
that, as repeatedly held by this Court, a claim for refund is in the nature of a claim
for exemption and should be construed in strictissimi juris against the taxpayer.28

On the second issue, the petitioner alleges that the Court of Appeals seriously erred
in affirming CTA's decision denying its claim for refund of P234,077.69 (tax
overpaid in 1986), based on mere speculation, without proof, that PBCom availed
of the automatic tax credit in 1987.

Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any
excess of the total quarterly payments over the actual income tax computed in the
adjustment or final corporate income tax return, shall either(a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking
the option box provided in the BIR form) its intention, whether to request for a
refund or claim for an automatic tax credit for the succeeding taxable year. To ease
the administration of tax collection, these remedies are in the alternative, and the
choice of one precludes the other.

As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986 —

the Court of Tax Appeals, after examining the adjusted final corporate
annual income tax return for taxable year 1986, found out that
petitioner opted to apply for automatic tax credit. This was the basis
used (vis-avis the fact that the 1987 annual corporate tax return was
not offered by the petitioner as evidence) by the CTA in concluding
that petitioner had indeed availed of and applied the automatic tax
credit to the succeeding year, hence it can no longer ask for refund, as
to [sic] the two remedies of refund and tax credit are alternative. 30

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of
the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a
finding of fact which we must respect. Moreover, the 1987 annual corporate tax
return of the petitioner was not offered as evidence to contovert said fact. Thus, we
are bound by the findings of fact by respondent courts, there being no showing of
gross error or abuse on their part to disturb our reliance thereon. 31

WHEREFORE, the, petition is hereby DENIED, The decision of the Court of

Appeals appealed from is AFFIRMED, with COSTS against the


Bellosillo, Puno, Mendoza, and Buena, JJ., concur.


G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR., petitioner,

RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.

Antero Sison for petitioner and for his own behalf.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope,
The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The
areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or
group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign
capacity if it is to meet the increasing social challenges of the times." 11 Hence the
need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the
bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of
the government, their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of of government." 13 It is, of
course, to be admitted that for all its plenitude 'the power to tax is not unconfined.
There are restrictions. The Constitution sets forth such limits . Adversely affecting
as it does properly rights, both the due process and equal protection clauses inay
properly be invoked, all petitioner does, to invalidate in appropriate cases a
revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of
Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In
a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to
it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable
to] the intellectual fashion of the times following] a free use of absolutes." 16 This
is merely to emphasize that it is riot and there cannot be such a constitutional
mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun
from Marshall's famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this Court
sits." 17 So it is in the Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive, act that runs counter to it. In any case
therefore where it can be demonstrated that the challenged statutory provision —
as petitioner here alleges — fails to abide by its command, then this Court must so
declare and adjudge it null. The injury thus is centered on the question of whether
the imposition of a higher tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A

mere allegation, as here. does not suffice. There must be a factual foundation of
such unconstitutional taint. Considering that petitioner here would condemn such a
provision as void or its face, he has not made out a case. This is merely to adhere
to the authoritative doctrine that were the due process and equal protection clauses
are invoked, considering that they arc not fixed rules but rather broad standards,
there is a need for of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of this Court to say that
such an arbitrary act amounted to the exercise of an authority not conferred. That
properly calls for the application of the Holmes dictum. It has also been held that
where the assailed tax measure is beyond the jurisdiction of the state, or is not for a
public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is
subject to attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there
is a denial of this constitutional mandate whether the assailed act is in the exercise
of the lice power or the power of eminent domain is to demonstrated that the
governmental act assailed, far from being inspired by the attainment of the
common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not being different,
both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on
some in the group equally binding on the rest." 20 That same formulation applies as
well to taxation measures. The equal protection clause is, of course, inspired by the
noble concept of approximating the Ideal of the laws benefits being available to all
and the affairs of men being governed by that serene and impartial uniformity,
which is of the very essence of the Idea of law. There is, however, wisdom, as well
as realism in these words of Justice Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied equality. The Fourteenth Amendment
enjoins 'the equal protection of the laws,' and laws are not abstract propositions.
They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the attainment of specific ends by the
use of specific remedies. The Constitution does not require things which are
different in fact or opinion to be treated in law as though they were the
same." 21 Hence the constant reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any
rate, it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.'" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the

Constitution: "The rule of taxation shag be uniform and equitable." 24 This
requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco,25 decided in 1940, when the tax "operates with the same force and effect in
every place where the subject may be found. " 26 He likewise added: "The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not present itself in that
case. It did not arise until nine years later, when the Supreme Court held: "Equality
and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation, ... . 28 As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to
the practical dictates of justice and equity" it "is not discriminatory within the
meaning of this clause and is therefore uniform." 29 There is quite a similarity then
to the standard of equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar situation."30

8. Further on this point. Apparently, what misled petitioner is his failure to take
into consideration the distinction between a tax rate and a tax base. There is no
legal objection to a broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable tax rate. Taxpayers
may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In
the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the,
discernible basis of classification is the susceptibility of the income to the
application of generalized rules removing all deductible items for all taxpayers
within the class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a class. As
there is practically no overhead expense, these taxpayers are e not entitled to make
deductions for income tax purposes because they are in the same situation more or
less. On the other hand, in the case of professionals in the practice of their calling
and businessmen, there is no uniformity in the costs or expenses necessary to
produce their income. It would not be just then to disregard the disparities by
giving all of them zero deduction and indiscriminately impose on all alike the same
tax rates on the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to compensation
income, while continuing the system of net income taxation as regards professional
and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit,
considering the (1) lack of factual foundation to show the arbitrary character of the
assailed provision; 31 (2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the reasonableness of the distinction
between compensation and taxable net income of professionals and businessman
certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

capacities as appointed and Acting Members of the CENTRAL BOARD OF
ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting
Members of the BOARD OF ASSESSMENT APPEALS of Manila; and
NICOLAS CATIIL in his capacity as City Assessor of Manila,respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitione

The Reyeses assigned the following error:



The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach" method
would have been more realistic for in disregarding the effect of the restrictions
imposed by P.D. 20 on the market value of the properties affected, respondent
Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate
taxes would admittedly exceed the sum total of the yearly rentals paid or payable
by the dweller tenants under P.D. 20. Hence, petitioners protested against the
levels of the values assigned to their properties as revised and increased on the
ground that they were arbitrarily excessive, unwarranted, inequitable, confiscatory
and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in
its decision that the income approach is used in determining land values in some
vicinities, it maintains that when income is affected by some sort of price control,
the same is rejected in the consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do not project the true market
value in the open market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of the
properties predicated upon prices paid in actual, market transactions would be a
uniform and a more credible standards to use especially in case of mass appraisal
of properties (Ibid.). Otherwise stated, public respondents would have this Court
completely ignore the effects of the restrictions of P.D. No. 20 on the market value
of properties within its coverage. In any event, it is unquestionable that both the
"Comparable Sales Approach" and the "Income Approach" are generally
acceptable methods of appraisal for taxation purposes (The Law on Transfer and
Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded
that the propriety of one as against the other would of course depend on several
factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the
assessors, in finding the value of the property, have to consider all the
circumstances and elements of value and must exercise a prudent discretion in
reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of
taxation must not only be uniform, but must also be equitable and progressive.

Uniformity has been defined as that principle by which all taxable articles or kinds
of property of the same class shall be taxed at the same rate (Churchill v.
Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or

progressive aspects of taxation required in the 1973 Charter (Fernando "The
Constitution of the Philippines", p. 221, Second Edition). Thus, the need to
examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay.
Taxation is progressive when its rate goes up depending on the resources of the
person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all
the powers of government. But for all its plenitude the power to tax is not
unconfined as there are restrictions. Adversely effecting as it does property rights,
both the due process and equal protection clauses of the Constitution may properly
be invoked to invalidate in appropriate cases a revenue measure. If it were
otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that
"the power to tax involves the power to destroy." The web or unreality spun from
Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes
pen, thus: "The power to tax is not the power to destroy while this Court sits. So it
is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v.
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

In the same vein, the due process clause may be invoked where a taxing statute is
so arbitrary that it finds no support in the Constitution. An obvious example is
where it can be shown to amount to confiscation of property. That would be a clear
abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural classification
for purposes of taxation but the government's act must not be prompted by a spirit
of hostility, or at the very least discrimination that finds no support in reason. It
suffices then that the laws operate equally and uniformly on all persons under
similar circumstances or that all persons must be treated in the same manner, the
conditions not being different both in the privileges conferred and the liabilities
imposed (Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared
that the first Fundamental Principle to guide the appraisal and assessment of real
property for taxation purposes is that the property must be "appraised at its current
and fair market value."
By no strength of the imagination can the market value of properties covered by
P.D. No. 20 be equated with the market value of properties not so covered. The
former has naturally a much lesser market value in view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value
of subject properties under the "comparable sales approach" were presented by the
public respondents, namely: (1) that the sale must represent a bonafide arm's length
transaction between a willing seller and a willing buyer and (2) the property must
be comparable property (Rollo, p. 27). Nothing can justify or support their view as
it is of judicial notice that for properties covered by P.D. 20 especially during the
time in question, there were hardly any willing buyers. As a general rule, there
were no takers so that there can be no reasonable basis for the conclusion that these
properties were comparable with other residential properties not burdened by P.D.
20. Neither can the given circumstances be nonchalantly dismissed by public
respondents as imposed under distressed conditions clearly implying that the same
were merely temporary in character. At this point in time, the falsity of such
premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxations,
which is the promotion of the common good, may be achieved (Commissioner of
Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it
stands to reason that petitioners who are burdened by the government by its Rental
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social
justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of
their properties.

