COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, 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
taxation, which is the promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary issue is whether or not
the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance
with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction
and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income
taxes for the years 1958 and 1959.1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the
pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed
that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier
sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals. 6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within
thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of distraint and levy is "proof of the
finality of the assessment" 8 and renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof
and makes the said request deemed rejected." 10 But there is a special circumstance in the case at bar that prevents application of
this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could
not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and was based on strong
legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which
started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965,
when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served
on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said
amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of
promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of
the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal holding
company income 12 but later conformed to the decision of the respondent court rejecting this assertion. 13 In fact, as the said court
found, the amount was earned through the joint efforts of the persons among whom it was distributed It has been established that
the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories
and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell,
and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in
it.14 Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC
properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the aforenamed individuals. 16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the
corresponding taxes thereon.17 The Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends
was involved.18
The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of
Algue. It is argued that no indication was made as to how such payments were made, whether by check or in cash, and there is not
enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment
by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different
amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the books
were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of
P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21After deducting the said fees, Algue still had
a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord
with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for salaries or other compensation for personal services
actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for
personal services actually rendered. 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. This test and
its practical application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible.
(a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in
the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a
close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not
paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling
stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the
present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the
payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

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

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.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in
accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the
Internal Revenue Code and should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BASF COATING + INKS PHILS., INC., Respondent.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari assailing the Decision 1 of the Court of Tax Appeals (CTA) En Banc, dated June
16, 2011, and Resolution2 dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125).

The pertinent factual and procedural antecedents of the case are as follows:

Respondent was a corporation which was duly organized under and by virtue of the laws of the Republic of the Philippines on August
1, 1990 with a term of existence of fifty (50) years. Its BIR-registered address was at 101 Marcos Alvarez Avenue, Barrio Talon, Las
Piñas City. In a joint special meeting held on March 19, 2001, majorityof the members of the Board of Directors and the stockholders
representing more than two-thirds (2/3) of the entire subscribed and outstanding capital stock of herein respondent corporation,
resolved to dissolve the corporation by shortening its corporate term to March 31, 2001. 3 Subsequently, respondent moved out of
its address in Las Piñas City and transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna.

On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal Revenue (BIR) Revenue District Officer of Revenue
District Office (RDO) No. 53, Region 8, in Alabang, Muntinlupa City. The first letter, dated April 26, 2001, was a notice of respondent's
dissolution, in compliance with the requirements of Section 52(c) of the National Internal Revenue Code.4 On the other hand, the
second letter, dated June 22, 2001, was a manifestation indicating the submission of various documents supporting respondent's
dissolution, among which was BIR Form No. 1905, which refers to an update of information contained in its tax registration. 5

Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003, petitioner assessed respondent the aggregate amount of
₱18,671,343.14 representing deficiencies in income tax, value added tax, withholding tax on compensation, expanded withholding
tax and documentary stamp tax, including increments, for the taxable year 1999. 6 The FAN was sent by registered mail on January
24, 2003 to respondent's former address in Las Piñas City.

On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No. 7, RDO No. 39, South Quezon City, issued a First
Notice Before Issuance of Warrant of Distraint and Levy, which was sent to the residence of one of respondent's directors. 7

On March 19, 2004, respondent filed a protest letter citing lack of due process and prescription as grounds. 8 On April 16, 2004,
respondent filed a supplemental letter of protest.9 Subsequently, on June 14, 2004, respondent submitted a letter wherein it
attached documents to prove the defenses raised in its protest letters. 10

On January 10, 2005, after 180 dayshad lapsed without action on the part of petitioner on respondent's protest, the latter filed a
Petition for Review11 with the CTA.

Trial on the merits ensued.

On February 17, 2010, the CTA Special First Division promulgated its Decision, 12 the dispositive portion of which reads, thus:

WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for deficiency income tax in the amount of
₱14,227,425.39, deficiency value-added tax of ₱3,981,245.66, deficiency withholding tax on compensation of ₱49,977.21, deficiency
expanded withholding tax of ₱156,261.97 and deficiency documentary stamp tax of ₱256,432.91, including increments, in the
aggregate amount of ₱18,671,343.14 for the taxable year 1999 are hereby CANCELLED and SET ASIDE.

SO ORDERED.13

The CTA Special First Division ruled that since petitioner was actually aware of respondent's new address, the former's failure to
send the Preliminary Assessment Notice and FAN to the said address should not be taken against the latter. Consequently, since
there are no valid notices sent to respondent, the subsequent assessments against it are considered void. Aggrieved by the Decision,
petitioner filed a Motion for Reconsideration, but the CTA Special First Division denied it in its Resolution14 dated July 13, 2010.
Petitioner then filed a Petition for Review with the CTA En Banc.15

On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying petitioner's Petition for Review for lack of merit. The
CTA En Banc held that petitioner's right to assess respondent for deficiency taxes for the taxable year 1999 has already prescribed
and that the FAN issued to respondent never attained finality because respondent did not receive it.

Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its Resolution dated September 16, 2011.

Hence, the present petition with the following Assignment of Errors:

THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF PETITIONER TO ASSESS HEREIN RESPONDENT FOR DEFICIENCY
INCOME TAX, VALUEADDED TAX, WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING TAX AND DOCUMENTARY
STAMP TAX, FOR TAXABLE YEAR 1999 IS BARRED BY PRESCRIPTION.

II

THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN RULING THAT THE FORMAL ASSESSMENT NOTICE (FAN) FOR
RESPONDENT'S DEFICIENCY INCOME TAX, VALUE-ADDED TAX, WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING
TAX AND DOCUMENTARY STAMP TAX FOR TAXABLE YEAR 1999 HAS NOT YET BECOME FINAL, EXECUTORY AND DEMANDABLE. 16

The petition lacks merit.

Petitioner contends that, insofar as respondent's alleged deficiency taxes for the taxable year1999 are concerned, the running of the
three-year prescriptive period to assess, under Sections 203 and 222 of the National Internal Revenue Act of 1997 (Tax Reform Act of
1997) was suspended when respondent failed to notify petitioner, in writing, of its change of address, pursuant to the provisions of
Section 223 of the same Act and Section 11 of BIR Revenue Regulation No. 12-85.

Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:

Sec. 203. Period of Limitation Upon Assessment and Collection.– Except as provided in Section 222,internal revenue taxes shall be
assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a
return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such
last day. (emphasis supplied)

Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years
after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and
the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed
upon.

The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof
may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected bydistraint or levy or by a proceeding in court within the period agreed upon in writing
before the expiration of the five (5) -year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to authorize
the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty
law or decree.

Sec. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203 and
222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is
granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax
is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the
Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is
out of the Philippines. (emphasis supplied)

In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:

Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a written notice thereof to the Revenue District
Officer or the district having jurisdiction over his formerlegal residence and/or place of business, copy furnished the Revenue District
Officer having jurisdiction over his new legal residence or place of business, the Revenue Computer Center and the Receivable
Accounts Division, BIR, National Office, Quezon City, and in case of failure to do so, any communication referred to in these
regulations previously sent to his former legal residence or business address as appear in is tax return for the period involved shall
be considered valid and binding for purposes of the period within which to reply.

It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of Limitations provided under the
provisions of Sections 203 and 222 of the same Act shall be suspended when the taxpayer cannot be located in the address given by
him in the return filed upon which a tax is being assessed or collected. In addition, Section 11 of Revenue Regulation No. 12-85
states that, in case of change of address, the taxpayer is required to give a written notice thereof to the Revenue District Officer or
the district having jurisdiction over his former legal residence and/or place of business. However, this Court agrees with both the
CTA Special First Division and the CTA En Banc in their ruling that the above mentioned provisions on the suspension of the three-
year period to assess apply only if the BIR Commissioner is not aware of the whereabouts of the taxpayer.

In the present case, petitioner, by all indications, is well aware that respondent had moved to its new address in Calamba, Laguna, as
shown by the following documents which form partof respondent's records with the BIR:

1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-Added Tax and Other Percentage Taxes;17

2) General Information (BIR Form No. 23-02);18

3) Report on Taxpayer's Delinquent Account, dated June 27, 2002;19

4) Activity Report, dated October 17, 2002;20

5) Memorandum Report of Examiner, dated June 27, 2002; 21

6) Revenue Officer's Audit Report on Income Tax;22

7) Revenue Officer's Audit Report on Value-Added Tax;23

8) Revenue Officer's Audit Report on Compensation Withholding Taxes; 24

9) Revenue Officer's Audit Report on Expanded Withholding Taxes; 25

10) Revenue Officer's Audit Report on Documentary Stamp Taxes.26

The above documents, all of which were accomplished and signed by officers of the BIR, clearly show that respondent's address is at
Carmelray Industrial Park, Canlubang, Calamba, Laguna. The CTA also found that BIR officers, at various times prior to the issuance of
the subject FAN, conducted examination and investigation of respondent's tax liabilities for 1999 at the latter's new address in
Laguna as evidenced by the following, in addition to the above mentioned records:

1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene R. Garcia; 27

2) Final Request for Presentation of Records Before Subpoena Duces Tecum, dated March 20, 2002, signed by Revenue
Officer I Eugene R. Garcia.28

Moreover, the CTA found that, based on records, the RDO sent respondent a letter dated April 24, 2002 informing the latter of the
results of their investigation and inviting it to an informal conference. 29 Subsequently, the RDO also sent respondent another letter
dated May 30, 2002, acknowledging receipt of the latter's reply to his April 24, 2002 letter. 30 These two letters were sent to
respondent's new address in Laguna. Had the RDO not been informed or was not aware of respondent's new address, he could not
have sent the said letters to the said address.

Furthermore, petitioner should have been alerted by the fact that prior to mailing the FAN, petitioner sent to respondent's old
address a Preliminary Assessment Notice but it was "returned to sender." This was testified to by petitioner's Revenue Officer II at its
Revenue District Office 39 in Quezon City.31 Yet, despite this occurrence, petitioner still insisted in mailing the FAN to respondent's
old address.
Hence, despite the absence of a formal written notice of respondent's change of address, the fact remains that petitioner became
aware of respondent's new address as shown by documents replete in its records. As a consequence, the running of the three-year
period to assess respondent was not suspended and has already prescribed.

It bears stressing that, in a number of cases, this Court has explained that the statute of limitations on the collection of taxes
primarily benefits the taxpayer. In these cases, the Court exemplified the detrimental effects that the delay in the assessment and
collection of taxes inflicts upon the taxpayers. Thus, in Commissioner of Internal Revenue v. Philippine Global Communication,
Inc.,32 this Court echoed Justice Montemayor's disquisition in his dissenting opinion in Collector of Internal Revenue v. Suyoc
Consolidated Mining Company,33 regarding the potential loss to the taxpayer if the assessment and collection of taxes are not
promptly made, thus:

Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government
and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the
assessment and collection may not tarry too long or indefinitely tothe prejudice of the interests of the Government, which needs
taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, hemay know the amount of the
assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the
amount of the assessment or contest its validity incourt x x x. It would surely be prejudicial to the interest of the taxpayer for the
Government collecting agency to unduly delay the assessment and the collection because by the time the collecting agency finally
gets around to making the assessment or making the collection, the taxpayer may then have lost his papers and books to support his
claim and contest that of the Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer
eventually has to pay.34

Likewise, in Republic of the Philippines v. Ablaza,35 this Court elucidated that the prescriptive period for the filing of actions for
collection of taxes is justified by the need to protect law-abiding citizens from possible harassment. Also, in Bank of the Philippine
Islands v. Commissioner of Internal Revenue,36 it was held that the statute of limitations on the assessment and collection of taxes is
principally intended to afford protection to the taxpayer against unreasonable investigations as the indefinite extension of the
period for assessment deprives the taxpayer of the assurance that he will no longer be subjected to further investigation for taxes
after the expiration of a reasonable period of time. Thus, in Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc.,37 this
Court ruled that the legal provisions on prescription should be liberally construed to protect taxpayers and that, as a corollary, the
exceptions to the rule on prescription should be strictly construed.

