G.R. No.

92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non-revenue / special /
regulatory
Ponente: Davide, Jr. J.

DOCTRINE:
A taxpayer may not offset taxes due from the claims that he may have against the government.

QUICK FACTS: Caltex Philippines questions the decisions of COA for disallowing the offsetting of
its claims for reimbursement with its due OPSF remittance

FACTS:

The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as amended by EO
137 for the purpose of minimizing frequent price changes brought about by exchange rate
adjustments. It will be used to reimburse the oil companies for cost increase and possible cost
underrecovery incurred due to reduction of domestic prices.

COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex
requested COA for an early release of its reimbursement certificates which the latter denied.

COA disallowed recover of financing charges, inventory losses and sales to marcopper and atlas
but allowed the recovery of product sale or those arising from export sales.

Petitioner’s Contention:
Department of Finance issued Circular No. 4-88 allowing reimbursement. Denial of claim for
reimbursement would be inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the
Revised Administrative Code (Retention of Money for Satisfaction of Indebtedness to
Government) allows offsetting.

Amounts due do not arise as a result of taxation since PD 1956 did not create a source of
taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions
distinguishes it from tax.

Respondent’s Contention:
Based on Francia v. IAC, there’s no offsetting of taxes against the the claims that a taxpayer may
have against the government, as taxes do not arise from contracts or depend upon the will of
the taxpayer, but are imposed by law.

ISSUE: WON Caltex is entitled to offsetting

DECISION: NO. COA AFFIRMED

HELD:
 It is settled that a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each other and a
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off.
 Technically, the oil companies merely act as agents for the Government in the latter’s
collection since the taxes are, in reality, passed unto the end-users – the consuming
public. Their primary obligation is to account for and remit the taxes collection to the
administrator of the OPSF.
 There is not merit in Caltex’s contention that the OPSF contributions are not for a public
purpose because they go to a special fund of the government. Taxation is no longer
envisioned as a measure merely to raise revenue to support the existence of the
government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the State.
 The oil industry is greatly imbued with public interest as it vitally affects the general
welfare.
 PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is
taxation.

TIO vs. VIDEOGRAM REGULATORY BOARD

Citation: 151 SCRA 208; G.R. No. L-75697; June 18, 1987
Ponente: Melencio-Herrera, J.

DOCTRINES:
Validity of law; title of bill – The Constitutional requirement that "every bill shall embrace only
one subject which shall be expressed in the title thereof" is sufficiently complied with if the title
be comprehensive enough to include the general purpose which a statute seeks to achieve. It is
not necessary that the title express each and every end that the statute wishes to accomplish.
The requirement is satisfied if all the parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they are not inconsistent with or foreign to
the general subject and title.

Taxation; security against oppressive taxation – The power to impose taxes is one so unlimited in
force and so searching in extent, that the courts scarcely venture to declare that it is subject to
any restrictions whatever, except such as rest in the discretion of the authority which exercises it.
In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.

Taxation as a revenue and regulatory measure – The tax imposed by the DECREE is not only a
regulatory but also a revenue measure prompted by the realization that earnings of videogram
establishments of around P600 million per annum have not been subjected to tax, thereby
depriving the Government of an additional source of revenue. . . . The levy of the 30% tax is for a
public purpose. It was imposed primarily to answer the need for regulating the video industry,
particularly because of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was also an objective of
the DECREE to protect the movie industry, the tax remains a valid imposition.
Undue delegation of legislative power – The grant in Section 11 of the DECREE of authority to
the BOARD to "solicit the direct assistance of other agencies and units of the government and
deputize, for a fixed and limited period, the heads or personnel of such agencies and units to
perform enforcement functions for the Board" is not a delegation of the power to legislate but
merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law,
which necessarily involves a discretion as to what it shall be, and conferring authority or
discretion as to its execution to be exercised under and in pursuance of the law. The first cannot
be done; to the latter, no valid objection can be made." Besides, in the very language of the
decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period"
with the deputized agencies concerned being "subject to the direction and control of the
BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties
will not be without adequate remedy in law.