By the public respondents' own computation the assessment by income approach

would amount to only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed
decisions of public respondents are REVERSED and SET ASIDE; and (e) the
respondent Board of Assessment Appeals of Manila and the City Assessor of
Manila are ordered to make a new assessment by the income approach method to
guarantee a fairer and more realistic basis of computation (Rollo, p. 71).

G.R. No. 78780 July 23, 1987


SAVELLANO, JR., petitioners,

The debates, interpellations and opinions expressed regarding the constitutional

provision in question until it was finally approved by the Commission disclosed
that the true intent of the framers of the 1987 Constitution, in adopting it, was to
make the salaries of members of the Judiciary taxable. The ascertainment of that
intent is but in keeping with the fundamental principle of constitutional
construction that the intent of the framers of the organic law and of the people
adopting it should be given effect.10 The primary task in constitutional construction
is to ascertain and thereafter assure the realization of the purpose of the framers
and of the people in the adoption of the Constitution.11it may also be safely
assumed that the people in ratifying the Constitution were guided mainly by the
explanation offered by the framers.12 1avvphi1

Besides, construing Section 10, Articles VIII, of the 1987 Constitution, which, for
clarity, is again reproduced hereunder:

The salary of the Chief Justice and of the Associate Justices of the Supreme
Court, and of judges of lower courts shall be fixed by law. During their
continuance in office, their salary shall not be decreased. (Emphasis

it is plain that the Constitution authorizes Congress to pass a law fixing another
rate of compensation of Justices and Judges but such rate must be higher than that
which they are receiving at the time of enactment, or if lower, it would be
applicable only to those appointed after its approval. It would be a strained
construction to read into the provision an exemption from taxation in the light of
the discussion in the Constitutional Commission.

With the foregoing interpretation, and as stated heretofore, the ruling that "the
imposition of income tax upon the salary of judges is a dimunition thereof, and so
violates the Constitution" in Perfecto vs. Meer,13 as affirmed in Endencia vs.
David 14 must be declared discarded. The framers of the fundamental law, as
the alter ego of the people, have expressed in clear and unmistakable terms the
meaning and import of Section 10, Article VIII, of the 1987 Constitution that they
have adopted

Stated otherwise, we accord due respect to the intent of the people, through the
discussions and deliberations of their representatives, in the spirit that all citizens
should bear their aliquot part of the cost of maintaining the government and should
share the burden of general income taxation equitably.

WHEREFORE, the instant petition for Prohibition is hereby dismissed.

G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO, petitioner,

INTERNAL REVENUE, respondents.

G.R. No. 115525 August 25, 1994


A. Claims of Press Freedom, Freedom of

Thought and Religious Freedom

The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit
organization of newspaper publishers established for the improvement of
journalism in the Philippines. On the other hand, petitioner in G.R. No. 115781, the
Philippine Bible Society (PBS), is a nonprofit organization engaged in the printing
and distribution of bibles and other religious articles. Both petitioners claim
violations of their rights under § § 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.

The PPI questions the law insofar as it has withdrawn the exemption previously
granted to the press under § 103 (f) of the NIRC. Although the exemption was
subsequently restored by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of the possibility that the
exemption may still be removed by mere revocation of the regulation of the
Secretary of Finance. On the other hand, the PBS goes so far as to question the
Secretary's power to grant exemption for two reasons: (1) The Secretary of Finance
has no power to grant tax exemption because this is vested in Congress and
requires for its exercise the vote of a majority of all its members 26 and (2) the
Secretary's duty is to execute the law.

§ 103 of the NIRC contains a list of transactions exempted from VAT. Among the
transactions previously granted exemption were:

(f) Printing, publication, importation or sale of books and any

newspaper, magazine, review, or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is
devoted principally to the publication of advertisements.

Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the result that print
media became subject to the VAT with respect to all aspects of their operations.
Later, however, based on a memorandum of the Secretary of Justice, respondent
Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994,
exempting the "circulation income of print media pursuant to § 4 Article III of the
1987 Philippine Constitution guaranteeing against abridgment of freedom of the
press, among others." The exemption of "circulation income" has left income from
advertisements still subject to the VAT.

It is unnecessary to pass upon the contention that the exemption granted is beyond
the authority of the Secretary of Finance to give, in view of PPI's contention that
even with the exemption of the circulation revenue of print media there is still an
unconstitutional abridgment of press freedom because of the imposition of the
VAT on the gross receipts of newspapers from advertisements and on their
acquisition of paper, ink and services for publication. Even on the assumption that
no exemption has effectively been granted to print media transactions, we find no
violation of press freedom in these cases.

To be sure, we are not dealing here with a statute that on its face operates in the
area of press freedom. The PPI's claim is simply that, as applied to newspapers, the
law abridges press freedom. Even with due recognition of its high estate and its
importance in a democratic society, however, the press is not immune from general
regulation by the State. It has been held:

The publisher of a newspaper has no immunity from the application of

general laws. He has no special privilege to invade the rights and
liberties of others. He must answer for libel. He may be punished for
contempt of court. . . . Like others, he must pay equitable and
nondiscriminatory taxes on his business. . . . 27

The PPI does not dispute this point, either.

What it contends is that by withdrawing the exemption previously granted to print

media transactions involving printing, publication, importation or sale of
newspapers, Republic Act No. 7716 has singled out the press for discriminatory
treatment and that within the class of mass media the law discriminates against
print media by giving broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a differential treatment of the
press by the law, much less any censorial motivation for its enactment. If the press
is now required to pay a value-added tax on its transactions, it is not because it is
being singled out, much less targeted, for special treatment but only because of the
removal of the exemption previously granted to it by law. The withdrawal of
exemption is all that is involved in these cases. Other transactions, likewise
previously granted exemption, have been delisted as part of the scheme to expand
the base and the scope of the VAT system. The law would perhaps be open to the
charge of discriminatory treatment if the only privilege withdrawn had been that
granted to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those cited by the PPI in
support of its claim that Republic Act No. 7716 subjects the press to discriminatory
taxation. In the cases cited, the discriminatory purpose was clear either from the
background of the law or from its operation. For example, in Grosjean v. American
Press Co., 28 the law imposed a license tax equivalent to 2% of the gross receipts
derived from advertisements only on newspapers which had a circulation of more
than 20,000 copies per week. Because the tax was not based on the volume of
advertisement alone but was measured by the extent of its circulation as well, the
law applied only to the thirteen large newspapers in Louisiana, leaving untaxed
four papers with circulation of only slightly less than 20,000 copies a week and
120 weekly newspapers which were in serious competition with the thirteen
newspapers in question. It was well known that the thirteen newspapers had been
critical of Senator Huey Long, and the Long-dominated legislature of Louisiana
respondent by taxing what Long described as the "lying newspapers" by imposing
on them "a tax on lying." The effect of the tax was to curtail both their revenue and
their circulation. As the U.S. Supreme Court noted, the tax was "a deliberate and
calculated device in the guise of a tax to limit the circulation of information to
which the public is entitled in virtue of the constitutional guaranties." 29 The case is
a classic illustration of the warning that the power to tax is the power to destroy.

In the other case 30 invoked by the PPI, the press was also found to have been
singled out because everything was exempt from the "use tax" on ink and paper,
except the press. Minnesota imposed a tax on the sales of goods in that state. To
protect the sales tax, it enacted a complementary tax on the privilege of "using,
storing or consuming in that state tangible personal property" by eliminating the
residents' incentive to get goods from outside states where the sales tax might be
lower. The Minnesota Star Tribune was exempted from both taxes from 1967 to
1971. In 1971, however, the state legislature amended the tax scheme by imposing
the "use tax" on the cost of paper and ink used for publication. The law was held to
have singled out the press because (1) there was no reason for imposing the "use
tax" since the press was exempt from the sales tax and (2) the "use tax" was laid on
an "intermediate transaction rather than the ultimate retail sale." Minnesota had a
heavy burden of justifying the differential treatment and it failed to do so. In
addition, the U.S. Supreme Court found the law to be discriminatory because the
legislature, by again amending the law so as to exempt the first $100,000 of paper
and ink used, further narrowed the coverage of the tax so that "only a handful of
publishers pay any tax at all and even fewer pay any significant amount of
tax." 31 The discriminatory purpose was thus very clear.

More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a
law which taxed general interest magazines but not newspapers and religious,
professional, trade and sports journals was discriminatory because while the tax
did not single out the press as a whole, it targeted a small group within the press.
What is more, by differentiating on the basis of contents (i.e., between general
interest and special interests such as religion or sports) the law became "entirely
incompatible with the First Amendment's guarantee of freedom of the press."