It might not also be amiss to point out that petitioner's issuance of the First Notice Before Issuance of Warrant of Distraint and
Levy38 violated respondent's right to due process because no valid notice of assessment was sent to it. An invalid assessment bears
no valid fruit. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without
first establishing a valid assessment is evidently violative of the cardinal principle inadministrative investigations: that taxpayers
should be able to present their case and adduce supporting evidence.39 In the instant case, respondent has not properly been
informed of the basis of its tax liabilities. Without complying with the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because no effective protest can be made.

It is true that taxes are the lifeblood of the government. However, in spite of all its plenitude, the power to tax has its limits. 40 Thus,
in Commissioner of Internal Revenue v. Algue, Inc.,41 this Court held:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.1âwphi1 On the other hand,
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
taxation, which is the promotion of the common good, may be achieved.

xxxx

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for the 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
taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its
partis expected torespond 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 x x x that the law has not been observed. 42

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law.
In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law
on one side, and the constitutional rights of a citizen todue process of law and the equal protection of the laws on the other, the
scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution.43

As to the second assigned error, petitioner's reliance on the provisions of Section 3.1.7 of BIR Revenue Regulation No. 12-9944 as well
as on the case of Nava v. Commissioner of Internal Revenue 45 is misplaced, because in the said case, one of the requirements ofa
valid assessment notice is that the letter or notice must be properly addressed. It is not enough that the notice is sent by registered
mail as provided under the said Revenue Regulation. In the instant case, the FAN was sent tothe wrong address. Thus, the CTA is
correct in holding that the FAN never attained finality because respondent never received it, either actually or constructively.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax Appeals En Banc, dated June 16, 2011, and its
Resolution dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125), are AFFIRMED.

SO ORDERED.

11.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NIPPON EXPRESS (PHILS.) CORPORATION, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated December 18, 2013 and the Resolution3 dated June 10, 2014
of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 924, which affirmed the Resolution4 dated July 31, 2012 of the CTA Third
Division (CTA Division) in CTA Case No. 6967, granting respondent Nippon Express (Phils.) Corporation's (Nippon) motion to
withdraw petition for review5 (motion to withdraw).

The Facts

Nippon is a domestic corporation duly organized and existing under Philippine laws which is primarily engaged in the business of
freight forwarding, namely, in the international and domestic air and sea freight and cargo forwarding, hauling, carrying, handling,
distributing, loading, and unloading general cargoes and all classes of goods, wares, and merchandise, and the operation of
container depots, warehousing, storage, hauling, and packing facilities. 6 It is a Value-Added Tax (VAT) registered entity with Tax
Identification No. VAT Registration No. 004-669-434-000.7 As such, it filed its quarterly VAT returns for the year 2002 on April 25,
2002, July 25, 2002, October 25, 2002, and January 27, 2003, respectively. 8 It maintained that during the said period it incurred input
VAT attributable to its zero-rated sales in the amount of P28,405,167.60, from which only P3,760,660.74 was applied as tax credit,
thus, reflecting refundable excess input VAT in the amount of P24,644,506.86. 9

On April 22, 2004, Nippon filed an administrative claim for refund10 of its unutilized input VAT in the amount of P24,644,506.86 for
the year 2002 before the Bureau of Internal Revenue (BIR).11 A day later, or on April 23, 2004, it filed a judicial claim for tax refund,
by way of petition for review,12 before the CTA, docketed as CTA Case No. 6967. 13

For its part, petitioner the Commissioner of Internal Revenue (CIR) asserted, inter alia, that the amounts being claimed by Nippon as
unutilized input VAT were not properly documented, hence, should be denied.14

Proceedings Before the CTA Division

In a Decision15 dated August 10, 2011, the CTA Division partially granted Nippon's claim for tax refund, and thereby ordered the CIR
to issue a tax credit certificate in the reduced amount of P2,614,296.84, representing its unutilized input VAT which was attributable
to its zero-rated sales.16 It found that while Nippon timely filed its administrative and judicial claims within the two (2)-year
prescriptive period,17 it, however, failed to show that the recipients of its services - which, in this case, were mostly Philippine
Economic Zone Authority registered enterprises - were non-residents "doing business outside the Philippines." Accordingly, it
concluded that Nippon's purported sales therefrom could not qualify as zero-rated sales, hence, the reduction in the amount of tax
credit certificate claimed.18

Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed a motion to withdraw,19 considering that the
BIR, acting on its administrative claim, already issued a tax credit certificate in the amount of P21,675,128.91 on July 27, 2011 (July
27, 2011 Tax Credit Certificate).

Separately, the CIR moved for reconsideration 20 of the August 10, 2011 Decision and filed its comment/opposition21 to Nippon's
motion to withdraw, claiming that: (a) the CTA Division had already resolved the factual issue pertaining to Nippon's entitlement to a
tax credit certificate, which, after trial, was proven to be only in the amount of P2,614,296.84; (b) the issuance of the July 27, 2011
Tax Credit Certificate was bereft of factual and legal bases, and prejudicial to the interest of the government; and (c) Nippon's
motion to withdraw was "tantamount to [a] withdrawal and abandonment of its [mjotion for [reconsideration also filed in this
case."22

Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011 Decision on August 16, 2011, 23 likewise sought
for reconsideration,24 praying that the CTA Division set aside its August 10, 2011 Decision and render judgment ordering the CIR to
issue a tax credit certificate in the full amount of P24,644,506.86, or in the alternative, grant its motion to withdraw. 25cralawred
In a Resolution dated July 31, 2012,26 the CTA Division granted Nippon's motion to withdraw and, thus, considered the case closed
and terminated.27 It found that pursuant to Revenue Memorandum Circular No. 49-03 (RMC No. 49-03) dated August 15, 2003,
Nippon correctly availed of the proper remedy notwithstanding the promulgation of the August 10, 2011 Decision. It added that in
approving the withdrawal of Nippon's petition for review, it exercised its discretionary authority under Section 3, Rule 50 of the
Rules of Court after due consideration of the reasons proffered by Nippon, namely: (a) that the parties had already arrived at a
reasonable settlement of the issues; (b) further legal and related costs would be avoided; and (c) the court's time and resources
would be saved.28

Aggrieved, the CIR elevated29 its case to the CTA En Banc.

The CTA En Banc Ruling

In a Decision30 dated December 18, 2013, the CTA En Banc affirmed the July 31, 2012 Resolution of the CTA Division granting
Nippon's motion to withdraw.31 It debunked the CIR's assertions that Nippon failed to comply with the requirements set forth in
RMC No. 49-03 - i.e., that Nippon failed to notify the BIR that it agreed with its findings and to file the necessary motion before the
CTA Division prior to the promulgation of its Decision -noting that RMC No. 49-03 did not expressly require a taxpayer to inform the
BIR of its assent nor prescribe a definite period for filing a motion to withdraw. It also observed that the CIR did not deny the
existence and issuance of the July 27, 2011 Tax Credit Certificate. In this regard, the same may be taken judicial notice of, and the
need for its formal offer dispensed with.32

The CIR moved for partial reconsideration33 which was, however, denied by the CTA En Banc in a Resolution34 dated June 10, 2014;
hence, this petition.

The Issue Before the Court

The core issue in this case is whether the CTA properly granted Nippon's motion to withdraw.

The Court's Ruling

The petition is meritorious.

A perusal of the Revised Rules of the Court of Tax Appeals35 (RRCTA) reveals the lack of provisions governing the procedure for the
withdrawal of pending appeals before the CTA. Hence, pursuant to Section 3, Rule 1 of the RRCTA, the Rules of Court shall
suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in the Philippines shall apply suppletorily to these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA under Rules 42, 43, 44, and 46 of the Rules of
Court which are equally adopted in the RRCTA36 - states that when the case is deemed submitted for resolution, withdrawal of
appeals made after the filing of the appellee's brief may still be allowed in the discretion of the court:
RULE 50
DISMISSAL OF APPEAL

xxxx

Section 3. Withdrawal of appeal. — An appeal may be withdrawn as of right at any time before the filing of the appellee's
brief. Thereafter, the withdrawal may be allowed in the discretion of the court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit Certificate, Nippon filed a motion to withdraw the case,
proffering that:
Having arrived at a reasonable settlement of the issues with the [CIR]/BIR, and to avoid incurring further legal and related costs, not
to mention the time and resources of [the CTA], [Nippon] most respectfully moves for the withdrawal of its Petition for Review. 37
Finding the aforementioned grounds to be justified, the CTA Division allowed the withdrawal of Nippon's appeal thereby ordering
the case closed and terminated, notwithstanding the fact that the said motion was filed after the promulgation of its August 10,
2011 Decision.

While it is true that the CTA Division has the prerogative to grant a motion to withdraw under the authority of the foregoing legal
provisions, the attendant circumstances in this case should have incited it to act otherwise.

First, it should be pointed out that the August 10, 2011 Decision was rendered by the CTA Division after a full-blown hearing in which
the parties had already ventilated their claims. Thus, the findings contained therein were the results of an exhaustive study of the
pleadings and a judicious evaluation of the evidence submitted by the parties, as well as the report of the commissioned certified
public accountant. In Reyes v. Commission on Elections,38 the Court only noted, and did not grant, a motion to withdraw the petition
filed after it had already acted on said petition, ratiocinating in the following wise:
It may well be in order to remind petitioner that jurisdiction, once acquired, is not lost upon the instance of the parties, but
continues until the case is terminated. When petitioner filed her Petition for Certiorari jurisdiction vested in the Court and, in fact,
the Court exercised such jurisdiction when it acted on the petition. Such jurisdiction cannot be lost by the unilateral withdrawal of
the petition by petitioner.39
The primary reason, however, that militates against the granting of the motion to withdraw is the fact that the CTA Division, in its
August 10, 2011 Decision, had already determined that Nippon was only entitled to refund the reduced amount
of P2,614,296.84 since it failed to prove that the recipients of its services were non-residents "doing business outside the
Philippines"; hence, Nippon's purported sales therefrom could not qualify as zero-rated sales, necessitating the reduction in the
amount of refund claimed. Markedly different from this is the BIR's determination that Nippon should receive P21,675,128.91 as per
the July 27, 2011 Tax Credit Certificate, which is, in all, P19,060,832.07 larger than the amount found due by the CTA Division.
Therefore, as aptly pointed out by Associate Justice Teresita J. Leonardo-De Castro during the deliberations on this case, the massive
discrepancy alone between the administrative and judicial determinations of the amount to be refunded to Nippon should have
already raised a red flag to the CTA Division. Clearly, the interest of the government, and, more significantly, the public, will be
greatly prejudiced by the erroneous grant of refund - at a substantial amount at that - in favor of Nippon. Hence, under these
circumstances, the CTA Division should not have granted the motion to withdraw.