FACTS:
Valentin Tio is a videogram establishment operator adversely affected by Presidential Decree No.
1987 entitled "An Act Creating the Videogram Regulatory Board".

P.D. No. 1987 provides for the levy of a tax over each cassette sold (Sec. 134) and a 30% tax on
the gross receipts of a videogram establishment, payable to the local government (Sec. 10). The
rationale for this decree is set forth in its preambulatory/whereas clauses to wit:

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

others, videotapes, discs, cassettes ... have greatly prejudiced the operations of moviehouses
and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent
(40%) and a tremendous drop in the collection of [taxes] thereby resulting in substantial losses
estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been subjected to
tax, thereby depriving the Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, ...;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate
the dire financial condition of the movie industry ..., but also provide an additional source of
revenue for the Government, and at the same time rationalize the heretofore uncontrolled
distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a
clear and present danger to the moral and spiritual well-being of the youth [READ: PORN], and
impairs the mandate of the Constitution for the State to support the rearing of the youth for
civic efficiency and the development of moral character and promote their physical, intellectual,
and social well-being;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people
[AGAIN, READ: PORN] and betraying the national economic recovery program, bold emergency
measures must be adopted with dispatch; (emphasis supplied and certain passages omitted)

ISSUES:
The petioner, among others, raised the following issues:

1. Whether or not the imposition of the 30% tax is a rider and the same is not germane to the
subject matter of the law.

2. Whether or not there is undue delegation of power and authority; and

HELD:
1. No, the tax is not a rider and is germane to the purpose and subject of the law.

The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" is sufficiently complied with if the title be comprehensive enough
to include the general purpose which a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to accomplish. The requirement is satisfied if
all the parts of the statute are related, and are germane to the subject matter expressed in the
title, or as long as they are not inconsistent with or foreign to the general subject and title.

Reading section 10 of P.D. No. 1987 closely, one can see that the foregoing provision is allied and
germane to, and is reasonably necessary for the accomplishment of, the general object of the
law, which is the regulation of the video industry through the Videogram Regulatory Board as
expressed in its title. The tax provision is not inconsistent with, nor foreign to that general
subject and title. As a tool for regulation it is simply one of the regulatory and control
mechanisms scattered throughout the decree.

Aside from revenue collection, tax laws may also be enacted for the purpose of regulating an
activity. At the same time, the videogram industry is also an untapped source of revenue which
the government may validly tax. All of this is evident from preambulatory clauses nos. 2, 5, 6 and
8, quoted in part above.

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

2. No. There was no undue delegation of law making authority.

Petitioner was concerned that Section 11 of P.D. No. 1987 stating that the videogram board
(Board) has authority to "solicit the direct assistance of other agencies and units of the
government and deputize, for a fixed and limited period, the heads or personnel of such
agencies and units to perform enforcement functions for the Board" is an undue delegation of
legislative power.
This is not a delegation of the power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation. "The true distinction is
between the delegation of power to make the law, which necessarily involves a discretion as to
what it shall be, and conferring authority or discretion as to its execution to be exercised under
and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." Besides, in the very language of the decree, the authority of the Board to solicit such
assistance is for a "fixed and limited period" with the deputized agencies concerned being
"subject to the direction and control of the Board."

The petition was DISMISSED.