These cases come down to this: that unless justified, the differential treatment of
the press creates risks of suppression of expression. In contrast, in the cases at bar,
the statute applies to a wide range of goods and services. The argument that, by
imposing the VAT only on print media whose gross sales exceeds P480,000 but
not more than P750,000, the law discriminates 33 is without merit since it has not
been shown that as a result the class subject to tax has been unreasonably
narrowed. The fact is that this limitation does not apply to the press along but to all
sales. Nor is impermissible motive shown by the fact that print media and
broadcast media are treated differently. The press is taxed on its transactions
involving printing and publication, which are different from the transactions of
broadcast media. There is thus a reasonable basis for the classification.

The cases canvassed, it must be stressed, eschew any suggestion that "owners of
newspapers are immune from any forms of ordinary taxation." The license tax in
the Grosjean case was declared invalid because it was "one single in kind, with a
long history of hostile misuse against the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First
Amendment does not prohibit all regulation of the press [and that] the States and
the Federal Government can subject newspapers to generally applicable economic
regulations without creating constitutional problems." 35

What has been said above also disposes of the allegations of the PBS that the
removal of the exemption of printing, publication or importation of books and
religious articles, as well as their printing and publication, likewise violates
freedom of thought and of conscience. For as the U.S. Supreme Court unanimously
held in Jimmy Swaggart Ministries v. Board of Equalization, 36 the Free Exercise
of Religion Clause does not prohibit imposing a generally applicable sales and use
tax on the sale of religious materials by a religious organization.

This brings us to the question whether the registration provision of the

law, 37 although of general applicability, nonetheless is invalid when applied to the
press because it lays a prior restraint on its essential freedom. The case
of American Bible Society v. City of Manila 38 is cited by both the PBS and the PPI
in support of their contention that the law imposes censorship. There, this Court
held that an ordinance of the City of Manila, which imposed a license fee on those
engaged in the business of general merchandise, could not be applied to the
appellant's sale of bibles and other religious literature. This Court relied
on Murdock v. Pennsylvania, 39 in which it was held that, as a license fee is fixed in
amount and unrelated to the receipts of the taxpayer, the license fee, when applied
to a religious sect, was actually being imposed as a condition for the exercise of the
sect's right under the Constitution. For that reason, it was held, the license fee
"restrains in advance those constitutional liberties of press and religion and
inevitably tends to suppress their exercise." 40

But, in this case, the fee in § 107, although a fixed amount (P1,000), is not imposed
for the exercise of a privilege but only for the purpose of defraying part of the cost
of registration. The registration requirement is a central feature of the VAT system.
It is designed to provide a record of tax credits because any person who is subject
to the payment of the VAT pays an input tax, even as he collects an output tax on
sales made or services rendered. The registration fee is thus a mere administrative
fee, one not imposed on the exercise of a privilege, much less a constitutional right.

For the foregoing reasons, we find the attack on Republic Act No. 7716 on the
ground that it offends the free speech, press and freedom of religion guarantees of
the Constitution to be without merit. For the same reasons, we find the claim of the
Philippine Educational Publishers Association (PEPA) in G.R. No. 115931 that the
increase in the price of books and other educational materials as a result of the
VAT would violate the constitutional mandate to the government to give priority to
education, science and technology (Art. II, § 17) to be untenable.
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." 41

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." 42 Petitioners 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 43 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. 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.

At all events, our 1988 decision in Kapatiran 45 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. 46

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. 47 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.

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.

WHEREFORE, the petitions in these cases are DISMISSED.

G.R. No. 168056, September 01, 2005 ]



[G.R. NO. 168207]

Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the
NIRC, violate the following provisions of the Constitution:

a. Article VI, Section 28(1), and

b. Article III, Section 1

A. Due Process and Equal Protection Clauses

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8
of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A.
No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive,
excessive and confiscatory. Their argument is premised on the constitutional right
against deprivation of life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution.

Petitioners also contend that these provisions violate the constitutional guarantee of
equal protection of the law.

The doctrine is that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there
is a need for proof of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. [68]

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against the output tax. It
states, in part: “[P]rovided, that the input tax inclusive of the input VAT carried
over from the previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT: …”

Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-
added tax due from or paid by a VAT-registered person on the importation of
goods or local purchase of good and services, including lease or use of property, in
the course of trade or business, from a VAT-registered person, and Output Tax is
the value-added tax due on the sale or lease of taxable goods or properties or
services by any person registered or required to register under the law.

Petitioners claim that the contested sections impose limitations on the amount of
input tax that may be claimed. In effect, a portion of the input tax that has already
been paid cannot now be credited against the output tax.

Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of
the output tax, and therefore, the input tax in excess of 70% remains uncredited.
However, to the extent that the input tax is less than 70% of the output tax, then
100% of such input tax is still creditable.

More importantly, the excess input tax, if any, is retained in a business’s books of
accounts and remains creditable in the succeeding quarter/s. This is explicitly
allowed by Section 110(B), which provides that “if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters.” In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance
of a tax credit certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against the output taxes. Such unused input
tax may be used in payment of his other internal revenue taxes.

The non-application of the unutilized input tax in a given quarter is not ad

infinitum, as petitioners exaggeratedly contend. Their analysis of the effect of the
70% limitation is incomplete and one-sided. It ends at the net effect that there will
be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further
to the fact that such unapplied/unutilized input tax may be credited in the
subsequent periods as allowed by the carry-over provision of Section 110(B) or
that it may later on be refunded through a tax credit certificate under Section

Therefore, petitioners’ argument must be rejected.

On the other hand, it appears that petitioner Garcia failed to comprehend the
operation of the 70% limitation on the input tax. According to petitioner, the
limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and

As earlier stated, the input tax is the tax paid by a person, passed on to him by the
seller, when he buys goods. Output tax meanwhile is the tax due to the person
when he sells goods. In computing the VAT payable, three possible scenarios may

First, if at the end of a taxable quarter the output taxes charged by the seller are
equal to the input taxes that he paid and passed on by the suppliers, then no
payment is required;

Second, when the output taxes exceed the input taxes, the person shall be liable for
the excess, which has to be paid to the Bureau of Internal Revenue (BIR); [69] and

Third, if the input taxes exceed the output taxes, the excess shall be carried over to
the succeeding quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions, any excess over the output taxes shall instead
be refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayer’s option.[70]

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax.
Thus, a person can credit his input tax only up to the extent of 70% of the output
tax. In layman’s term, the value-added taxes that a person/taxpayer paid and passed
on to him by a seller can only be credited up to 70% of the value-added taxes that
is due to him on a taxable transaction. There is no retention of any tax collection
because the person/taxpayer has already previously paid the input tax to a seller,
and the seller will subsequently remit such input tax to the BIR. The party directly
liable for the payment of the tax is the seller.[71] What only needs to be done is for
the person/taxpayer to apply or credit these input taxes, as evidenced by receipts,
against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the
input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law.

The input tax is not a property or a property right within the constitutional purview
of the due process clause. A VAT-registered person’s entitlement to the creditable
input tax is a mere statutory privilege.

The distinction between statutory privileges and vested rights must be borne in
mind for persons have no vested rights in statutory privileges. The state may
change or take away rights, which were created by the law of the state, although it
may not take away property, which was vested by virtue of such rights. [72]

Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of
the cost, which is deductible from the gross revenue. When Pres. Aquino issued
E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the
crediting of the input tax paid on purchase or importation of goods and services by
VAT-registered persons against the output tax was introduced.[73] This was adopted
by the Expanded VAT Law (R.A. No. 7716),[74] and The Tax Reform Act of 1997
(R.A. No. 8424).[75] The right to credit input tax as against the output tax is clearly
a privilege created by law, a privilege that also the law can remove, or in this case,

Petitioners also contest as arbitrary, oppressive, excessive and confiscatory,

Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which
SEC. 110. Tax Credits. –

(A) Creditable Input Tax. – …

Provided, That the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under
this Code, shall be spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos
(P1,000,000.00): Provided, however, That if the estimated useful life of the capital
goods is less than five (5) years, as used for depreciation purposes, then the input
VAT shall be spread over such a shorter period: Provided, finally, That in the case
of purchase of services, lease or use of properties, the input tax shall be creditable
to the purchaser, lessee or license upon payment of the compensation, rental,
royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the
creditable input tax on purchase or importation of capital goods with acquisition
cost of P1 Million pesos, exclusive of the VAT component. Such spread out only
poses a delay in the crediting of the input tax. Petitioners’ argument is without
basis because the taxpayer is not permanently deprived of his privilege to credit the
input tax.

It is worth mentioning that Congress admitted that the spread-out of the creditable
input tax in this case amounts to a 4-year interest-free loan to the government.[76] In
the same breath, Congress also justified its move by saying that the provision was
designed to raise an annual revenue of 22.6 billion.[77] The legislature also
dispelled the fear that the provision will fend off foreign investments, saying that
foreign investors have other tax incentives provided by law, and citing the case of
China, where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.[78] Again, for whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative wisdom in which the Court
cannot intervene.

With regard to the 5% creditable withholding tax imposed on payments made by

the government for taxable transactions, Section 12 of R.A. No. 9337, which
amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –

(C) Withholding of Value-added Tax. – The Government or any of its political

subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-added tax imposed
in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax
at the rate of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax at the time of payment. For
purposes of this Section, the payor or person in control of the payment shall be
considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by
respondents, a more simplified VAT withholding system. The government in this
case is constituted as a withholding agent with respect to their payments for goods
and services.