In this relation, it deserves mentioning that the CIR is not estopped from assailing the validity of the July 27, 2011 Tax Credit
Certificate which was issued by her subordinates in the BIR. In matters of taxation, the government cannot be estopped by the
mistakes, errors or omissions of its agents for upon it depends the ability of the government to serve the people for whose benefit
taxes are collected.40

Finally, the Court has observed that based on the records, Nippon's administrative claim for the first taxable quarter of 2002 which
closed on March 31, 2002 was already time-barred41 for being filed on April 22, 2004, or beyond the two (2)-year prescriptive period
pursuant to Section 112(A)42 of the National Internal Revenue Code of 1997. Although prescription was not raised as an issue, it is
well-settled that if the pleadings or the evidence on record show that the claim is barred by prescription, the Court may motu
proprio order its dismissal on said ground.43

All told, the CTA committed a reversible error in granting Nippon's motion to withdraw. The August 10, 2011 Decision of the CTA
Division should therefore be reinstated, without prejudice, however, to the right of either party to appeal the same in accordance
with the RRCTA.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2013 and the Resolution dated June 10, 2014 of the Court
of Tax Appeals En Banc in CTA EB Case No. 924 are hereby SET ASIDE. The Decision dated August 10, 2011 of the Court of Tax
Appeals Third Division in CTA Case No. 6967 is REINSTATED, without prejudice, however, to the right of either party to appeal the
same in accordance with the Revised Rules of the Court of Tax Appeals.

SO ORDERED.chanroblesvirtuallawlibrary

12.

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
DASH ENGINEERING PHILIPPINES, INC., Respondent.

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, assailing the July
17, 2008 Decision1 and the August 12, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case
No. 7243) entitled "Commissioner of Internal Revenue v. Dash Engineering Philippines, inc."

The Facts

Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the Securities and Exchange Commission,
authorized to do business in the Philippines and listed with the Philippine Economic Zone Authority as an ecozone IT export
enterprise.3 It is also a VAT-registered entity engaged in the export sales of computer-aided engineering and design.4

Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from January 1, 2003 to June 30, 2003.5 On
August 9, 2004, it filed a claim for tax credit or refund in the amount of P 2,149,684.88 representing unutilized input VAT
attributable to its zero-rated sales.6 Because petitioner Commissioner of Internal Revenue (CIR) failed to act upon the said claim,
respondent was compelled to file a petition for review with the CTA on May 5, 2005.7

On October 4, 2007, the Second Division of the CTA rendered its Decision 8 partially granting respondent’s claim for refund or
issuance of a tax credit certificate in the reduced amount of P 1,147,683.78. On the matter of the timeliness of the filing of the
judicial claim, the Tax Court found that respondent’s claims for refund for the first and second quarters of 2003 were filed within the
two-year prescriptive period which is counted from the date of filing of the return and payment of the tax due. Because DEPI filed its
amended quarterly VAT returns for the first and second quarters of 2003 on July 24, 2004, it had until July 24, 2006 to file its judicial
claim. As such, its filing of a petition for review with the CTA on April 26, 20059 was within the prescriptive period.10 Petitioner
moved for reconsideration but the same was denied in a Resolution dated January 3, 2008.11
Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed to show that (1) its purchases of
goods and services were made in the course of its trade and business, (2) the said purchases were properly supported by VAT
invoices and/or official receipts and other documents, and (3) that the claimed input VAT payments were directly attributable to its
zero-rated sales. Petitioner also averred that the petition for review was filed out of time. 12

The CTA En Banc in its Decision,13 dated July 17, 2008, upheld the decision of the CTA Second Division, ruling that the judicial claim
was filed on time because the use of the word "may" in Section 112(D) (now subparagraph C) of the National Internal Revenue Code
(NIRC) indicates that judicial recourse within thirty (30) days after the lapse of the 120-day period is only directory and permissive
and not mandatory and jurisdictional, as long as the petition was filed within the two-year prescriptive period. The Tax Court further
reiterated that the two-year prescriptive period applies to both the administrative and judicial claims. Petitioner’s motion for
reconsideration was denied in the August 12, 2008 Resolution of the CTA. 14

Hence, this petition.

The Issues

Petitioner raises the following grounds for the allowance of the petition:

The Court of Tax Appeals En Banc erred in holding that respondent’s judicial claim for refund was filed within the prescriptive
period provided under the Tax Code.

II

The Court of Tax Appeals En Banc erred in partially granting respondent’s claim for refund despite the failure of the latter to
substantiate its claim by sufficient documentary proof.15

The Court’s Ruling

As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent failed to comply with the 30-
day period referred to in Section 112(D) (now subparagraph C) of the NIRC, citing the case of Commissioner of Internal Revenue v.
Aichi16 where the Court categorically held that compliance with the prescribed periods in Section 112 is mandatory and
jurisdictional. Respondent filed its administrative claim for refund on August 9, 2004. The 120-day period within which the CIR
should act on the claim expired on December 7, 2004 without any action on the part of petitioner. Thus, respondent only had 30
days from the lapse of the said period, or until January 6, 2005, to file a petition for review with the CTA. The petition, however, was
filed only on May 5, 2005.17 Petitioner further posits that the 30-day period within which to file an appeal with the CTA is
jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its jurisdiction to entertain the same.18

Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in keeping with the two-year prescriptive
period provided for in Sections 204(c) and 229 of the NIRC. 19 DEPI interprets Section 112, in relation to Section 229, to mean that the
120-day period is the time given to the CIR to decide the case. The taxpayer, on the other hand, has the option of either appealing to
the CTA the denial by the CIR of the claim for refund within thirty (30) days from receipt of such denial and within the two-year
prescriptive period, or appealing an unacted claim to the CTA anytime after the expiration of the 120-day period given to the CIR to
resolve the administrative claim for as long as the judicial claim is made within the two-year prescriptive period.20 Following
respondent’s reasoning, its filing of the judicial claim on April 26, 2005 was filed on time because it was made after the lapse of the
120-day period and within the two-year period referred to in Section 229.

The petition is meritorious.

Sec. 229 is inapplicable; two-year period in

Sec. 112 refers only to administrative claims

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The Commissioner may –

xxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps
that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties
shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after
the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.
Sec. 229. 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 excessively 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 proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after payment xxx. (Emphases supplied)

This Court has previously made a pronouncement as to the inapplicability of Section 229 of the NIRC to claims for excess input VAT.
In the recently decided case of Commissioner of Internal Revenue v. San Roque Power Corporation, 21 the Court made a lengthy
disquisition on the nature of excess input VAT, clarifying that "input VAT is not ‘excessively’ collected as understood under Section
229 because at the time the input VAT is collected the amount paid is correct and proper." 22 Hence, respondent cannot advance its
position by referring to Section 229 because Section 112 is the more specific and appropriate provision of law for claims for excess
input VAT.

Section 112(A) also provides for a two-year period for filing a claim for refund, to wit:

Sec. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – Any VATregistered person, whose sales are zero-rated or effectively zerorated may,
within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax

xxx

As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A) applies only to the filing of
administrative claims with the CIR and not to the filing of judicial claims with the CTA. In other words, for as long as the
administrative claim is filed with the CIR within the two-year prescriptive period, the 30-day period given to the taxpayer to file a
judicial claim with the CTA need not fall in the same two-year period.

At any rate, respondent’s compliance with the two-year prescriptive period under Section 112(A) is not an issue. What is being
questioned in this case is DEPI’s failure to observe the requisite 120+30-day period as mandated by Section 112(C) of the NIRC.

120+30 day period under Sec. 112 is mandatory and jurisdictional

Section 112(D) (now subparagraph C) of the NIRC provides that:

Sec. 112. Refunds or Tax Credits of Input Tax

xxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund
or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (emphasis supplied)

Petitioner is entirely correct in its assertion that compliance with the periods provided for in the abovequoted provision is indeed
mandatory and jurisdictional, as affirmed in this Court’s ruling in San Roque, where the Court En Banc settled the controversy
surrounding the application of the 120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that
the 120+30-day period is mandatory and jurisdictional. Nonetheless, the Court took into account the issuance by the Bureau of
Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled taxpayers by explicity stating that taxpayers may file a petition for
review with the CTA even before the expiration of the 120-day period given to the CIR to decide the administrative claim for refund.
Even though observance of the periods in Section 112 is compulsory and failure to do so will deprive the CTA of jurisdiction to hear
the case, such a strict application will be made from the effectivity of the Tax Reform Act of 1997 on January 1, 1998 until the
present, except for the period from December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the
promulgation of Aichi), during which taxpayers need not wait for the lapse of the 120+30- day period before filing their judicial claim
for refund.

The case at bench, however, does not involve the issue of premature filing of the petition for review with the CTA. Rather, this
petition seeks the denial of DEPI’s claim for refund for having been filed late or after the expiration of the 30-day period from the
denial by the CIR or failure of the CIR to make a decision within 120 days from the submission of the documents in support of
respondent’s administrative claim.
In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the 120+30-day period. In denying
the taxpayer’s claim for refund, this Court explained that:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing.1âwphi1 Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after the
expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days
after the lapse of the 120-day period. In any event, whether governed by jurisprudence before, during or after the Atlas case,
Philex’s judicial claim will have to be rejected because of late filing. Whether the two-year prescriptive period is counted from the
date of payment of the output VAT following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable
to the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on Philex’s claim
during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim. Philex had 30 days from the
expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial"
decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a denial" decision
of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise. Philex failed to comply with the statutory conditions and
must thus bear the consequences. 23 (Emphases supplied)

Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for having been filed late. Although
respondent filed its administrative claim with the BIR on August 9, 2004 before the expiration of the two-year period in Section l
12(A), it undoubtedly failed to comply with the 120+ 30-day period in Section l l 2(D) (now subparagraph C) which requires that upon
the inaction of the CIR for 120 days after the submission of the documents in support of the claim, the taxpayer has to file its judicial
claim within 30 days after the lapse of the said period. The 120 days granted to the CIR to decide the case ended on December 7,
2004. Thus, DEPI had 30 days therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only
sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CT A, despite having had ample time to file the same,
almost four months after the period allowed by law. As a consequence of DEPI's late filing, the CTA did not properly acquire
jurisdiction over the claim.

The Court has held time and again that taxes are the lifeblood of the government and, consequently, tax laws must be faithfully and
strictly implemented as they are not intended to be liberally construed. 24 Hence, We are left with no other recourse but to deny
respondent's judicial claim for refund for non-compliance with the provisions of Section 112 of the NIRC.

WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008 Resolution of the CTA En Banc in C.T.A.
EB No. 357 (C.T.A. Case No. 7243) are hereby REVERSED and SET ASIDE. Respondent DEPI's judicial claim for refund or tax credit
through its petition for review before the CTA is DENIED.

SO ORDERED.

13.

THE PHILIPPINE GUARANTY CO., INC., Petitioner, v. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, Respondents.

Josue H. Gustilo and Ramirez & Ortigas for Petitioner.

Solicitor General and Attorney V . G. Saldajena for Respondents.

SYLLABUS

1. TAXATION; INCOME TAX; REINSURANCE PREMIUMS CEDED TO FOREIGN REINSURERS SUBJECT TO WITHHOLDING TAX. —
Reinsurance premiums on local risks ceded by domestic insurers to foreign reinsurers not doing business in the Philippines are
subject to withholding tax.

2. ID.; ID.; REINSURANCE PREMIUMS CEDED TO FOREIGN REINSURERS CONSIDERED INCOME FROM PHILIPPINE SOURCES. — Where
the reinsurance contracts show that the activities that constituted the undertaking to reinsure a domestic insurer against losses
arising from the original insurances in the Philippines were performed in the Philippines, the reinsurance premiums are considered
as coming from sources within the Philippines and are subject to Philippine Income Tax.