PEPSI-COLA vs MUNICIPALITY OF TANAUAN G.R. No. L-31156 February 27, 1976

Facts: The municipality of Tanauan, Leyte enacted two ordinances in 1962:
The first one, Municipal Ordinance No. 23 levies and collects "from soft drinks producers and
manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked."
For the purpose of computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total
number of bottles produced and corked during the month.
Municipal Ordinance No. 27 levies and collects "on soft drinks produced or manufactured within
the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity." For the purpose of computing the taxes due, the person,
firm, company, partnership, corporation or plant producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total number of gallons produced or manufactured
during the month.
Pepsi-Cola commenced a complaint with preliminary injunction before the Court of First Instance
of Leyte for that court to declare Section 2 of the Local Autonomy Act unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27 null and
void. Section 2 of the Local Autonomy Act of 1959 provides: “xxx, all chartered cities,
municipalities and municipal district shall have authority to impose municipal license taxes or
fees upon persons engaged in any occupation or business, or exercising privileges in chartered
cities, municipalities or municipal districts xxxx.” Pepsi said both Ordinances Nos. 23 and 27
embrace or cover the same subject matter and the production tax rates imposed therein are
practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of
Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in
said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance
No. 27 series of 1962.
Issues: 1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive and invalid as double taxation? 2. — Do Ordinances Nos. 23 and 27 constitute double
taxation and impose percentage or specific taxes? 3. — Are Ordinances Nos. 23 and 27 unjust
and unfair?
Held: 1. As to undue delegation: The rule is that the power of taxation is purely legislative and
cannot be delegated. The exception, however, lies in the case of municipal corporations.
Legislative powers may be delegated to local governments in respect of matters of local concern.
By necessary implication, the legislative power to create political corporations for purposes of
local self-government carries with it the power to confer on such local governmental agencies
the power to tax. Moreover, under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy taxes. The plenary
nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive.
As to the ordinances being confiscatory and oppressive: The taking of property without due
process of law may not be passed over under the guise of taxing power. This is not to say though
that the constitutional injunction against deprivation of property without due process of law
may be passed over under the guise of the taxing power, except when the taking of the property
is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the
rule on uniformity of taxation is observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the assessment and collection of
certain kinds of taxes notice and opportunity for hearing are provided. Due process does not
require that the property subject to the tax or the amount of tax to be raised should be
determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally not necessary to due process of law.
As to the municipal ordinance being invalid on the ground of double taxation resulting for
delegation by the National Government: There is no validity to the assertion that the delegated
authority can be declared unconstitutional on the theory of double taxation. It must be observed
that the delegating authority specifies the limitations and enumerates the taxes over which local
taxation may not be exercised. Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the
same purpose, but not in a case where one tax is imposed by the State and the other by the city
or municipality.
2. There is no double taxation here. Ordinance No. 23, the first tax, levies or collects from soft
drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle
corked, irrespective of the volume contents of the bottle used. When it was discovered that the
producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27 imposing a tax of one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference
between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance
No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity.
The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it
was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the
latter, even without words to that effect. Moreover, the municipality mentioned in its letter that
it was only seeking to enforce Ordinance No. 27, series of 1962.
[As to the remaining Ordinance No. 27 imposes a percentage or a specific tax? Undoubtedly, the
taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything, accepting those which are mentioned
therein." As long as the tax levied under the authority of a city or municipal ordinance is not
within the exceptions and limitations in the law, the same comes within the ambit of the general
rule. The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax except gasoline, under the provisions of the National
Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer
imposes a sales tax and is null and void for being outside the power of the municipality to enact.
The imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake
of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is
levied on the produce (whether sold or not) and not on the sales. The volume capacity of the
taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate
on the products, but there is not set ratio between the volume of sales and the amount of the
tax.
Nor can the tax levied on softdrinks be treated as a specific tax. Specific taxes are those imposed
on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other
than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker
fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-
forming drugs. Soft drink is not one of those specified.]
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per case is not unjust
and unfair. Municipal corporations are allowed much discretion in determining the rates of
imposable taxes. This is in line with the constitutional policy of according the widest possible
autonomy to local governments in matters of local taxation. Unless the amount is so excessive as
to be prohibitive, courts will go slow in writing off an ordinance as unreasonable.

Association of Small Landowners in the Philippines v. Honorable Secretary of

Agrarian Reform
G.R. No. 78742
July 14, 1989
Ponente: CRUZ, J.