Prior to its amendment, Section 114(C) provided for different rates of value-added
taxes to be withheld -- 3% on gross payments for purchases of goods; 6% on gross
payments for services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public work
contractors; or 10% on payment for the lease or use of properties or property rights
to nonresident owners. Under the present Section 114(C), these different rates,
except for the 10% on lease or property rights payment to nonresidents, were
deleted, and a uniform rate of 5% is applied.

The Court observes, however, that the law the used the word final. In tax
usage, final, as opposed to creditable, means full. Thus, it is provided in Section
114(C): “final value-added tax at the rate of five percent (5%).”

In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform
Act of 1997), the concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. – Under the final withholding tax system the amount
of income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability
for payment of the tax rests primarily on the payor as a withholding agent. Thus, in
case of his failure to withhold the tax or in case of underwithholding, the
deficiency tax shall be collected from the payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system,
taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income. … Taxes withheld on income
payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of
these regulations) and compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the
government are subject to a 5% rate, which constitutes as full payment of the tax
payable on the transaction. This represents the net VAT payable of the seller. The
other 5% effectively accounts for the standard input VAT (deemed input VAT), in
lieu of the actual input VAT directly or attributable to the taxable transaction. [79]

The Court need not explore the rationale behind the provision. It is clear that
Congress intended to treat differently taxable transactions with the
government.[80] This is supported by the fact that under the old provision, the 5%
tax withheld by the government remains creditable against the tax liability of the
seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –

(C) Withholding of Creditable Value-added Tax. – The Government or any of

its political subdivisions, instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods from sellers and services rendered by
contractors which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold the value-added tax due at the rate of three
percent (3%) of the gross payment for the purchase of goods and six percent (6%)
on gross receipts for services rendered by contractors on every sale or installment
payment which shall be creditable against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of government public
works contractors, the withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of properties or property rights
to nonresident owners shall be subject to ten percent (10%) withholding tax at the
time of payment. For this purpose, the payor or person in control of the payment
shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made. (Emphasis
As amended, the use of the word final and the deletion of the
word creditable exhibits Congress’s intention to treat transactions with the
government differently. Since it has not been shown that the class subject to the
5% final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones
subjected to the 5% final withholding tax. It applies to all those who deal with the

Moreover, the actual input tax is not totally lost or uncreditable, as petitioners
believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should the actual input tax
exceed 5% of gross payments, the excess may form part of the cost. Equally,
should the actual input tax be less than 5%, the difference is treated as income. [81]

Petitioners also argue that by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no profit or value-

Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The

Court will not engage in a legal joust where premises are what ifs, arguments,
theoretical and facts, uncertain. Any disquisition by the Court on this point will
only be, as Shakespeare describes life in Macbeth,[82] “full of sound and fury,
signifying nothing.”

What’s more, petitioners’ contention assumes the proposition that there is no profit
or value-added. It need not take an astute businessman to know that it is a matter of
exception that a business will sell goods or services without profit or value-added.
It cannot be overstressed that a business is created precisely for profit.

The equal protection clause under the Constitution means that “no person or class
of persons shall be deprived of the same protection of laws which is enjoyed by
other persons or other classes in the same place and in like circumstances.”[83]
The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject of
taxation, the kind of property, the rates to be levied, or the amounts to be raised,
the methods of assessment, valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness.[84]

Petitioners point out that the limitation on the creditable input tax if the entity has a
high ratio of input tax, or invests in capital equipment, or has several transactions
with the government, is not based on real and substantial differences to meet a
valid classification.

The argument is pedantic, if not outright baseless. The law does not make any
classification in the subject of taxation, the kind of property, the rates to be levied
or the amounts to be raised, the methods of assessment, valuation and collection.
Petitioners’ alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results
depending on one’s profit margin and value-added, the Court cannot go beyond
what the legislature has laid down and interfere with the affairs of business.

The equal protection clause does not require the universal application of the laws
on all persons or things without distinction. This might in fact sometimes result in
unequal protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is meant the
grouping of persons or things similar to each other in certain particulars and
different from all others in these same particulars.[85]

Petitioners brought to the Court’s attention the introduction of Senate Bill No.
2038 by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6,
2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation
seeks to amend the 70% limitation by increasing the same to 90%. This, according
to petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed
legislations. Until Congress amends the law, and absent any unequivocal basis for
its unconstitutionality, the 70% limitation stays.

B. Uniformity and Equitability of Taxation

Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere
with all people at all times.[86]

In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods, and sale of services
and use or lease of properties. These same sections also provide for a 0% rate on
certain sales and transaction.

Neither does the law make any distinction as to the type of industry or trade that
will bear the 70% limitation on the creditable input tax, 5-year amortization of
input tax paid on purchase of capital goods or the 5% final withholding tax by the
government. It must be stressed that the rule of uniform taxation does not deprive
Congress of the power to classify subjects of taxation, and only demands
uniformity within the particular class.[87]

R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with
gross annual sales or receipts not exceeding P1,500,000.00.[88] Also, basic marine
and agricultural food products in their original state are still not subject to the
tax,[89] thus ensuring that prices at the grassroots level will remain accessible. As
was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt
from its application. Likewise exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
margins, and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails, the law,
under Section 116, imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a equalizer because in effect, bigger
businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on

Moreover, Congress provided mitigating measures to cushion the impact of the

imposition of the tax on those previously exempt. Excise taxes on petroleum
products[91] and natural gas[92] were reduced. Percentage tax on domestic carriers
was removed.[93] Power producers are now exempt from paying franchise tax.[94]

Aside from these, Congress also increased the income tax rates of corporations, in
order to distribute the burden of taxation. Domestic, foreign, and non-resident
corporations are now subject to a 35% income tax rate, from a previous
32%.[95] Intercorporate dividends of non-resident foreign corporations are still
subject to 15% final withholding tax but the tax credit allowed on the corporation’s
domicile was increased to 20%.[96] The Philippine Amusement and Gaming
Corporation (PAGCOR) is not exempt from income taxes anymore. [97] Even the
sale by an artist of his works or services performed for the production of such
works was not spared.

All these were designed to ease, as well as spread out, the burden of taxation,
which would otherwise rest largely on the consumers. It cannot therefore be
gainsaid that R.A. No. 9337 is equitable.

C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything
but regressive. It is the smaller business with higher input tax-output tax ratio that
will suffer the consequences.

Progressive taxation is built on the principle of the taxpayer’s ability to pay. This
principle was also lifted from Adam Smith’s Canons of Taxation, and it states:

I. The subjects of every state ought to contribute towards the support of

the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively
enjoy under the protection of the state.

Taxation is progressive when its rate goes up depending on the resources of the
person affected.[98]

The VAT is an antithesis of progressive taxation. By its very nature, it is

regressive. The principle of progressive taxation has no relation with the VAT
system inasmuch as the VAT paid by the consumer or business for every goods
bought or services enjoyed is the same regardless of income. In other words, the
VAT paid eats the same portion of an income, whether big or small. The disparity
lies in the income earned by a person or profit margin marked by a business, such
that the higher the income or profit margin, the smaller the portion of the income
or profit that is eaten by VAT. A converso, the lower the income or profit margin,
the bigger the part that the VAT eats away. At the end of the day, it is really the
lower income group or businesses with low-profit margins that is always hardest

Nevertheless, the Constitution does not really prohibit the imposition of indirect
taxes, like the VAT. What it simply provides is that Congress shall "evolve a
progressive system of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall
‘evolve a progressive system of taxation.’ The constitutional provision has been
interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much
as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the
mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of Art. VIII, §17 (1) of the 1973
Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are
also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain transactions (R.A.
No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other
transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)[99]

It has been said that taxes are the lifeblood of the government. In this case, it is just
an enema, a first-aid measure to resuscitate an economy in distress. The Court is
neither blind nor is it turning a deaf ear on the plight of the masses. But it does not
have the panacea for the malady that the law seeks to remedy. As in other cases,
the Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy,
and that the judiciary should stand ready to afford relief. There are undoubtedly
many wrongs the judicature may not correct, for instance, those involving political
questions. . . .

Let us likewise disabuse our minds from the notion that the judiciary is the
repository of remedies for all political or social ills; We should not forget that the
Constitution has judiciously allocated the powers of government to three distinct
and separate compartments; and that judicial interpretation has tended to the
preservation of the independence of the three, and a zealous regard of the
prerogatives of each, knowing full well that one is not the guardian of the others
and that, for official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.[100]
The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds true
now. All things considered, there is no raison d'être for the unconstitutionality of
R.A. No. 9337.

WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in
G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are

There being no constitutional impediment to the full enforcement and

implementation of R.A. No. 9337, the temporary restraining order issued by the
Court on July 1, 2005 is LIFTED upon finality of herein decision.