3. ID.; ID.; ID.; PLACE OF ACTIVITY CREATING INCOME CONTROLLING. — Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling, therefore, is not the place of business but the place of activity that created
an income.

4. ID.; ID.; SECTION 37 OF TAX CODE NOT ALL INCLUSIVE ENUMERATION. — Section 37 of the Tax Code is not an all-inclusive
enumeration, for it merely directs that the kinds of income mentioned therein should be treated as income from sources within the
Philippines but it does not require that other kinds of income should not be considered likewise.

5. ID.; ID.; NO ESTOPPEL ON GOVERNMENT FOR MISTAKE OF ITS AGENTS. — The defense of reliance in good faith on rulings of the
Commissioner of Internal Revenue requiring no withholding of the tax due on reinsurance premiums may free the taxpayer from the
payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not
exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or
errors of its agents.

6. ID.; ID.; WITHHOLDING TAX ON REINSURANCE PREMIUMS COMPUTED ON TOTAL AMOUNT CEDED. — The withholding tax on
reinsurance premiums should be computed on the total amount ceded instead of on the amount actually remitted to foreign
reinsurers. Sections 53 and 54 of the Tax Code allow no deduction from the income therein enumerated in determining the amount
to be withheld. Accordingly, in computing the withholding tax due on the reinsurance premiums no deduction shall be recognized.

DECISION

BENGZON, J.P., J.:

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on various dates, with foreign
insurance companies not doing business in the Philippines, namely: Imperio Compañia de Seguros, La Union y El Fenix Español,
Overseas Assurances Corp., Ltd., Sociedad Anonima de Reaseguros Alianza, Tokio Marine & Fire Insurance Co., Ltd., Union Assurance
Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed to cede to the
foreign reinsurers a portion of the premiums on insurances it has originally underwritten in the Philippines, in consideration for the
assumption by the latter of liability on an equivalent portion of the risks insured. Said reinsurance contracts were signed by
Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the Philippines, except the contract with Swiss
Reinsurance Company, which was signed by both parties in Switzerland.

The reinsurance contracts made the commencement of the reinsurers’ liability simultaneous with that of Philippine Guaranty Co.,
Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to keep a register in Manila where the risks ceded to the
foreign reinsurers were entered, and entry therein was binding upon the reinsurers. A proportionate amount of taxes on insurance
premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers further
agreed, in consideration for managing or administering their affairs in the Philippines, to compensate the Philippine Guaranty Co.,
Inc. in an amount equal to 5% of the reinsurance premiums. Conflicts and or differences between the parties under the reinsurance
contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their
contract shall be construed by the laws of the Philippines.

Pursuant to the aforesaid reinsurance contracts Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the following
premiums:chanrob1es virtual 1aw library

1953 P842,466.71

1954 721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it filed its income tax returns for 1953 and
1954. Furthermore, it did not withhold or pay tax on them. Consequently, per letter dated April 13, 1959, the Commissioner of
Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums,
thus:chanrob1es virtual 1aw library

1953

Gross premium per investigation P768,580.00

Withholding tax due thereon at 24% P184,459.00

25% surcharge 46,114.00

Compromise for non-filing of withholding

income tax return 100.00

—————

TOTAL AMOUNT DUE &

COLLECTIBLE P230,673.00

=========

1954

Gross premium per investigation P780,880.68

Withholding tax due thereon at 24% P187,411.00

25% surcharge 46,853.00

Compromise for non-filing of withholding

income tax return 100.00

—————

TOTAL AMOUNT DUE &

COLLECTIBLE P234,364.00

=========

Philippine Guaranty Co., Inc. protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are not subject to withholding tax. Its protest was denied and it appealed to the Court of Tax
Appeals.

On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:jgc:chanrobles.com.ph

"IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is hereby ordered to pay to the
Commissioner of Internal Revenue the respective sums of P202,192.00 and P173,153.00 or the total sum of P375,345.00 as
withholding income taxes for the years 1953 and 1954, plus the statutory delinquency penalties thereon. With costs against
petitioner."cralaw virtua1aw library

Philippine Guaranty Co., Inc., has appealed, questioning the legality of the Commissioner of Internal Revenue’s assessment for
withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers.

Petitioner maintains that the reinsurance premiums in question did not constitute income from sources within the Philippines
because the foreign reinsurers did not engage in business in the Philippines, nor did they have office here.

The reinsurance contracts however show that the transactions or activities that constituted the undertaking to reinsure Philippine
Guaranty Co., Inc. against losses arising from the original insurances in the Philippines were performed in the Philippines. The
liability of the foreign reinsurers commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original
insurances. Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign reinsurers. Entries made in such
register bound the foreign reinsurers, localizing in the Philippines the actual cession of the risks and premiums and assumption of
the reinsurance undertaking by the foreign reinsurers. Taxes on premiums imposed by Section 255 of the Tax Code for the privilege
of doing insurance business in the Philippines were payable by the foreign reinsurers when the same were not recoverable from the
original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in
consideration for administration and management by the latter of the affairs of the former in the Philippines in regard to their
reinsurance activities here. Disputes and differences between the parties were subject to arbitration in the City of Manila. All the
reinsurance contracts, except that with Swiss Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines
and later signed by the foreign reinsurers abroad. Although the contract between Philippine Guaranty Co., Inc. and Swiss
Reinsurance Company was signed by both parties in Switzerland, the same specifically provided that its provision shall be construed
according to the laws of the Philippines, thereby manifesting a clear intention of the parties to subject themselves to Philippine laws.

Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the Philippines. The word
"sources" has been interpreted as the activity, property or service giving rise to the income. 1 The reinsurance premiums were
income created from the undertaking of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc. against liability
for loss under original insurances. Such undertaking, as explained above, took place in the Philippines. These insurance premiums
therefore came from sources within the Philippines and, hence, are subject to corporate income tax.

The foreign insurers place of business should not be confused with their place of activity. Business implies continuity and
progression of transactions 2 while activity may consist of only a single transaction. An activity may occur outside the place of
business. Section 24 of the Tax Code does not require a foreign corporation to engage in business in the Philippines in subjecting its
income to tax. It suffices that the activity creating the income is performed or done in the Philippines. What is controlling, therefore,
is not the place of business but the place of activity that created an income.

Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines because they are not
specifically mentioned in Section 37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it merely directs that the
kinds of income mentioned therein should be treated as income from sources within the Philippines but it does not require that
other kinds of income should not be considered likewise.

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the
State’s sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the
State’s territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance
premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and
privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.

Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal Revenue requiring no
withholding of the tax due on the reinsurance premiums in question relieved it of the duty to pay the corresponding withholding tax
thereon. This defense of petitioner may free it from the payment of surcharges or penalties imposed for failure to pay the
corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is
not estopped from collecting taxes by the mistakes or errors of its agents. 3

In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines
are subject to withholding tax under Sections 53 and 54 of the Tax Code, suffice it to state that this question has already been
answered in the affirmative in Alexander Howden & Co., Ltd. v. Collector of Internal Revenue, L-19392, April 14, 1965.

Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted to the foreign
reinsurers instead of from the total amount ceded. And since it did not remit any amount to its foreign insurers in 1953 and 1954, no
withholding tax was due.

The pertinent section of the Tax Code states:j

"SEC. 54. Payment of corporation income tax at source. — In the case of foreign corporation subject to taxation under this Title not
engaged in trade or business within the Philippines and not having any office or place of business therein, there shall be deducted
and withheld at the source in the same manner and upon the same items as is provided in section fifty-three a tax equal to twenty-
four per centum thereof, and such tax shall be returned and paid in the same manner and subject to the same conditions as
provided in that section."cralaw virtua1aw library

The applicable portion of Section 53 provides:

"(b) Non-resident aliens. — All persons, corporations and general copartnerships (companias colectivas), in whatever capacity
acting, including lessees or mortgagors of real or personal property, trustees acting in any trust capacity, executors, administrators
receivers, conservators, fiduciaries, employers, and all officers and employees of the Government of the Philippines having the
control, receipt, custody, disposal, or payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensation,
remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income of any non-resident alien
individual, not engaged in trade or business within the Philippines and not having any office or place of business therein, shall
(except) in the cases provided for in subsection (a) of this section) deduct and withhold from such annual or periodical gains, profits,
and income a tax equal to twelve per centum hereof: Provided, That no such deduction or withholding shall be required in the case
of dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or business within the Philippines or has an
office or place of business therein, and (2) more than eighty-five per centum of the gross income of such corporation for the three-
year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as
the corporation has been in existence) was derived from sources within the Philippines as determined under the provisions of
section thirty-seven: Provided, further, That the Collector of Internal Revenue may authorize such tax to be deducted and withheld
from the interest upon any securities the owners of which are not known to the withholding agent."cralaw virtua1aw library

The above-quoted provisions allow no deduction from the income therein enumerated in determining the amount to be withheld.
Accordingly, in computing the withholding tax due on the reinsurance premiums in question, no deduction shall be recognized.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered to pay to the
Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or a total amount of P375,345.00, as withholding tax
for the years 1953 and 1954, respectively. If the amount of P375,345.00 is not paid within 30 days from the date this judgment
becomes final, there shall be collected a surcharge of 5% on the amount unpaid, plus interest at the rate of 1% a month from the
date of delinquency to the date of payment, provided that the maximum amount that may be collected as interest shall not exceed
the amount corresponding to a period of three (3) years. With costs against petitioner.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala, JJ., concur.

14.
BATANGAS CITY, MARIA TERESA GERON, IN HER CAPACITY AS CITY TREASURER OF BATANGAS CITY AND TEODULFO A. DEGUITO,
IN HIS CAPACITY AS CITY LEGAL OFFICER OF BATANGAS CITY, Petitioners, v. PILIPINAS SHELL PETROLEUM
CORPORATION, Respondent.

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 dated January 22,
2009 and Resolution2 dated April 13, 2009 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 350 which affirmed in toto the
Amended Decision3 dated July 31, 2007 and Resolution4 dated November 21, 2007 of the CTA Second Division in CTA AC Case No.
10.

The facts follow.

Petitioner Batangas City is a local government unit (LGU) with the capacity to sue and be sued under its Charter and Section 22(a)(2)
of the Local Government Code (LGC) of 1991. Petitioners Teodulfo A. Deguito and Benjamin E. Pargas are the City Legal Officer and
City Treasurer, respectively, of Batangas City.

Respondent Pilipinas Shell Petroleum Corporation operates an oil refinery and depot in Tabagao, Batangas City, which manufactures
and produces petroleum products that are distributed nationwide.

In 2002, respondent was only paying the amount of P98,964.71 for fees and other charges which include the amount of P1,180.34 as
Mayor's Permit. However, on February 20, 2001, petitioner Batangas City, through its City Legal Officer, sent a notice of assessment
to respondent demanding the payment of P92,373,720.50 and P312,656,253.04 as business taxes for its manufacture and
distribution of petroleum products. In addition, respondent was also required and assessed to pay the amount of P4,299,851.00 as
Mayor's Permit Fee based on the gross sales of its Tabagao Refinery. The assessment was allegedly pursuant of Section 134 of the
LGC of 1991 and Section 23 of its Batangas City Tax Code of 2002.

In response, respondent filed a protest on April 17, 2002 contending among others that it is not liable for the payment of the local
business tax either as a manufacturer or distributor of petroleum products. It further argued that the Mayor's Permit Fees are
exorbitant, confiscatory, arbitrary, unreasonable and not commensurable with the cost of issuing a license.