FACTS
 Cases have been consolidated because they involve common legal questions. They will
be subject to one common discussion and resolution.
G.R. No. 79777:
 The petitioners are Nicolas Manaay and his wife who own a 9-hectare riceland worked by
four tenants and Augustin Hermano, Jr. who owns a 5-hectare riceland worked by four
tenants. They question the constitutionality of P.D. No. 27, E.O. Nos. 228 & 229, and
R.A. No. 6657 since their tenants were declared full owners of the mentioned lands.
G.R. No. 79310
 Landowners and sugar planters in the Victorias Mill District, Victorias, Negros
Occidental and Planters’ Committee Inc., with 1400 planter-members, submitted a
petition seeking to prohibit the implementation of Proc. No. 131 and E.O. No. 229.
 Aug. 27, 1987 – A motion for intervention was filed by the National Federation of
Sugarcane Planters, which claim 20 000 members). It was granted by the court.
 Sept. 10, 1987 – A motion for intervention was filed by Manuel Barcelona, et al.,
representing coconut and riceland owners. It was granted by the court.
G.R. No. 79744
 Sept. 3 1986 – The petitioner protested the erroneous inclusion of his small landholding
under Operation Land Transfer accusing the then Secretary of DAR of violation of due
process and the requirement for just compensation. Certificates of Land Transfer were
 issued to the private respondents who then refused to pay lease rentals. The petitioner is
asking for the recall and cancellation of these certificates.
 Dec. 24, 1986 – Petitioner claims his petition was denied without hearing.
 Feb. 17, 1987 – A motion for reconsideration was filed which had not been acted upon
when E.O. Nos. 228 & 229 were issued which rendered his motion moot.

ISSUES
1. Whether or not the President had the power to promulgate Proc. No. 131 and E.O. Nos.
228 & 229
2. Whether or not the President had the legislative power for issuing the measures
3. Whether or not Proc. No. 131 conforms to the requirements of a valid appropriation as
specified in the Constitution
4. Whether or not Proc. No. 131 and E.O. No. 229 should be invalidated because they do
not provide for retention limits required by Article 13, Section 4 of the Constitution
5. Whether or not E.O. No. 229 violates constitutional requirement that a bill should only
have one subject, to be expressed in its title
6. Whether or not the writ of mandamus can issue to compel the performance of a
discretionary act, especially by a specific department of the government.
7. Whether this statute is an exercise of police power or the power of eminent domain
8. Whether or not the statutes are valid exercises of police power
9. Whether or not the equal protection clause was violated
10. Whether or not the content and manner of the just compensation provided for in the
CARP Law is not violative of the Constitution
11. Whether or not there is contravention of a well- accepted principle of eminent domain by
divesting the landowner of his property even before actual payment to him in full of just
compensation

RULING
1. YES. P.D. No. 27 by President Marcos during Martial Law has been sustained in
Gonzales v. Estrella. President Aquino is authorized under Section 6 of the Transitory
Provisions of the 1987 Constitution to promulgate Proc. No. 131 and E.O. Nos. 228 &
229.
2. YES. The said measures were issued before July 27, 1987, when the Congress was
formally convened and took over legislative power.
3. NO. Proc. No. 131 is not an appropriation measure for that is not its principal purpose
and therefore is not required to conform to the requirements.
4. NO. R.A. No. 6657 does provide for such limits now in Section 6 of the law.
5. NO. It is settled that the title of the bill does not have to be a catalogue of its contents and
will suffice if the matters embodied in the text are relevant to each other and may be
inferred from the title.
6. NO. The rule is that mandamus will lie to compel the discharge of the discretionary duty
itself but not to control the discretion to be exercised. In other words, mandamus can
issue to require action only but not specific action.
7. It is an exercise of the power of eminent domain because there is payment of just
compensation unlike in the exercise of police power wherein confiscation of property is
not compensable.
 8. YES. A statute may be sustained under the police power only if there is a concurrence of
the lawful subject and the lawful method. As the subject and purpose of agrarian reform
have been laid down by the Constitution itself, we may say that the first requirement has
been satisfied. What remains to be examined is the validity of the method employed to
achieve the constitutional goal.
9. NO. The petitioners have not shown that they belong to a different class and entitled to a
different treatment. The argument that not only landowners but also owners of other
properties must be made to share the burden of implementing land reform must be
rejected. There is a substantial distinction between these two classes of owners that is
clearly visible except to those who will not see.
10. NO. It is declared that although money is the traditional mode of payment, other modes
of payment shall be permitted as compensation. The court accepts the theory that
payment of the just compensation is not always required to be made fully in money, they
find further that the proportion of cash payment to the other things of value constituting
the total payment, as determined on the basis of the areas of the lands expropriated, is not
unduly oppressive upon the landowner. The other modes, which are likewise available to
the landowner at his option, are also not unreasonable because payment is made in shares
of stock, LBP bonds, other properties or assets, tax credits, and other things of value
equivalent to the amount of just compensation.
(Court: We do not mind admitting that a certain degree of pragmatism has influenced our decision on this
issue. The Court is as acutely anxious as the rest of our people to see the goal of agrarian reform achieved at
last after the frustrations and deprivations of our peasant masses during all these disappointing decades. We
are aware that invalidation of the said section will result in the nullification of the entire program, killing the
farmer's hopes even as they approach realization and resurrecting the spectre of discontent and dissent in the
restless countryside. That is not in our view the intention of the Constitution, and that is not what we shall
decree today.)
11. NO. The CARP Law conditions the transfer of possession and ownership of the land to
the government on receipt by the landowner of the corresponding payment or the deposit
by the DAR of the compensation in cash or LBP bonds with an accessible bank. Until
then, title also remains with the landowner.