[ GR No. L-21633-34, Jun 29, 1967 ]


The inherent weakness of the last ground becomes manifest when we consider that,
if true, there could be no tax exemption of any kind whatsoever, even if Congress
should wish to create one, because every such exemption implies a waiver of the
right to collect what otherwise would be due to the Government, and, in this sense,
is prejudicial thereto. In fact, however, tax exemptions may and do exist, such as
the one prescribed in section 14 of Republic Act No. 1789, as amended by Re-
public Act No. 3079, which, by the way, is "clear and explicit," thus, meeting the
first ground of appellant's contention. It may not be amiss to add that no tax
exemption - like any other legal exemption or exception - is given without any
reason therefor. In much the same way as other statutory commands, its avowed
purpose is some public benefit or interest, which the law-making body considers
sufficient to offset the monetary loss entailed in the grant of the
exemption. Indeed, section 20 of Republic Act No. 3079 exacts a valuable
consideration for the retroactivity of its favorable provisions, namely, the voluntary
assumption, by the end-user who bought reparations goods prior to June 17, 1961,
of "all the new obligations provided for in" said Act.
The argument adduced in support of the third ground is that the view adopted by
the Tax Court would operate to grant exemption to particular persons, the Buyers
herein. It should be noted, however, that there is no constitutional injunction
against granting tax exemptions to particular persons. In fact, it is not unusual to
grant legislative franchises to specific individuals or entities, conferring tax exemp-
tions thereto. What the fundamental law forbids is the denial of equal protection,
such as through unreasonable discrimination orclassification.
Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the
compensating tax, not particular persons, but persons belonging to a
particular class. Indeed, appellants do not assail the Constitutionality of said
section 14, insofar as it grants exemptions to end-users who, after the approval of
Republic Act No. 3079, on June 17, 1961, purchased reparations goods procured
by the Commission. From the view point of Constitutional Law, especially the
equal protection clause, there is no difference between the grant of exemption to
said end-users, and the extension of the grant to those whose contracts of purchase
and sale were made before said date, under Republic Act No. 1789.
It is true that Republic Act No. 3079 does not explicitly declare that those who
purchased reparations goods prior to June 17, 1961, are exempt from the
compensating tax. It does not say so, because they do not really enjoy such
exemption, unless they comply with the provision in Section 20 of said Act, by
applying for the renovation of their respective utilization contracts, "in order to
avail of anyprovision of the Amendatory Act which is more favorable" to the
applicant. In other words, it is manifest, from the language of said section 20, that
the same intended to give such buyers the opportunity to be treated "in like manner
and to the same extent as an end-user filing his application after the approval of
this Amendatory Act." Like the "most-favored-nation-clause" in in-
ternational agreements, the aforementioned section 20 thus seeks, not to
discriminate or to create an exemption or exception, but to abolish the
discrimination, exemption or exception that would otherwise result, in favor of the
end-user who bought after June 17, 1961 and against one who bought prior
thereto. Indeed, it is difficult to find a substantial justification for the distinction
between the one and the other. As correctly held by the Tax Court in Philippine
Ace Lines, Inc. v. Commissioner of Internal Revenue (C. T. A. Nos. 964
and 984, January 25, 1963), and reiterated in the cases under consideration:
"x x x In providing that the favorable provision of Republic Act No. 3079 shall be
available to applicants for renovation of their utilization contracts, on condition
that said applicants shall voluntarily assume all the new obligations provided in the
new law, the law intends to place persons who acquired reparations goods before
the enactment of the amendatory Act on the same footing as those who acquire
reparations goods after its enactment. This is so because of the provision that once
an application for renovation of a utilization contract has been approved, the
favorable provisions of said Act shall be available to the applicant 'in like manner
and to the same extent, as an end-user filing his application after the approval of
this amendatory Act.' To deny exemption from compensating tax to one whose
utilization contract has been renovated, while granting the exemption to one who
files an application for acquisition of reparations goods after the approval of the
new law, would be contrary to the express mandate of the new law, that they both
be subject to the same privileges in like manner and to the same extent. It would
be manifest distortion of the literal meaning and purpose of the new law."

WHEREFORE, the appealed decision of the Court of Tax Appeals is hereby

affirmed in toto, without any pronouncement as to costs.

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,


G.R. No. 109446 October 3, 1994

The Court, first of all, should like to correct the apparent misconception that
general professional partnerships are subject to the payment of income tax or that
there is a difference in the tax treatment between individuals engaged in business
or in the practice of their respective professions and partners in general
professional partnerships. The fact of the matter is that a general professional
partnership, unlike an ordinary business partnership (which is treated as a
corporation for income tax purposes and so subject to the corporate income tax), is
not itself an income taxpayer. The income tax is imposed not on the professional
partnership, which is tax exempt, but on the partners themselves in their individual
capacity computed on their distributive shares of partnership profits. Section 23 of
the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional partnerships.
— (a) Persons exercising a common profession in general partnership
shall be liable for income tax only in their individual capacity, and the
share in the net profits of the general professional partnership to
which any taxable partner would be entitled whether distributed or
otherwise, shall be returned for taxation and the tax paid in
accordance with the provisions of this Title.

(b) In determining his distributive share in the net income of the

partnership, each partner —

(1) Shall take into account separately his distributive

share of the partnership's income, gain, loss, deduction,
or credit to the extent provided by the pertinent
provisions of this Code, and

(2) Shall be deemed to have elected the itemized

deductions, unless he declares his distributive share of
the gross income undiminished by his share of the

There is, then and now, no distinction in income tax liability between a person who
practices his profession alone or individually and one who does it through
partnership (whether registered or not) with others in the exercise of a common
profession. Indeed, outside of the gross compensation income tax and the final tax
on passive investment income, under the present income tax system all individuals
deriving income from any source whatsoever are treated in almost invariably the
same manner and under a common set of rules.

We can well appreciate the concern taken by petitioners if perhaps we were to

consider Republic Act No. 7496 as an entirely independent, not merely as an
amendatory, piece of legislation. The view can easily become myopic, however,
when the law is understood, as it should be, as only forming part of, and subject to,
the whole income tax concept and precepts long obtaining under the National
Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an
all embracing term used in the Tax Code, and it practically covers all persons who
derive taxable income. The law, in levying the tax, adopts the most comprehensive
tax situs of nationality and residence of the taxpayer (that renders citizens,
regardless of residence, and resident aliens subject to income tax liability on their
income from all sources) and of the generally accepted and internationally
recognized income taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine sources). In the
process, the Code classifies taxpayers into four main groups, namely: (1)
Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4)
Irrevocable Trusts (irrevocable both as to corpus and as to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt

partnerships." Ordinarily, partnerships, no matter how created or organized, are
subject to income tax (and thus alluded to as "taxable partnerships") which, for
purposes of the above categorization, are by law assimilated to be within the
context of, and so legally contemplated as, corporations. Except for few variances,
such as in the application of the "constructive receipt rule" in the derivation of
income, the income tax approach is alike to both juridical persons. Obviously,
SNIT is not intended or envisioned, as so correctly pointed out in the discussions in
Congress during its deliberations on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are independently subject to the payment of
income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as
corporations nor even considered as independent taxable entities for income tax
purposes. A general professional partnership is such an example.4 Here, the
partners themselves, not the partnership (although it is still obligated to file an
income tax return [mainly for administration and data]), are liable for the payment
of income tax in their individual capacity computed on their respective and
distributive shares of profits. In the determination of the tax liability, a partner does
so as an individual, and there is no choice on the matter. In fine, under the Tax
Code on income taxation, the general professional partnership is deemed to be no
more than a mere mechanism or a flow-through entity in the generation of income
by, and the ultimate distribution of such income to, respectively, each of the
individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the
above standing rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable
to all individual income taxpayers on their non-compensation income. There is no
evident intention of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the income tax treatment of
professionals who practice their respective professions individually and of those
who do it through a general professional partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on




JR., in his capacity as Executive Secretary, Office of the President, HON.
VICENTE JAYME, ETC., ET AL., Respondents.

Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum
Corporation.chanrobles virtual law library

Siguion Reyna, Montecillo & Ongsiako for Caltex.


Just like lightning which does strike the same place twice in some instances, this
matter of indirect tax exemption of the private respondent National Power
Corporation (NPC) is brought to this Court a second time. Unfazed by the Decision
We promulgated on May 31, 1991 1petitioner Ernesto Maceda asks this Court to
reconsider said Decision. Lest We be criticized for denying due process to the
petitioner. We have decided to take a second look at the issues. In the process, a
hearing was held on July 9, 1992 where all parties presented their respective
arguments. Etched in this Court's mind are the paradoxical claims by both
petitioner and private respondents that their respective positions are for the benefit
of the Filipino people.