On May 13, 2002, petitioners denied respondent's protest and declared that under Section 14 of the Batangas City Tax Code of 2002,
they are empowered to withhold the issuance of the Mayor's Permit for failure of respondent to pay the business taxes on its
manufacture and distribution of petroleum products.

On June 17, 2002, respondent filed a Petition for Review pursuant to Section 195 of the LGC of 1991 before the Regional Trial Court
(RTC) of Batangas City.

In its petition, respondent maintained that petitioners have no authority to impose the said taxes and fees, and argued that the levy
of local business taxes on the business of manufacturing and distributing gasoline and other petroleum products is contrary to law
and against national policy. It further contended that the Mayor's Permit Fee levied by petitioners were unreasonable and
confiscatory.

In its Answer, petitioners contended that the City of Batangas can legally impose taxes on the business of manufacturing and
distribution of petroleum products, including the Mayor's Permit Fees upon respondent.

Trial thereafter ensued.

In the interim, respondent paid under protest the Mayor's Permit Fees for the year 2003 amounting to P774,840.50 as manufacturer
and P3,525,010.50 as distributor. When respondent applied for the issuance of the Mayor's Permit in 2004, it offered the amount of
PI50,000.00 as compromise Mayor's Permit Fee without prejudice to the outcome of the case then pending, which was rejected by
petitioners.

On October 29, 2004, the RTC of Batangas City rendered a Decision 5 sustaining the imposition of business taxes by petitioners upon
the manufacture and distribution of petroleum products by respondent. However, the RTC withheld the imposition of Mayor's
Permit Fee in deference to the provisions of Section 147 of the LGC, in relation to Section 143(h) of the same Code, which imposed a
limit to the power of petitioners to collect the said business taxes. The fallo of said decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment as follows:

1. The taxes on the privilege of engaging in the business of manufacturing, distribution or dealing in
petroleum products in the amount of P92,373,750.50 and P312,656,253.04, respectively, imposed by
Batangas City on Pilipinas Shell, is VALID.

2. Declaring the Mayor's Permit Fee in the amount of P4,299,851.00 based on gross receipts/sales as grossly
excessive and unreasonable considering the aforesaid business taxes.
ACCORDINGLY, THE PETITIONER, PILIPINAS SHELL PETROLEUM CORPORATION (PSPC), IS HEREBY ORDERED TO PAY THE AMOUNT OF
PHP405,030,003.54 AS TAX ON ITS BUSINESS OF ENGAGING IN THE MANUFACTURE AND DISTRIBUTION OF PETROLEUM PRODUCTS,
WHILE THE ASSESSMENT OF PHP4,299,851.00 AS MAYOR'S PERMIT FEE IS HEREBY ORDERED REVOKED WITHOUT PREJUDICE TO ITS
MODIFICATION BY THE RESPONDENTS, BATANGAS CITY, ET AL.

SO ORDERED.6
Unsatisfied, respondent filed a "Motion for Partial Reconsideration."

In an Order7 dated February 28, 2005, the RTC denied respondent's motion for lack of merit.

Hence, respondent filed a Petition for Review with Extremely Urgent Application for a Temporary Restraining Order and/or a Writ of
Preliminary Injunction with the CTA Second Division on April 27, 2005.

Considering the urgency of the resolution of respondent's Application for the Issuance of a Writ of Preliminary Injunction, the CTA
Second Division granted the said application and ordered petitioners to hold in abeyance the collection of the questioned
manufacturer and distributor's taxes, conditioned upon the filing of respondent of a surety bond in the amount of P500,000,000.00.

In a Decision dated June 21, 2007, the CTA Second Division granted respondent's petition. It held that respondent is not subject to
the business taxes on the manufacture and distribution of petroleum products because of the express limitation provided under
Section 133(h) of the LGC. The dispositive portion of said Decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is hereby MODIFIED. As to the business
taxes on the manufacture and distribution of petroleum products, We find the [respondent] not liable for the same. As to the
Mayor's permit, We find that it is excessive. Accordingly, the [petitioner] is hereby (a) declared legally proscribed from imposing
business taxes on the manufacture and distribution of petroleum products and (b) to refund in the form of tax credit the excessive
mayor's permit in the amount of THREE MILLION FIVE HUDNRED TWENTY-FIVE THOUSAND TEN PESOS and FIFTY CENTAVOS
(P3,525,010.50)

SO ORDERED.8
On July 13, 2007, respondent filed a "Motion for Clarification" on the exact amount to be refunded by petitioners as regards the
Mayor's Permit Fees. After a perusal of the "Motion for Clarification," the CTA Second Division found the motion partly meritorious.
Thus:chanRoblesvirtualLawlibrary
Indeed, there is a discrepancy in the amount to be refunded and to clarify, the amount should be P3,870,860.00 as written in the
body of the decisions as follows:chanRoblesvirtualLawlibrary
Since [petitioners] failed to modify the computation of the mayor's permit fee and based on justice and equity, [respondent] should
be refunded with the mayor's permit fees ordered revoked by the court a quo.

The details of the additional amount of P4,299,851.00 mayor's permit fees are as follows:chanRoblesvirtualLawlibrary
Manufacturer Distributor
Mayor's Permit Fee P704,305.00 P3,166,555.00
License Fee 70,535.50
Prof. Fee Res/Bus 25,000.00 Fire Insp. Fee 1,000.00
Occ./Prof.Tax San Permit & San Insp. Fee 12,000.00
Fire Code Fee 320,455.00
Total Amount P774,840.50 P3,525,010.50
The amount to be refunded is not the full amount of P4,299,851.00 but the excessive mayor's permit for manufacturing and
distributing in the amount of P704,305.00 and P3,166,555.00, respectively, or in the total amount of P3,870,860.00.
To conform to this aforequoted pronouncement, the dispositive portion of the assailed decision should be amended so that the
exact amount of the Mayor's Permit Fees to be refunded be changed from P3,525,010.50 to P3,870.860.00.

Section 2, Rule 36 of the Rules of Court reads as follows:chanRoblesvirtualLawlibrary

SEC. 2. Entry of Judgments and final orders.- If no appeal or motion for new trial or reconsideration is filed within the time provided
in these Rules, the judgment or final order shall forthwith be entered by the clerk in the book of entries of judgments. The date of
finality of the judgment or final order shall be deemed to be the date of its entry.
In this case, PSPC received the Decision on June 28, 2007 and it filed its motion for clarification (treated as a motion for
reconsideration) on July 13, 2007 which is within the period allowed by law. In effect, our Decision has not yet become final and
executory. Hence, our Decision may be amended.

Moreover, pursuant to Section 5(g), Rule 135 of the Revised Rules of Court that every court shall have the power to amend or
control its process and orders so as to make them conformable to law and justice, the Second Division of this Court resolves to
amend its Decision dated June 21, 2007 by making the necessary corrections.

WHEREFORE, in view of the foregoing, [respondent] 's Motion for Clarification is partly GRANTED. Accordingly, the dispositive
portion of this Court's Decision dated June 21, 2007 is hereby AMENDED as follows:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is hereby MODIFIED. As to the business
taxes on the manufacture and distribution of petroleum products, We find the [respondent] not liable for the same. As to the
mayor's permit, We find that it is excessive. Accordingly, the [petitioner] is hereby (a) declared legally proscribed from imposing
business taxes on the manufacture and distribution of petroleum products and (b) to refund in the form of tax credit the excessive
mayor's permit in the amount of THREE MILLION EIGHT HUNDRED SEVENTY THOUSAND EIGHT HUDNRED SIXTY PESOS
(P3,870,860.00)

SO ORDERED.
SO ORDERED.9
Petitioners filed a motion for reconsideration against said decision but the same was denied by the CTA Second Division in a
Resolution dated November 21, 2007.

Not satisfied, petitioners filed a Petition for Review praying for the reversal of the Amended Decision and Resolution of the CTA
Second Division.

On January 22, 2009, the CTA En Banc promulgated a Decision affirming in toto the Amended Decision of the CTA Second Division.
The CTA En Banc found no cogent reason to disturb the findings and conclusions of the CTA Second Division. The dispositive portion
of said Decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the July
31, 2007 Amended Decision and November 21, 2007 Resolution of the CTA Second Division in CTA AC Case No. 10 entitled,
"PILIPINAS SFIELL PETROLEUM CORPORATION, petitioner vs. BATANGAS CITY, BENJAMIN E. PARGAS in his capacity as CITY
TREASURER and TEODULFO A. DEGUITO in his capacity as CITY LEGAL OFFICER OF BATANGAS CITY, [petitioners]," are hereby
AFFIRMED in toto.

SO ORDERED.10
Unfazed, petitioners filed a motion for reconsideration.

In a Resolution dated April 13, 2009, the CTA En Bane denied petitioners' motion for reconsideration for lace of merit.

Hence, this petition.

Petitioner raises the following assignment of errors:chanRoblesvirtualLawlibrary

1. THE COURT OF TAX APPEALS EN BANC ERRED IN NOT RULING THAT THE POWER OF LOCAL GOVERNMENT UNITS
TO TAX BUSINESS IS SOLELY GOVERNED BY SEC. 143 AND 143(h) OF THE LOCAL GOVENRMENT CODE OF 1991.

2. THE COURT OF TAX APPEALS EN BANC ERRED IN NOT RULING THAT THE WORD "TAXES" IN SEC. 133(h) DOES NOT
INCLUDE BUSINESS TAXES.

3. THE COURT OF TAX APPEALS EN BANC ERRED IN DISREGARDING THE DISTINCTION BETWEEN TAXES ON ARTICLES
AND TAXES ON BUSINESS.

4. THE COURT OF TAX APPEALS EN BANC INCORRECTLY CONSTRUED A CLEAR PROVISION OF LAW, SPECIFICALLY
SECTION 133(h) OF THE LOCAL GOVERNMENT CODE OF 1991, AS AN EXPRESS LIMITATION ON THE POWER OF
LOCAL GOVENRMENT UNITS TO IMPOSE TAXES ON THE BUSINESS OF MANUFACTURE AND DISTRIBUTION OF
PETROLEUM PRODUCTS."11

In essence, the issue is whether a LGU is empowered under the LGC to impose business taxes on persons or entities engaged in the
business of manufacturing and distribution of petroleum products.

It its petition, petitioners assert that any activity that involves the production or manufacture and the distribution or selling of any
kind or nature as a means of livelihood or with a view to profit can be taxed by the LGUs. They posit that the authority granted to
them by Section 143(h) of the LGC is so broad that it practically covers any business that the sanggunian concerned may deem
proper to tax, even including businesses which are already subject to excise, value-added or percentage tax under the National
Internal Revenue Code (NIRC) provided that the same shall not exceed two percent of the gross sales or receipts of the preceding
calendar year.

We do not agree.