DISPOSITIVE
WHEREFORE, the Court holds as follows:
1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and E.O. Nos. 228 and 229 are
SUSTAINED against all the constitutional objections raised in the herein petitions.
2. Title to all expropriated properties shall be transferred to the State only upon full
payment of compensation to their respective owners.
3. All rights previously acquired by the tenant- farmers under P.D. No. 27 are retained
and recognized.
4. Landowners who were unable to exercise their rights of retention under P.D. No. 27
shall enjoy the retention rights granted by R.A. No. 6657 under the conditions therein
prescribed.
5. Subject to the above-mentioned rulings all the petitions are DISMISSED, without
pronouncement as to costs.
CIR v. CENTRAL LUZON DRUG CORPORATION, GR No. 159610, 2008-06-12

Facts:

Respondent is a domestic corporation engaged in the retail of medicines and other

pharmaceutical products.[5] In 1997, it operated eight drugstores under the business name and
style "Mercury Drug."

Pursuant to the provisions of RA 7432 and Revenue Regulations No. (RR) 2-94[7] issued by the
Bureau of Internal Revenue (BIR), respondent granted 20% sales discount to qualified senior
citizens on their purchases of medicines covering the calendar year

The sales discount granted to senior citizens totaled P2,798,508.00.

On 15 April 1998, respondent filed its 1997 Corporate Annual Income Tax Return reflecting a nil
income tax liability due to net loss incurred from business operations of P2,405,140.00.

Respondent alleged that the overpaid tax was the result of the wrongful implementation... of RA
7432. Respondent treated the 20% sales discount as a deduction from gross sales in compliance
with RR 2-94 instead of treating it as a tax credit as provided under Section 4(a) of RA 7432

On 6 April 2000, respondent filed a Petition for Review with the CTA in order to toll the running
of the two-year statutory period within which to file a judicial claim. Respondent reasoned that
RR 2-94, which is a mere implementing administrative regulation, cannot modify,... alter or
amend the clear mandate of RA 7432. Consequently, Section 2(i) of RR 2-94 is without force and
effect for being inconsistent with the law it seeks to implement.

In his Answer, petitioner stated that the construction given to a statute by a specialized
administrative agency like the BIR is entitled to great respect and should be accorded great
weight.

the CTA rendered a Decision ordering petitioner to issue a tax credit certificate in the amount of
P2,376,805.63 in favor of respondent.

he Court of Appeals affirmed the CTA's decision in toto.

he Court of Appeals disagreed with petitioner's contention that the CTA's decision applied a
literal interpretation of the law. It reasoned that under the verba legis rule, if the statute is clear,
plain, and free from ambiguity, it must be given its literal... meaning and applied without
interpretation. This principle rests on the presumption that the words used by the legislature in a
statute correctly express its intent and preclude the court from construing it differently.