The Court disagrees.chanroblesvirtualawlibrarychanrobles virtual law library

Applying by analogy the weight of authority that:

When a revised and consolidated act re-enacts in the same or substantially the
same terms the provisions of the act or acts so revised and consolidated, the
revision and consolidation shall be taken to be a continuation of the former act or
acts, although the former act or acts may be expressly repealed by the revised and
consolidated act; and all rights
and liabilities under the former act or acts are preserved and may be
enforced. 66chanrobles virtual law library

the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the
first half of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges
of all GOCC's said Section 1, P.D. No. 1931 was deemed to be a continuation of
the first half of Section 23, P.D. No. 1177, although the second half of Section 23,
P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had been
expressly repealed by Section 2 with its institution of the FIRB recommendation of
partial/total restoration of tax exemption
privileges.chanroblesvirtualawlibrarychanrobles virtual law library

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore,
the same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177.
NPC could no longer obtain a subsidy for the taxes it had to pay. It could, however,
under P.D. No. 1931, ask for a total restoration of its tax exemption privileges,
which, it did, and the same were granted under FIRB Resolutions Nos. 10-85 67and
1-86 68as approved by the Minister of
Finance.chanroblesvirtualawlibrarychanrobles virtual law library

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85

and 1-86 were both legally and validly issued by the FIRB pursuant to P.D. No.
1931. FIRB did not created NPC's tax exemption status but merely restored
it. 69chanrobles virtual law library

Some quarters have expressed the view that P.D. No. 1931 was illegally issued
under the now rather infamous Amendment No. 6 70as there was no showing that
President Marcos' encroachment on legislative prerogatives was justified under the
then prevailing condition that he could legislate "only if the Batasang Pambansa
'failed or was unable to act inadequately on any matter that in his judgment
required immediate action' to meet the 'exigency'. 71chanrobles virtual law library

Actually under said Amendment No. 6, then President Marcos could issue decrees
not only when the Interim Batasang Pambansa failed or was unable to act
adequately on any matter for any reason that in his (Marcos') judgment required
immediate action, but also when there existed a grave emergency or a threat or
thereof. It must be remembered that said Presidential Decree was issued only
around nine (9) months after the Philippines unilaterally declared a moratorium on
its foreign debt payments 72as a result of the economic crisis triggered by loss of
confidence in the government brought about by the Aquino assassination. The
Philippines was then trying to reschedule its debt payments. 73One of the big
borrowers was the NPC 74which had a US$ 2.1 billion white elephant of a Bataan
Nuclear Power Plant on its back. 75From all indications, it must have been this
grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No.
1931, under his Amendment 6 power. 76chanrobles virtual law library

The rule, therefore, that under the 1973 Constitution "no law granting a tax
exemption shall be passed without the concurrence of a majority of all the
members of the Batasang Pambansa" 77does not apply as said P.D. No. 1931 was
not passed by the Interim Batasang Pambansa but by then President Marcos under
His Amendment No. 6 power.chanroblesvirtualawlibrarychanrobles virtual law

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his
Amendment No. 6 authority.chanroblesvirtualawlibrarychanrobles virtual law

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by,
this time, President Aquino. Its section 2 allowed the NPC to apply for the
restoration of its tax exemption privileges. The same was granted under FIRB
Resolution No. 17-87 78dated June 24, 1987 which restored NPC's tax exemption
privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93
(S'86).chanroblesvirtualawlibrarychanrobles virtual law library
FIRB Resolution No. 17-87 was approved by the President on October 5,
1987. 79There is no indication, however, from the records of the case whether or
not similar approvals were given by then President Marcos for FIRB Resolutions
Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of
justice" might have occurred when the Minister of Finance approved his own
recommendation as Chairman of the Fiscal Incentives Review Board as what
happened in Zambales Chromate vs. Court of Appeals 80when the Secretary of
Agriculture and Natural Resources approved a decision earlier rendered by him
when he was the Director of Mines, 81and in Anzaldo vs. Clave 82where Presidential
Executive Assistant Clave affirmed, on appeal to Malacañang, his own decision as
Chairman of the Civil Service Commission. 83chanrobles virtual law library

Upon deeper analysis, the question arises as to whether one can talk about "due
process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were
approved by the Minister of Finance when the same were recommended by him in
his capacity as Chairman of the Fiscal Incentives Review Board. 84chanrobles
virtual law library

In Zambales Chromite and Anzaldo, two (2) different parties were involved:
mining groups and scientist-doctors, respectively. Thus, there was a need for
procedural due process to be followed.chanroblesvirtualawlibrarychanrobles
virtual law library

In the case of the tax exemption restoration of NPC, there is no other comparable
entity - not even a single public or private corporation - whose rights would be
violated if NPC's tax exemption privileges were to be restored. While there might
have been a MERALCO before Martial Law, it is of public knowledge that the
MERALCO generating plants were sold to the NPC in line with the State policy
that NPC was to be the State implementing arm for the electrification of the entire
country. Besides, MERALCO was limited to Manila and its environs. And as of
1984, there was no more MERALCO - as a producer of electricity - which could
have objected to the restoration of NPC's tax exemption
privileges.chanroblesvirtualawlibrarychanrobles virtual law library

It should be noted that NPC was not asking to be granted tax exemption privileges
for the first time. It was just asking that its tax exemption privileges be restored. It
is for these reasons that, at least in NPC's case, the recommendation and approval
of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86,
done by the same person acting in his dual capacities as Chairman of the Fiscal
Incentives Review Board and Minister of Finance, respectively, do not violate
procedural due process.chanroblesvirtualawlibrarychanrobles virtual law library

While as above-mentioned, FIRB Resolution No. 17-87 was approved by President

Aquino on October 5, 1987, the view has been expressed that President Aquino, at
least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB,
which was allegedly not a delegate of the legislature, the power delegated to her
thereunder.chanroblesvirtualawlibrarychanrobles virtual law library

A misconception must be cleared up.chanroblesvirtualawlibrarychanrobles virtual

law library

When E.O No. 93 (S'86) was issued, President Aquino was exercising both
Executive and Legislative powers. Thus, there was no power delegated to her,
rather it was she who was delegating her power. She delegated it to the FIRB,
which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly,
she was not sub-delegating her power.chanroblesvirtualawlibrarychanrobles virtual
law library

And E.O. No. 93 (S'86), as a delegating law, was complete in itself - it set forth the
policy to be carried out 85and it fixed the standard to which the delegate had to
conform in the performance of his functions, 86both qualities having been
enunciated by this Court in Pelaez vs. Auditor General. 87chanrobles virtual law

Thus, after all has been said, it is clear that the NPC had its tax exemption
privileges restored from June 11, 1984 up to the present.


The next question that projects itself is - who pays the tax?chanrobles virtual law
The answer to the question could be gleamed from the manner by which the
Commissaries of the Armed Forces of the Philippines sell their
goods.chanroblesvirtualawlibrarychanrobles virtual law library

By virtue of P.D. No. 83, 88veterans, members of the Armed of the Philippines, and
their defendants but groceries and other goods free of all taxes and duties if bought
from any AFP Commissaries.chanroblesvirtualawlibrarychanrobles virtual law

In practice, the AFP Commissary suppliers probably treat the unchargeable

specific, ad valorem and other taxes on the goods earmarked for AFP
Commissaries as an added cost of operation and distribute it over the total units of
goods sold as it would any other cost. Thus, even the ordinary supermarket buyer
probably pays for the specific, ad valorem and other taxes which theses suppliers
do not charge the AFP Commissaries. 89chanrobles virtual law library

IN MUCH THE SAME MANNER, it is clear that private respondents-oil

companies have to absorb the taxes they add to the bunker fuel oil they sell to
NPC.chanroblesvirtualawlibrarychanrobles virtual law library

It should be stated at this juncture that, as early as May 14, 1954, the Secretary of
Justice renders an opinion, 90wherein he stated and We quote:

xxx xxx xxxchanrobles virtual law library

Republic Act No. 358 exempts the National Power Corporation from "all taxes,
duties, fees, imposts, charges, and restrictions of the Republic of the Philippines
and its provinces, cities, and municipalities." This exemption is broad enough to
include all taxes, whether direct or indirect, which the National Power Corporation
may be required to pay, such as the specific tax on petroleum products. That it is
indirect or is of no amount [should be of no moment], for it is the corporation that
ultimately pays it. The view which refuses to accord the exemption because the tax
is first paid by the seller disregards realities and gives more importance to form
than to substance. Equity and law always exalt substance over from.

xxx xxx xxxchanrobles virtual law library

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
thwrat 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.chanroblesvirtualawlibrarychanrobles virtual law library

It should be noted at this point in time that the whole issue of who WILL pay these
indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195
issued on June 16, 1987 by virtue of which the ad valorem tax rate on bunker fuel
oil was reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as

EXECUTIVE ORDER NO. 195chanrobles virtual law library


xxx xxx xxxchanrobles virtual law library

Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as
amended, is hereby amended to read as follows:chanrobles virtual law library

Par. (b) - For products subject to ad valorem tax only:chanrobles virtual law library

PRODUCT AD VALOREM TAX RATEchanrobles virtual law library

1. . . .chanroblesvirtualawlibrarychanrobles virtual law library

2. . . .chanroblesvirtualawlibrarychanrobles virtual law library

3. . . .chanroblesvirtualawlibrarychanrobles virtual law library

4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more
or less the same generating power 0%

xxx xxx xxxchanrobles virtual law library

Sec. 3. This Executive Order shall take effect

immediately.chanroblesvirtualawlibrarychanrobles virtual law library

Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen
hundred and eighty-seven. (Emphasis supplied)