At the outset, it must be emphasized that although the power to tax is inherent in the State, the same is not true for LGUs because
although the mandate to impose taxes granted to LGUs is categorical and long established in the 1987 Philippine Constitution, the
same is not all encompassing as it is subject to limitations as explicitly stated in Section 5, Article X of the 1987
Constitution, viz.:chanRoblesvirtualLawlibrary
SECTION 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local governments.
In the consolidated cases of City of Manila, et al. v. Hon. Colet and Malaysian Airline system; Maersk-Filipinas, Inc., et al. v. City of
Manila, et al,; Eastern Shipping Lines, Inc. v. City Council of Manila, et al; William Lines, Inc., et al. v. Regional Trial Court of Manila, et
al.; PNOC Shipping and Transport Corporation v. Hon. Nabong, et al.; Maersk-Filipinas, Inc., et al. v. City of Manila, et al, and with
Intervenors William Lines, Inc., et al; Cosco Container Lines and HEUNG-A Shipping Co., Ltd., et al. v. City of Manila; Sulpicio Lines, Inc.
v. Regional Trial Court of Manila, et al; Association of International Shipping Lines, Inc. v. City of Manila, et al; Dongnama Shipping
Co., Ltd., et al. v. Court of Appeals, et al.,12 this Court expounded that the LGUs' power to tax is subject to the limitations set forth
under Section 133 of the LGC. Thus:chanRoblesvirtualLawlibrary
It is already well-settled that although the power to tax is inherent in the State, the same is not true for the LGUs to whom the
power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may provide. The
Court expounded in Pelizloy Realty Corporation v. The Province of Benguet that:chanRoblesvirtualLawlibrary
The power to tax "is an attribute of sovereignty," and as such, inheres in the State. Such, however, is not true for provinces, cities,
municipalities and barangays as they are not the sovereign; rather, there are mere "territorial and political subdivisions of the
Republic of the Philippines."
The rule governing the taxing power of provinces, cities, municipalities and barangays is summarized in Icard v. City Council of
Baguio:chanRoblesvirtualLawlibrary
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The charter or
statute must plainly show an intent to confer that power or the municipality, cannot assume it. And the power when granted is to be
construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against
the municipality. Inferences, implication, deductions - all these- have no place in the interpretation of the taxing power of a
municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the Constitution or by
statute. Section 5, Article X of the 1987 Constitution is clear on this point:ChanRoblesVirtualawlibrary

xxxx

Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on Congress; local legislative
bodies are now given direct authority to levy taxes, fees and other charges." Nevertheless, such authority is "subject to such
guidelines and limitations as the Congress may provide."

In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160, otherwise known as the
local Government Code of 1991. Book II of the LGC governs local taxation and fiscal matters.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUs found below.

First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive orconfiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall in no case be left to any private person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be subject to
the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically provided
by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

Second, Section 133 provides for the common limitations on the taxing powers of LGUs.
Among the common limitations on the taxing powers of LGUs under Section 133 of the LGC is paragraph (h) which
states:chanRoblesvirtualLawlibrary
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the
exercise of taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:chanRoblesvirtualLawlibrary
XXXX

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on
petroleum products.;13
From the foregoing, Section 133(h) clearly specifies the two kinds of taxes which cannot be imposed by LGUs: (1) excise taxes on
articles enumerated under the NIRC, as amended; and (2) taxes, fees or charges on petroleum products.

Indisputably, the power of LGUs to impose business taxes derives from Section 143 14 of the LGC. However, the same is subject to the
explicit

statutory impediment provided for under Section 133(h) of the same Code which prohibits LGUs from imposing "taxes, fees or
charges on petroleum products." It can, therefore, be deduced that although petroleum products are subject to excise tax, the same
is specifically excluded from the broad power granted to LGUs under Section 143(h) of the LGC to impose business taxes.

Additionally, Section 133(h) of the LGC makes plain that the prohibition with respect to petroleum products extends not only to
excise taxes thereon, but all "taxes, fees or charges." The earlier reference in paragraph 143(h) to excise taxes comprehends a wider
range of subject of taxation: all articles already covered by excise taxation under the NIRC, such as alcohol products, tobacco
products, mineral products, automobiles, and such non-essential goods as jewelry, goods made of precious metals, perfumes, and
yachts and other vessels intended for pleasure or sports. In contrast, the later reference to "taxes, fees and charges" pertains only to
one class of articles of the many subjects of excise taxes, specifically, "petroleum products." While LGUs are authorized to burden all
such other class of goods with "taxes, fees and charges," excepting excise taxes, a specific prohibition is imposed barring the levying
of any other type of taxes with respect to petroleum products.15chanrobleslaw

It is likewise irrefutable that the specific exemption provided under Section 133 of the LGC prevails over Section 143 of the same
Code.

First, Section 133 of the LGC is a specific provision that explicitly withhold from LGUs the power to impose taxes, fees and charges on
petroleum products.

Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or even the activity
or privilege related to the petroleum products, such as manufacturing and distribution of said products, it is covered by the said
limitation and thus, no levy can be imposed.16chanrobleslaw

On the contrary, Section 143 of the LGC defines the general power of LGUs to tax businesses within its jurisdiction. Thus, the
omnibus grant of power to LGUs under Section 143(h) of the LGC cannot overcome the specific exception or exemption in Section
133(h) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general
ones. A special and specific provision prevails over a general provision irrespective of their relative positions in the statute. Generalia
specialibus non derogant. Where there is in the same statute a particular enactment and also a general one which in its most
comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general
enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular
enactment.17chanrobleslaw

Second, Article 232(h) of the Implementing Rules and Regulations (IRR) of the LGC of 1991 states:chanRoblesvirtualLawlibrary
ARTICLE 232. Tax on Business. - The Municipality may impose taxes on the following businesses:ChanRoblesVirtualawlibrary

xxxx

(h) On any business not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem
proper to tax provided that that on any business subject to the excise tax. VAT or percentage tax under the NIRC, as
amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year
and provided further, that in line with existing national policy, any business engaged in the production,
manufacture, refining, distribution or sale of oil, gasoline, and other petroleum products shall not be subject to any
local tax imposed in this Article.18
Article 232 defines with more particularity the capacity of a municipality to impose taxes on businesses. However, it admits of
certain exceptions, specifically, that businesses engaged in the production, manufacture, refining, distribution or sale of oil, gasoline,
and other petroleum products, shall not be subject to any local tax imposed by Article 232.

WHEREFORE, in view of the foregoing, the Court hereby resolves to DENY present petition. The Decision dated January 22, 2009 and
Resolution dated April 13, 2009 of the Court of Tax Appeals En Banc in CTAEB No. 350 are AFFIRMED.

SO ORDERED.cralawlawlibrary

15.

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

vs.
COLON HERITAGE REALTY CORPORATION, operator of Oriente Group Theaters, represented by ISIDORO A.
CANIZARES, Respondent.

x-----------------------x

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,

vs.
CITY OF CEBU and SM PRIME HOLDINGS, INC., Respondents.
 DECISION

VELASCO, JR., J.:

The Constitution is the basic law to which all laws must conform; no act shall be valid if it conflicts with the Constitution. In the
discharge of their defined functions, the three departments of government have no choice but to yield obedience to the commands of
the Constitution. Whatever limits it imposes must be observed. 1

The Case

Once again, We are called upon to resolve a clash between the Inherent taxing power of the legislature and the constitutionally-
delegated power to tax of local governments in these consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of
Court seeking the reversal of the Decision dated September 25, 2012 of the Regional Trial Court (RTC), Branch 5 in Cebu City, in Civil
Case No. CEB-35601, entitled Colon Heritage Realty Corp., represented by Isidoro Canizares v. Film Development Council of the'
Philippines, and Decision dated October 24, 2012 of the RTC, Branch 14 in Cebu City, in Civil Case No. CEB-35529, entitled City of
Cebu v. Film Development Council of the Philippines, collectively declaring Sections 13 and 14 of Republic Act No. (RA) 9167 invalid
and unconstitutional.

The Facts

The facts are simple and undisputed.

Sometime in 1993, respondent City of Cebu, in its exercise of its power to impose amusement taxes under Section 140 of the Local
Government Code2 (LGC) anchored on the constitutional policy on local autonomy, 3 passed City Ordinance No. LXIX otherwise
known as the "Revised Omnibus Tax Ordinance of the City of Cebu (tax ordinance)." Central to the case at bar are Sections 42 and
43, Chapter XI thereof which require proprietors, lessees or operators of theatres, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement, to pay an amusement tax equivalent to thirty percent (30%) of the gross receipts of admission fees
to the Office of the City Treasurer of Cebu City. Said provisions read:

CHAPTER XI - Amusement Tax

Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia and other places of amusement, an amusement tax at the rate of thirty percent (30%)
of the gross receipts from admission fees.4

Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are divided between said proprietor,
lessees, operators, and the distributors of the cinematographic films.

Almost a decade later, or on June 7, 2002, Congress passed RA 9167, 5 creating the Film Development Council qf the Philippines
(FDCP) and abolishing the Film Development Foundation of the Philippines, Inc. and the Film Rating Board. Secs. 13 and 14 of RA
9167 provided for the tax treatment of certain graded films as follows:

Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading from the Council pursuant to Sections 11
and 12 of this Act shall be entitled to the following privileges:

a. Amusement tax reward. - A grade "A" or "B" film shall entitle its producer to an incentive equivalent to the amusement tax
imposed and collected on the graded films by cities and municipalities in Metro Manila and other highly urbanized and independent
component cities in the Philippines pursuant to Sections 140 to 151 of Republic Act No. 7160 at the following rates:

1. For grade "A" films - 100% of the amusement tax collected on such film; and

2. For grade "B" films - 65% of the amusement tax collected on such films. The remaining thirty-five (35%) shall
accrue to the funds of the Council.

Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement tax on the graded film which may
otherwise accrue to the cities and municipalities in Metropolitan Manila and highly urbanized and independent component cities in
the Philippines pursuant to Section 140 of Republic Act. No. 7160 during the period the graded film is exhibited, shall be deducted
and withheld by the proprietors, operators or lessees of theaters or cinemas and remitted within thirty (30) days from the
termination of the exhibition to the Council which shall reward the corresponding amusement tax to the producers of the graded
film within fifteen (15) days from receipt thereof.

Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within the prescribed
period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each month of delinquency which shall be
paid to the Council. (emphasis added)
According to petitioner, from the time RA 9167 took effect up to the present, all the cities and municipalities in Metro Manila, as
well as urbanized and independent component cities, with the sole exception of Cebu City, have complied with the mandate of said
law.

Accordingly, petitioner, through the Office of the Solicitor General, sent on January 2009 demand letters for unpaid amusement tax
reward (with 5% surcharge for each month of delinquency) due to the producers of the Grade "A" or "B" films to the following
cinema proprietors and operators in Cebu City:

Amusement
Tax Reward Number
Cinema (with 5% of CEB
Period Covered
Proprietor/Operator surcharge for Graded
each moth of Films
delinquency)
SM Prime Holdings Inc. 76,836,807.08 89 Sept. 11, 2003 - Nov. 4, 2008
Ayala Center Cinemas 43,435,718.23 70 May 14, 2003 - Nov. 4, 2008
Colon Heritage Realty 8,071,267.00 50 Aug. 11, 2004-Nov. 4, 2008
Corp.
Eden Theater 428,938.25 4 May 5, 2005 - Sept. 2, 2008
Cinema Theater 3,100,354.80 22 Feb. 18, 2004-Oct. 7, 2008
Visaya Cineplex Corp. 17,582,521.89 86 June 25, 2005 - Oct. 21, 2008
Ultra Vistarama Cinema 68,821.60 2 July 2 - 22, 2008
Cebu Central Realty Corp. 9,853,559.69 48 Jan. 1, 2004 - Oct. 21, 2008

In said letters, the proprietors and cinema operators, including private respondent Colon Heritage Realty Corp. (Colon Heritage),
operator of the Oriente theater, were given ten (10) days from receipt thereof to pay the aforestated amounts to FDCP. The
demand, however, fell on deaf ears.