Issues:

Whether the appellate court erred in holding that respondent may claim the 20% senior citizens'
sales discount as a tax credit deductible from future income tax liabilities instead of a mere
deduction from gross income or gross sales; and

Whether the appellate court erred in holding that respondent is entitled to a refund.
Ruling:

The petition lacks merit.

The issues presented are not novel. In two similar cases involving the same parties where
respondent lodged its claim for tax credit on the senior citizens' discount granted in 1995[22]
and 1996,[23] this Court has squarely ruled that... the 20% senior citizens' discount required by
RA 7432 may be claimed as a tax credit and not merely a tax deduction from gross sales or gross
income. Under RA 7432, Congress granted the tax credit benefit to all covered establishments
without conditions. The net loss... incurred in a taxable year does not preclude the grant of tax
credit because by its nature, the tax credit may still be deducted from a future, not a present, tax
liability. However, the senior citizens' discount granted as a tax credit cannot be refunded.

RA 7432 expressly allows private establishments... to claim the amount of discounts they grant
to senior citizens... as tax credit.

Tax credit is defined as a peso-for-peso reduction from a taxpayer's tax liability. It is a direct
subtraction from the tax payable to the government.

On the other hand, RR 2-94 treated the amount of senior citizens' discount as a tax deduction
which is only a subtraction... from gross income resulting to a lower taxable income.

RR 2-94 affords merely a fractional reduction in the... taxes payable to the government
depending on the applicable tax rate.

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,[24] the Court ruled that
petitioner's definition in RR 2-94 of a tax credit is clearly erroneous.

To deny the tax credit, despite the plain mandate of the law, is indefensible.

In

Commissioner of Internal Revenue v. Central Luzon Drug Corporation, the Court declared, "When
the law says that the cost of the discount may be claimed as a tax credit, it means that the
amount-- when claimed ― shall be treated as a reduction from any tax... liability, plain and
simple."

The tax credit may still be deducted from a future, not a present, tax liability.

In the petition filed before this Court, petitioner alleged that respondent incurred a net loss from
its business operations in 1997; hence, it did not pay any income tax. Since no tax payment was
made, it follows that no tax credit can also be claimed because tax credits are... usually applied
against a tax liability.[25]

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,[26] the Court stressed
that prior payment of tax liability is not a pre-condition before a taxable entity can avail of the
tax credit. The Court declared, "Where there is no tax... liability or where a private establishment
reports a net loss for the period, the tax credit can be availed of and carried over to the next
taxable year."[27] It is irrefutable that under RA 7432, Congress has granted the tax credit
benefit to all covered... establishments without conditions. Therefore, neither a tax liability nor a
prior tax payment is required for the existence or grant of a tax credit.[28] The applicable law on
this point is clear and without any qualifications.[29]

Hence, respondent is entitled to claim the amount of P2,376,805.63 as tax credit despite
incurring net loss from business operations for the taxable year 1997.

The senior citizens' discount may be claimed... as a tax credit and not a refund.

Section 4(a) of RA 7432 expressly provides that private establishments may claim the cost as a
tax credit. A tax credit can only be utilized as payment for future internal revenue tax liabilities of
the taxpayer while a tax refund, issued as a check or a warrant, can be... encashed. A tax refund
can be availed of immediately while a tax credit can only be utilized if the taxpayer has existing
or future tax liabilities.

RA 9257 now specifically provides that all covered establishments... may claim the senior
citizens' discount as tax deduction.

Contrary to the provision in RA 7432 where the senior citizens' discount granted by all covered
establishments can be claimed as tax credit, RA 9257 now specifically provides that this discount
should be treated as tax deduction.

With the effectivity of RA 9257 on 21 March 2004, there is now a new tax treatment for senior
citizens' discount granted by all covered establishments. This discount should be considered as a
deductible expense from gross income and no longer as tax credit.

The present case, however, covers the taxable year 1997 and is thus governed by the old law, RA
7432.