The oil companies can now deliver bunker fuel oil to NPC without having to worry
about who is going to bear the economic burden of the ad valorem taxes. What this
Court will now dispose of are petitioner's complaints that some indirect tax money
has been illegally refunded by the Bureau of Internal Revenue to the NPC and that
more claims for refunds by the NPC are being processed for payment by the
BIR.chanroblesvirtualawlibrarychanrobles virtual law library
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue
in favor of the NPC last July 7, 1986 for P58.020.110.79 which were for
"erroneously paid specific and ad valorem taxes during the period from October
31, 1984 to April 27, 1985. 91Petitioner asks Us to declare this Tax Credit Memo
illegal as the PNC did not have indirect tax exemptions with the enactment of P.D.
No. 938. As We have already ruled otherwise, the only questions left are whether
NPC Is entitled to a tax refund for the tax component of the price of the bunker
fuel oil purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal
Revenue properly refunded the amount to
NPC.chanroblesvirtualawlibrarychanrobles virtual law library

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs - NPC included, it was only on May 8, 1985 when
the BIR issues its letter authority to the NPC authorizing it to withdraw tax-free
bunker fuel oil from the oil companies pursuant to FIRB Resolution No. 10-
85. 92Since the tax exemption restoration was retroactive to June 11, 1984 there
was a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already
paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC
during the period above indicated and had billed NPC correspondingly. 93It should
be noted that the NPC, in its letter-claim dated September 11, 1985 to the
Commissioner of the Bureau of Internal Revenue DID NOT CATEGORICALLY
AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of
the bunker fuel oil price it purchased from Caltex (Phils) Inc. 94chanrobles virtual
law library

The law governing recovery of erroneously or illegally, collected taxes is section

230 of the National Internal Revenue Code of 1977, as amended which reads as

Sec. 230. Recover of tax erroneously or illegally collected. - No suit or proceeding

shall be maintained in any court for the recovery of any national internal revenue
tax hereafter alleged to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any Manner wrongfully collected. until a
claim for refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.chanroblesvirtualawlibrarychanrobles virtual law

In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment; Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly, to
have been erroneously paid.

xxx xxx xxx

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95the
Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax
exemption.chanroblesvirtualawlibrary chanrobles virtual law library

Petitioner, however, asks Us to restrain the Commissioner from acting favorably

on NPC's claim for P410.580,000.00 which represents specific and ad
valorem taxes paid by the oil companies to the BIR from June 11, 1984 to the early
part of 1986. 96chanrobles virtual law library

A careful examination of petitioner's pleadings and annexes attached thereto does

not reveal when the alleged claim for a P410,580,000.00 tax refund was filed. It is
only stated In paragraph No. 2 of the Deed of Assignment 97executed by and
between NPC and Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of
Internal Revenue amounting to P442,887,716.16. P58.020,110.79 of which is due
to Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.)

Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We
cannot restrain the BIR from refunding said amount because of Our ruling that
NPC has both direct and indirect tax exemption privileges. Neither can We order
the BIR to refund said amount to NPC as there is no pending petition for review
on certiorari of a suit for its collection before Us. At any rate, at this point in time,
NPC can no longer file any suit to collect said amount EVEN IF lt has previously
filed a claim with the BIR because it is time-barred under Section 230 of the
National Internal Revenue Code of 1977. as amended, which states:

In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty REGARDLESS of any
supervening cause that may arise after payment. . . . (Emphasis supplied)

The date of the Deed of Assignment is June 6. 1986. Even if We were to assume
that payment by NPC for the amount of P410,580,000.00 had been made on said
date. it is clear that more than two (2) years had already elapsed from said date. At
the same time, We should note that there is no legal obstacle to the BIR granting,
even without a suit by NPC, the tax credit or refund claimed by NPC, assuming
that NPC's claim had been made seasonably, and assuming the amounts covered
had actually been paid previously by the oil companies to the
BIR.chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of

petitioner is hereby DENIED for lack of merit and the decision of this Court
promulgated on May 31, 1991 is hereby
AFFIRMED.chanroblesvirtualawlibrarychanrobles virtual law library

G.R. No. L-14264 April 30, 1963


TIOSAN, plaintiffs-appellees,
Mayor of Pagbilao and CEFERINO CAPARROS as Municipal Treasurer of
Pagbilao, defendants-appellants.

Jose D. Villena for plaintiffs-appellees.

The above judgment is now before Us on appeal by the defendants, urging a
reversal thereof on seven counts, which converge on the following legal issues:

1) whether the defendant municipality can validly enact the ordinance in

question and collect the charges contained therein; and

2) whether plaintiff Tan is entitled to a refund of the fees paid to the

defendant municipality.

Appellants contend that aside from the general powers of the council to enact
ordinances and make regulations (Sec. 2238 of the Administrative Code),certain
provisions of said Code authorizes a municipality to establish a wharf and collect
wharfage fees, as compensation for its use, to wit —

SEC. 2242. Certain legislative powers of mandatory character.— It shall be

the duty of the municipal council, conformably with law:

xxx xxx xxx

(e) To regulate the construction, care, and use of streets, sidewalks, canals,
wharves and piers of the municipality, and prevent and remove obstacles and
encroachment on the same.

SEC. 2318. Municipal ferries, wharves, markets, etc. — A municipal

council shall have authority to acquire or establish municipal
ferries, wharves, markets, slaughterhouses, pounds, and cemeteries. Public
utilities thus owned by the municipality may be conducted by the municipal
authorities upon stipulated return to private parties.

Wherefore, the parties respectfully pray that the foregoing stipulation of

facts be admitted and approved by this Honorable Court, without prejudice
to the parties adducing other evidence to prove their case not covered by this
stipulation of facts. 1äwphï1.ñët

SEC. 2320. Establishment of certain public utilities by private parties under

license.— Where provision is not made by a municipal council, pursuant to
the provisions of the next two preceding sections hereof, for maintaining or
conducting ferries, wharves, markets, or slaughterhouses requisite for the
needs of the municipality, the council shall have authority, in its discretion,
to let the privilege of establishing and maintaining such utilities to private
parties by license granted upon such terms as shall be fixed by the council

Aside from the above provisions, Executive Order No. 255, dated April 1, 1940,

(6) Collection of berthing fees at municipal ports.-Municipalities may collect

berthing fees at municipal ports, pursuant to the provisions of section two thousand
three hundred eighteen (2318) of the Revised Administrative Code, not to exceed
those specified in paragraph (3) hereof, provided that such collection shall be
credited to a special fund and used only for the maintenance and improvement of
the port at which the collections are made.

Appellants further contended that the wharfage fees which section 3(t), of
Commonwealth Act No. 472, prohibits a municipality from collecting, are customs
charges levied in connection with the exportation or importation of goods abroad,
through ports of entry, as contemplated in the Tariff and Customs Code, but not the
ordinary wharfage rentals which a municipality may collect for the use of its
wharf, in relation to local trade and local products.

On the other hand, the appellees maintain that the appellant municipality was
devoid one right to pass the ordinance in question, since the Revised
Administrative Code also prohibits the imposition of tax on any goods or
merchandise carried into or out of the municipality. Section 2287 thereof, provides

SEC. 2287. Fundamental principles governing municipal taxation. — ... It

shall not be in the power of the council to impose a tax in any form whatever
upon goods and merchandise carried into the municipality, or out of the
same, and any attempt to impose an import or export tax upon such goods in
the guise of an unreasonable charge for wharfage, use of bridges or
otherwise shall be void.
Moreover, any power granted by the Administrative Code to municipalities
had been impliedly repealed or withdrawn by Commonwealth Act No. 472,
the pertinent portions of which read —

SEC. 3. It shall be beyond the power of the municipal council and municipal
district council to impose the following taxes, charges and fees:

xxx xxx xxx

Customs duties, registration, wharfage, tonnage and other kinds of customs

fees, charges and duties.

In the light of the legal provisions applicable, We are of the opinion that the
ordinance in question, is ultra vires, and hence, null and void. The ordinance calls
for a specific tax. It charges a specific sum, ranging from one centavo and up, by
the head or number, and requires no assessment beyond a listing and classification
of the objects to be charged..

A tax which imposes a specific sum by the head or number, or some

standard weight or measurement, and which requires no assessment beyond
a listing and classification of the objects to be taxed is specific tax. (We Wa
Yu v. City of Lipa, G.R. No. L-9167, Sept. 27, 1956)

Aside from being a specific tax, its nature as wharfage fee is also clear from the
import of the ordinance, specifically paragraph 1, which recites -.

PANGKAT 1.— Ang lahat na mayari o tagapangasiwa ng mga sasakyan sa

pantalang bayan, ay dapat magbigay-alam sa kinauukulang katiwala ng
pamahalaan, upang maisaayos ang pagdaung, pagbaba at pagsakay ng mga
kargamentos at iba pa.

The phraseology of the above paragraph points to the fact that the charges
collected pursuant thereto, correspond to the words "berthing, unloading and
loading of cargoes or merchandise" which fall under the category of wharfage fees.
The change or the designation of the said fees as "rental of municipal property" did
not change their basic character as "wharfage fees". Being a specific tax, the
municipality has no right to impose the same, for taxation is an attribute of
sovereignty which municipal corporation do not enjoy (Santo Lumber Co., et al v.
City of Cebu, et al., L-10196, Jan. 22, 1958; 54 O.G. 5327; Saldana v. City of
Iloilo, L-10470, June 26, 1958). It shall not be in the power of the council to
impose a tax in any form whatever upon goods and merchandise carried into the
municipality or out of the same, and any attempt to impose such tax in the guise of
wharfage fee or charge is void (Sec. 2287, Rev. Adm. Code). And being wharfage
fee (Phil. Sugar Central v. Coll. of Customs, 51 Phil. 131), it is likewise beyond the
power of the municipal council and municipal district council to impose (Sec. 3,
Comm. Act No. 472, supra).