Meanwhile, on March 25, 2009, petitioner received a letter from Regal Entertainment, Inc., inquiring on the status of its receivables
for tax rebates in Cebu cinemas for all their A and B rate films along with those which it co-produced with GMA films. This was
followed by a letter from

Star Cinema ABS-CBN Film Productions, Inc., requesting the immediate remittance of its amusement tax rewards for its graded films
for the years 2004-2008.

Because of the persistent refusal of the proprietors and cinema operators to remit the said amounts as FDCP demanded, on one
hand, and Cebu City's assertion of a claim on the amounts in question, the city finally filed on May 18, 2009 before the RTC, Branch
14 a petition for declaratory relief with application for a writ of preliminary injunction, docketed as Civil Case No. CEB-35529 (City of
Cebu v. FDCP). In said petition, Cebu City sought the declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional.

Similarly, Colon Heritage filed before the RTC, Branch 5 Civil Case No. CEB-35601 (Colon Heritage v. FDCP), seeking to declare Sec. 14
of RA 9167 as unconstitutional.

On May 25, 2010, the RTC, Branch 14 issued a temporary restraining order (TRO) restraining and enjoining FDCP, et al. from, inter
alia:

(a) Collecting amusement tax incentive award in the City of Cebu and from imposing surcharges thereon;

(b) Demanding from the owners, proprietors, and lessees of theaters and cinemas located and operated within Cebu City,
payment of said amusement tax incentive award which should have been deducted, withheld, and remitted to FDCP, etc. by
the owners, etc., or being operated within Cebu City and imposing surcharges on the unpaid amount; and

(c) Filing any suit due to or arising from the failure of the owners, etc., of theaters or cinemas within Cebu City, to deduct,
withhold, and remit the incentive to FDCP.

Meanwhile, on August 13, 2010, SM Prime Holdings, Inc. moved for leave to file and admit attached comment-in-intervention and
was later granted.6

Rulings of the Trial Courts

In City of Cebu v. FDCP, the RTC, Branch 14 issued the challenged Decision 7 declaring Secs. 13 and 14 of RA 9167 unconstitutional,
disposing as follows:
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of petitioner City of Cebu against respondent Film
Development Council of the Philippines, as follows:

1. Declaring Sections 13 and 14 of the (sic) Republic Act No. 9167 otherwise known as an Act Creating the Film
Development Council of the Philippines, Defining its Powers and Functions, Appropriating Funds Therefor and for other
purposes, as violative of Section 5 Article X of the 1997 (sic) Philippine Constitution; Consequently

2. Declaring that defendant Film Development Council of the Philippines (FDCP) cannot collect under Sections 13 and 14 of
R.A. 9167 as of the finality of the decision in G.R. Nos. 203754 and 204418;

3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes, withheld on graded
cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality of the decision in
G.R. Nos. 203754 and 204418;

4. Declaring that after the finality of the decision in G.R. Nos. 203 754 and 204418, all amusement taxes withheld and those
which may be collected by Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be remitted to petitioner
Cebu City pursuant to City Ordinance LXIX, Chapter XI, Section 42.

As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount shall be remitted by the
City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R. Nos. 203754 and 204418 without interests
and surcharges.

SO ORDERED.

According to the court, what RA 9167 seeks to accomplish is the segregation of the amusement taxes raised and collected by Cebu
City and its subsequent transfer to FDCP. The court concluded that this arrangement cannot be classified as a tax exemption but is a
confiscatory measure where the national government extracts money from the local government's coffers and transfers it to FDCP, a
private agency, which in turn, will award the money to private persons, the film producers, for having produced graded films.

The court further held that Secs. 13 and 14 of RA 9167 are contrary to the basic policy in local autonomy that all taxes, fees, and
charges imposed by the LGUs shall accrue exclusively to them, as articulated in A1iicle X,. Sec. 5 of the 1987 Constitution. This edict,
according to the court, is a limitation upon the rule-making power of Congress when it provides guidelines and limitations on the
local government unit's (LGU's) power of taxation. Therefore, when Congress passed this "limitation," if went beyond its legislative
authority, rendering the questioned provisions unconstitutional.

By the same token, in Colon Heritage v. FDCP, the RTC, Branch 5, in its Decision of September 25, 2012, also ruled against the
constitutionality of said Secs. 13 and 14 of RA 9167 for the following reasons: (a) while Congress, through the enactment of RA 9167,
may have amended Secs. 140(a)8 and 1519 of the LGC, in the exercise of its plenary power to amend laws, such power must be
exercised within constitutional parameters; (b) the assailed provision violates the constitutional directive that taxes should accrue
exclusively to the LGU concerned; (c) the Constitution, through its Art. X, Sec. 5,10 directly conferred LGUs with authority to levy
taxes-the power is no longer delegated by the legislature; (d) In CIR v. SM Prime Holdings,11 the Court ruled that amusement tax on
cinema/theater operators or proprietors remain with the LGU, amusement tax, being, by nature, a local tax. The fallo of the
questioned judgment reads:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;

(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the legal rate of
interest thereof, until the whole amount is paid in full.

Notify parties and counsels of this order.

SO ORDERED.

The Issue

Undeterred by two defeats, petitioner has come directly to this Court, presenting the singular issue: whether or not the RTC
(Branches 5 and 14) gravely erred in declaring Secs. 13 and 14 of RA 9167 invalid for being unconstitutional.

Anent Sec. 13,12 FDCP concedes that the amusement taxes assessed in RA 9167 are to be given to the producers of graded films who
are private persons. Nevertheless, according to FDCP, this particular tax arrangement is not a violation of the rule on the use of
public funds for RA 9167 was enacted for a public purpose, that is, the promotion and support of the "development and growth of
the local film industry as a medium for the upliftment of aesthetic, cultural, and social values for the better understanding and
appreciation of the Filipino identity" as well as the "encouragement of the production of quality films that will promote the growth
and development' of the local film industry."13 Moreover, FDCP suggests that "even if the resultant effect would be a certain loss of
revenue, [LGUs] do not feel deprived nor bitter for they realize that the benefits for the film industry, the fortification of our values
system, and the cultural boost for the nation as a whole, far outweigh the pecuniary cost they would shoulder by backing this
law."14 Finally, in support of its stance, FDCP invites attention to the following words of former Associate Justice Isagani A. Cruz:
"[t]he mere fact that the tax will be directly enjoyed by a private individual does not make it invalid so long as some link to the public
welfare is established."15

As regards Sec. 1416 of RA 9167, FDCP is of the position that Sec. 5, Article X of the Constitution does not change the doctrine that
municipal corporations only possess delegated, not inherent, powers of taxation and that the power to tax is still primarily vested in
the Congress. Thus, wielding its power to impose limitations on this delegated power, Congress further restricted the LGU's power to
impose amusement taxes via Secs. 13 and 14 of RA 9167-an express and real intention of Congress to further contain the LGU's
delegated taxing power. It, therefore, cannot be construed as an undue limitation since it is well within the power of Congress to
make such restriction. Furthermore, the LGC is a mere statute which Congress can amend, which it in fact did when it enacted RA
916417 and, later, the questioned law, RA 9167. 18

This, according to FDCP, evinces the overriding intent of Congress to remove from the LGU' s delegated taxing power all revenues
from amusement taxes on grade "A" or "B" films which would otherwise accrue to the cities and municipalities in Metropolitan
Manila and highly urbanized and independent component cities in the Philippines pursuant to Secs. 140 and 151 of the LGC.

In fine, it is petitioner's posture that the inclusion in RA 9167 of the questioned provisions was a valid exercise of the legislature's
power to amend laws and an assertion of its constitutional authority to set limitations on the LGU' s authority to tax.

The Court's Ruling

We find no reason to disturb the assailed rulings.

Local fiscal autonomy and the constitutionally-delegated power to tax

The power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to every independent
government, and needs no express conferment by the people before it can be exercised. It is purely legislative and, thus, cannot be
delegated to the executive and judicial branches of government without running afoul to the theory of separation of powers. It,
however, can be delegated to municipal corporations, consistent with the principle that legislative powers may be delegated to local
governments in respect of matters of local concern.19 The authority of provinces, cities, and municipalities to create their own
sources of revenue and to levy taxes, therefore, is not inherent and may be exercised only to the extent that such power might be
delegated to them either by the basic law or by statute.20 Under the regime of the 1935 Constitution, there was no constitutional
provision on the delegation of the power to tax to municipal corporations. They only derived such under a limited statutory
authority, outside of which, it was deemed withheld.21 Local governments, thus, had very restricted taxing powers which they derive
from numerous tax laws. This highly-centralized government structure was later seen to have arrested the growth and efficient
operations of LG Us, paving the way for the adoption of a more decentralized system which granted LGUs local autonomy, both
administrative and fiscal autonomy.22

Material to the case at bar is the concept and scope of local fiscal autonomy. In Pimentel v. Aguirre,23 fiscal autonomy was defined as
"the power [of LGUs] to create their own sources of revenue in addition to their equitable share in the national taxes released by the
national government, as well as the power to allocate their resources in accordance with their own priorities. It extends to the
preparation of their budgets, and local officials in tum have to work within the constraints thereof."

With the adoption of the 1973 Constitution,24 and later the 1987 Constitution, municipal corporations were granted fiscal autonomy
via a general delegation of the power to tax.25 Section 5, Article XI of the 1973 Constitution gave LGUs the "power to create its own
sources of revenue and to levy taxes, subject to such limitations as may be provided by law.'' This authority was further
strengthened in the 1987 Constitution, through the inclusion in Section 5, Article X thereof of the condition that " [s]uch taxes, fees,
and charges shall accrue exclusively to local governments."26

Accordingly, under the present Constitution, where there is neither a grant nor a prohibition by statute, the tax power of municipal
corporations must be deemed to exist although Congress may provide statutory limitations and guidelines. 27 The basic rationale for
the current rule on local fiscal autonomy is the strengthening of LGUs and the safeguarding of their viability and self-sufficiency
through a direct grant of general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be
absolute and unconditional. The legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions; (b) each LGU will have its fair share of available resources; ( c) the resources of the national
government will not be unduly disturbed; and ( d) local taxation will be fair, uniform, and just.28

In conformity to the dictate of the fundamental law for the legislature to "enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a system of decentralization," 29 consistent with the
basic policy of local autonomy, Congress enacted the LGC, Book II of which governs local taxation and fiscal matters and sets forth
the guidelines and limitations for the exercise of this power. In Pelizloy Realty Corporation v. The Province of Benguet,30 the Court
alluded to the fundamental principles governing the taxing powers of LGUs as laid out in Section 130 of the LGC, to wit:

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

 a. be equitable and based as far as practicable on the taxpayer's ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;

d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be subject to the
disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically provided by the LGC.

5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

It is in the application of the adverted fourth rule, that is-all revenue collected pursuant to the provisions of the LGC shall inure solely
to the benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC-upon which the present controversy grew.

RA 9167 violates local fiscal autonomy

It is beyond cavil that the City of Cebu had the authority to issue its City Ordinance No. LXIX and impose an amusement tax on
cinemas pursuant to Sec. 140 in relation to Sec. 151 of the LGC. Sec. 140 states, among other things, that a "province may levy an
amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees." By
operation of said Sec. 151,31 extending to them the authority of provinces and municipalities to levy certain taxes, fees, and charges,
cities, such as respondent city government, may therefore validly levy amusement taxes subject to the parameters set forth under
the law. Based on this authority, the City of Cebu passed, in 1993, its Revised Omnibus Tax Ordinance, 32 Chapter XI, Secs. 42 and 43
of which reads:

CHAPTER XI - Amusement Tax

Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia and other places of amusement, an amusement tax at the rate of thirty percent (30%)
of the gross receipts from admission fees.33

Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are divided between said proprietor,
lessees, operators, and the distributors of the cinematographic films.