In the case at bar, aside from the fact that the right of the municipality to collect
wharfage fees is doubtful for, at most, its claim is based merely by inference,
implications and deductions, which have no place in the interpretation of the power
to tax of a municipal corporation (Icard v. City Council of Baguio, et al., 46 Off.
Gaz., Suppl. No. 11, p. 320; Medina, et al. v. City of Baguio, 48 Off. Gaz., 11, p.
4729) no less than two Secretaries of the Department of Justice, (Secretaries Jose
Abad Santos & Bengzon) expressed the opinion that, "in view of section 3,
paragraph (t), Commonwealth Act No. 472, which expressly forbids municipalities
from imposing wharfage fees, a municipal ordinance levying wharfage or berthing
fees is illegal and void, ... (Opinion No. 373, series of 1940 and No. 165, series of
1951). Opinions and rulings of officials of the government called upon to execute
or implement administrative laws command much respect and weight (Regalado v.
Yulo, 61 Phil. 173; Grapilon v. Mun. Council of Carigara, L-12347, May 30, 1961)

It should be noted that previous to the ordinance in question (No. 11), ordinance
No. 9 was enacted by the same municipal council, providing for "wharfage fees"
for goods and merchandise only. But because the Provincial Board ruled the to be
null and void, because the prescribed fees were unreasonable and were obviously
export or import taxes in the guise of wharfage fees which are contrary to the
provisions of section 2287 of the Administrative Code, the municipal council of
Pagbilao enacted Ordinance No. 11, providing for the wharfage of boats and
vessels and of goods and merchandise; and while it fixed the fees or charges for
loading and unloading goods and merchandise, it did not state the berthing fees for
boats and vessels carrying the goods, all of which go to show that the council
wanted only to impose specific tax on the goods and merchandise, which was the
same objective it had, when the annulled Ordinance No. 9 was promulgated.

The question as to whether or not the charges paid should be returned, must be
answered in the affirmative. Not only were the payments made under protest, but
they were also collected under an invalid ordinance. In a number of cases, We have
ruled that monies collected under invalid acts or tax laws are refundable, even if
the payments were voluntary (East Asiatic Co., Ltd. v. City of Davao, L-16253,
Aug. 21, 1962).

It is insinuated that invalidating the ordinance would leave the municipality with
no means to defray the expenses for operation, repair and maintenance of the wharf
in question. It would seem, however, that the municipality will not be absolutely
helpless and hopeless, for there is always some remedy somewhere, and those
indicated in sections 2318 and 2320 of the Adm. Code, (supra) may be availed of.

IN VIEW OF ALL THE FOREGOING, we find that the decision appealed from is
in conformity with the law and jurisprudence on the matter. The same should be, as
it is hereby affirmed, in all respects. No costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Barrera, Dizon and

Regala, JJ., concur.
Makalintal, J., concurs in the result.
Padilla and Reyes, J.B.L., JJ., took no part.

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

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

ROMEO F. EDU in his capacity as Land Transportation Commissioner, and
UBALDO CARBONELL, in his capacity as National Treasurer, defendants-

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

It appears clear from the above 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. On the
other hand, the Philippine Rabbit case mentions a presumption arising from the use
of the term "fees," which appears to have been favored by the legislature to
distinguish fees from other taxes such as those mentioned in Section 13 of Rep.
Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.—No original registration

of motor vehicles subject to payment of taxes, customs s duties or
other charges shall be accepted unless proof of payment of the taxes
due thereon has been presented to the Commission.

referring to taxes other than those imposed on the registration, operation or

ownership of a motor vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation, As stated by a former presiding judge of the Court of Tax
Appeals and writer on various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License

fees are changes. looked to as a source of revenue as well as a means
of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for
example, of automobile license fees. Isabela such case, the fees may
properly be regarded as taxes even though they also serve as an
instrument of regulation. 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. (1955 CCH Fed. tax Course, Par.
3101, citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v.
Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These
exactions are sometimes called regulatory taxes. (See Secs. 4701,
4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code
of 1954, which classify taxes on tobacco and alcohol as regulatory
taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley
on Taxation, 2nd Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v.
Araneta, 98 Phil. 148).

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 (Umali, Id.) Such is
the case of motor vehicle registration fees. The conclusions become inescapable in
view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same
provision appears as Section 591-593). in the Land Transportation code. It is patent
therefrom that the legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor vehicle as a "tax
or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the
imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the
registration or operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur ..." making the intent to impose a tax more
apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an
"additional" tax," where the law could have referred to an original tax and not
one in addition to the tax already imposed on the registration, operation, or
ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction
under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448
need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as
the special permit fees for certain types of motor vehicles (Sec. 10) and additional
fees for change of registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus, they are not
mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle
registration fee and chauffers' license fee. Such fees are to go into the expenditures
of the Land Transportation Commission as provided for in the last proviso of see.
61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional.
intended only for rigidly purposes in the exercise of the State's police powers. Over
the years, however, as vehicular traffic exploded in number and motor vehicles
became absolute necessities without which modem life as we know it would stand
still, Congress found the registration of vehicles a very convenient way of raising
much needed revenues. Without changing the earlier deputy. of registration
payments as "fees," their nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present
exacted pursuant to the Land Transportation and Traffic Code are actually taxes
intended for additional revenues. of government even if one fifth or less of the
amount collected is set aside for the operating expenses of the agency
administering the program.

May the respondent administrative agency be required to refund the amounts stated
in the complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the
records as to what payments were made in succeeding years. We have ruled that
Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax
exemptions Of corporate taxpayers found in legislative franchises similar to that
invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et

al. (G.R. No. 615)." July 11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957,
petitioner Radio Communications of the Philippines, Inc., was subject
to both the franchise tax and income tax. In 1964, however,
petitioner's franchise was amended by Republic Act No. 41-42). to the
effect that its franchise tax of one and one-half percentum (1-1/2%) of
all gross receipts was provided as "in lieu of any and all taxes of any
kind, nature, or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national from which
taxes the grantee is hereby expressly exempted." The issue raised to
this Court now is the validity of the respondent court's decision which
ruled that the exemption under Republic Act No. 41-42). was repealed
by Section 24 of Republic Act No. 5448 dated June 27, 1968 which

"(d) The provisions of existing special or general laws to

the contrary notwithstanding, all corporate taxpayers not
specifically exempt under Sections 24 (c) (1) of this Code
shall pay the rates provided in this section. All
corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government
Service Insurance System and the Social Security System
but excluding educational institutions, shall pay such rate
of tax upon their taxable net income as are imposed by
this section upon associations or corporations engaged in
a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows

clearly that the law intended all corporate taxpayers to pay income
tax as provided by the statute. There can be no doubt as to the power
of Congress to repeal the earlier exemption it granted. Article XIV,
Section 8 of the 1935 Constitution and Article XIV, Section 5 of the
Constitution as amended in 1973 expressly provide that no franchise
shall be granted to any individual, firm, or corporation except under
the condition that it shall be subject to amendment, alteration, or
repeal by the legislature when the public interest so requires. There is
no question as to the public interest involved. The country needs
increased revenues. The repealing clause is clear and unambiguous.
There is a listing of entities entitled to tax exemption. The petitioner is
not covered by the provision. Considering the foregoing, the Court
Resolved to DENY the petition for lack of merit. The decision of the
respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were
correctly imposed because the tax exemption in the franchise of PAL was repealed
during the period. However, an amended franchise was given to PAL in 1979.
Section 13 of Presidential Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the

grantee shall pay to the Philippine Government during the lifetime of
this franchise whichever of subsections (a) and (b) hereunder will
result in a lower taxes.)
(a) The basic corporate income tax based on the grantee's
annual net taxable income computed in accordance with
the provisions of the Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross

revenues. derived by the grantees from all specific.
without distinction as to transport or nontransport
corporations; provided that with respect to international
airtransport service, only the gross passengers, mail, and
freight revenues. from its outgoing flights shall be subject
to this law.

The tax paid by the grantee under either of the above alternatives shall
be in lieu of all other taxes, duties, royalties, registration, license and
other fees and charges of any kind, nature or description imposed,
levied, established, assessed, or collected by any municipal, city,
provincial, or national authority or government, agency, now or in the
future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license,
acquisition, and transfer of airtransport equipment, motor vehicles,
and all other personal or real property of the gravitates (Pres. Decree
1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found
in the earlier law. PAL is now exempt from the payment of any tax, fee, or other
charge on the registration and licensing of motor vehicles. Such payments are
already included in the basic tax or franchise tax provided in Subsections (a) and
(b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund
of registration fees paid in 1971 is DENIED. The Land Transportation Franchising
and Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or
other charge on the registration and licensing of the petitioner's motor vehicles
from April 9, 1979 as provided in Presidential Decree No. 1590.