Then, after almost a decade of cities reaping benefits from this imposition, Congress, through RA 9167, amending Section 140 of the
LGC,34 among others, transferred this income from the cities and municipalities in Metropolitan Manila and highly urbanized and
independent component cities, such as respondent City of Cebu, to petitioner FDCP, which proceeds will ultimately be rewarded to
the producers of graded films. We reproduce anew Secs. 13 and 14 of RA 9167, thus:

Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading from the Council pursuant to Sections 11
and 12 of this Act shall be entitled to the following privileges: a. Amusement tax reward. - A grade "A" or "B" film shall entitle its
producer to an incentive equivalent to the amusement tax imposed and collected on the graded films by cities and municipalities in
Metro Manila and other highly urbanized and independent component cities in the Philippines pursuant to Sections 140 to 151 of
Republic Act No. 7160 at the following rates:

1. For grade "A" films - 100% of the amusement tax collected on such film; and

2. For grade "B" films - 65% of the amusement tax collected on such films. The remaining thirty-five (35%) shall accrue to
the funds of the Council.

Section 14. Amusement Tax Deduction and Remittance. -All revenue from the amusement tax on the graded film which may
otherwise accrue to the cities and municipalities in Metropolitan Manila and highly urbanized and independent component cities in
the Philippines pursuant to Section 140 of Republic Act. No. 7160 during the period the graded film is exhibited, shall be deducted
and withheld by the proprietors, operators or lessees of theaters or cinemas and remitted within thirty (30) days from the
termination of the exhibition to the Council which shall reward the corresponding amusement tax to the producers of the graded
film within fifteen (15) days from receipt thereof.

Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within the prescribed
period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each month of delinquency which shall be
paid to the Council.
Considering the amendment, the present rule is that ALL amusement taxes levied by covered cities and municipalities shall be 2iven
by proprietors, operators or lessees of theatres and cinemas to FDCP, which shall then reward said amount to the producers of
graded films in this wise:

1. For grade "A" films, ALL amusement taxes collected by ALL covered LGUs on said films shall be given to the producer
thereof. The LGU, therefore, is entitled to NOTHING from its own imposition.

2. For grade "B" films, SIXTY FIVE PERCENT (65%) of ALL amusement taxes derived by ALL covered LGUs on said film shall be
given to the producer thereof. In this case, however, the LGU is still NOT entitled to any portion of the imposition, in view of
Sec. 16 of RA 9167 which provides that the remaining 35% may be expended for the Council's operational expenses. Thus:
Section 16. Funding. - The Executive Secretary shall immediately include in the Office of the President's program the
implementation of this Act, the funding of which shall be included in the annual General Appropriations Act.

To augment the operational expenses of the Council, the Council may:

a. Utilize the remaining thirty-five (35%) percent of the amusement tax collected during the period of grade "B" film is exhibited, as
provided under Sections 13 and 14 hereof x x x.

For petitioner, the amendment is a valid legislative manifestation of the intention to remove from the grasp of the taxing power of
the covered LGUs all revenues from amusement taxes on grade "A" or "B" films which would otherwise accrue to them. An
evaluation of the provisions in question, however, compels Us to disagree.

RA 9167, Sec. 14 states:

Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement tax on the graded film which may
otherwise accrue to the cities and municipalities in Metropolitan Manila and highly urbanized and independent component cities in
the Philippines pursuant to Section 140 of Republic Act. No. 7160 during the period the graded film is exhibited, shall be deducted
and withheld by the proprietors, operators or lessees of theaters or cinemas and remitted within thirty (30) days from the
termination of the exhibition to the Council which shall reward the corresponding amusement tax to the producers of the graded
film within fifteen (15) days from receipt thereof.

A reading of the challenged provision reveals that the power to impose amusement taxes was NOT removed from the covered LGUs,
unlike what Congress did for the taxes enumerated in Sec. 133, Article X of the LGC, 35 which lays down the common limitations on
the taxing powers of LGUs. Thus:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein;

(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees,
charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned;

(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes,
fees, or charges in any form whatsoever upon such goods or merchandise;

(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;

(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees or charges
on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as
otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water, except as provided in this Code;

(k) Taxes on premiums paid by way or reinsurance or retrocession;

 (l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the
driving thereof, except tricycles;

(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A.
No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative
Code of the Philippines" respectively; and

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government
units. (emphasis ours)

From the above, the difference between Sec. 133 and the questioned amendment of Sec. 140 of the LGC by RA 9167 is readily
revealed. In Sec. · 133, what Congress did was to prohibit the levy by LGUs of the enumerated taxes. For RA 9167, however, the
covered LGUs were deprived of the income which they will otherwise be collecting should they impose amusement taxes, or, in
petitioner's own words, "Section 14 of [RA 9167] can be viewed as an express and real intention on the part of Congress to remove
from the LGU's delegated taxing power, all revenues from the amusement taxes on graded films which would otherwise accrue to
[them] pursuant to Section 140 of the [LGC]."36

In other words, per RA 9167, covered LGUs still have the power to levy amusement taxes, albeit at the end of the day, they will
derive no revenue therefrom. The same, however, cannot be said for FDCP and the producers of graded films since the amounts
thus levied by the LGUs which should rightfully accrue to them, they being the taxing authority-will be going to their coffers. As a
matter of fact, it is only through the exercise by the LGU of said power that the funds to be used for the amusement tax reward can
be raised. Without said imposition, the producers of graded films will receive nothing from the owners, proprietors and lessees of
cinemas operating within the territory of the covered LGU.

Taking the resulting scheme into consideration, it is apparent that what Congress did in this instance was not to exclude the
authority to levy amusement taxes from the taxing power of the covered LGUs, but to earmark, if not altogether confiscate, the
income to be received by the LGU from the taxpayers in favor of and for transmittal to FDCP, instead of the taxing authority. This, to
Our mind, is in clear contravention of the constitutional command that taxes levied by LGUs shall accrue exclusively to said LGU and
is repugnant to the power of LGUs to apportion their resources in line with their priorities.

It is a basic precept that the inherent legislative powers of Congress, broad as they may be, are limited and confined within the four
walls of the Constitution.37 Accordingly, whenever the legislature exercises its power to enact, amend, and repeal laws, it should do
so without going beyond the parameters wrought by the organic law.

In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the amusement taxes levied by
the covered LGUs did not and will under no circumstance accrue to them, not even partially, despite being the taxing authority
therefor. Congress, therefore, clearly overstepped its plenary legislative power, the amendment being violative of the fundamental
law's guarantee on local autonomy, as echoed in Sec. 130(d) of the LGC, thus: Section 130. Fundamental Principles. - The following
fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units:

xxxx

(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to the disposition
by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein x x x.

Moreover, in Pimentel,38 the Court elucidated that local fiscal autonomy includes the power of LGUs to allocate their resources in
accordance with their own priorities. By earmarking the income on amusement taxes imposed by the LGUs in favor of FDCP and the
producers of graded films, the legislature appropriated and distributed the LGUs' funds-as though it were legally within its control-
under the guise of setting a limitation on the LGUs' exercise of their delegated taxing power. This, undoubtedly, is a usurpation of
the latter's exclusive prerogative to apportion their funds, an impermissible intrusion into the LGUs' constitutionally-protected
domain which puts to naught the guarantee of fiscal autonomy to municipal corporations enshrined in our basic law.

Grant of amusement tax reward incentive:

not a tax exemption

It was argued that subject Sec. 13 is a grant by Congress of an exemption from amusement taxes in favor of producers of graded
films. Without question, this Court has previously upheld the power of Congress to grant exemptions over the power of LGUs to
impose taxes.39 This amusement tax reward, however, is not, as the lower court posited, a tax exemption. Exempting a person or
entity from tax is to relieve or to excuse that person or entity from the burden of the imposition. Here, however, it cannot be said
that an exemption from amusement taxes was granted by Congress to the producers of graded films. Take note that the burden of
paying the amusement tax in question is on the proprietors, lessors, and operators of the theaters and cinemas that showed the
graded films. Thus, per City Ordinance No. LXIX: CHAPTER XI - Amusement Tax
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees, or operators of theaters,
cinemas, concert halls,, circuses, boxing stadia and other places of amusement, an amusement tax at the rate of thirty percent (30%)
of the gross receipts from admission fees.

Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are divided between said proprietor,
lessees, operators, and the distributors of the cinematographic films.

Similarly, the LGC provides as follows:

Section 140. Amusement Tax. –

(a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent
(30%) of the gross receipts from admission fees.

(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators
and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators
and the distributors of the cinematographic films.

Simply put, both the burden and incidence of the amusement tax are borne by the proprietors, lessors, and operators, not by the
producers of the graded films. The transfer of the amount to the film producers is actually a monetary reward given to them for
having produced a graded film, the funding for which was taken by the national government from the coffers of the covered LGUs.
Without a doubt, this is not an exemption from payment of tax.

Declaration by the RTC, Branch 5 of the

entire RA 9167 as unconstitutional

Noticeably, the RTC, Branch 5, in its September 25, 2012 Decision in Colon Heritage v. FDCP, ruled against the constitutionality of the
entire law, not just the assailed Sec. 14. The fallo of the judgment reads:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;

(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the legal rate of
interest thereof, until the whole amount is paid in full.

In this regard, it is well to emphasize that if it appears that the rest of the law is free from the taint of unconstitutionality, then it
should remain in force and effect if said law contains a separability clause. A separability clause is a legislative expression of intent
that the nullity of one provision shall not invalidate the other provisions of the act. Such a clause is not, however, controlling and the
courts, in spite of it, may invalidate the whole statute where what is left, after the void part, is not complete and workable.40

In this case, not only does RA 9167 have a separability clause, contained in Section 23 thereof which reads:

Section 23. Separability Clause. -If, for any reason, any provision of this Act, or any part thereof, is declared invalid or
unconstitutional, all other sections or provisions not affected thereby shall remain in force and effect.

it is also true that the constitutionality of the entire law was not put m question in any of the said cases.

Moreover, a perusal of RA 9167 easily reveals that even with the removal of Secs. 13 and 14 of the law, the remaining provisions can
survive as they mandate other matters like a cinema evaluation system, an incentive and reward system, and local and international
film festivals and activities that "will promote the growth and development of the local film industry and promote its participation in
both domestic and foreign markets," and to "enhance the skills and expertise of Filipino talents."41

Where a part of a statute is void as repugnant to the Constitution, while another part is valid, the valid portion, if separable from the
invalid, may stand-and be enforced. The exception to this is when the parts of a statute are so mutually dependent and connected,
as conditions, considerations, inducements, or compensations for each other, as to warrant a belief that the legislature intended
them as a whole, in which case, the nullity of one part will vitiate the rest. 42

Here, the constitutionality of the rest of the provisions of RA 9167 was never put in question. Too, nowhere in the assailed judgment
of the RTC was it explicated why the entire law was being declared as unconstitutional.
It is a basic tenet that courts cannot go beyond the issues in a case, 43 which the RTC, Branch 5 did when it declared RA 9167
unconstitutional. This being the case, and in view of the elementary rule that every statute is presumed valid, 44 the declaration by
the R TC, Branch 5 of the entirety of RA 9167 as unconstitutional, is improper.

Amounts paid by Colon Heritage

need not be returned

Having ruled that the questioned provisions are unconstitutional, the RTC, Branch 5, in Colon Heritage v. FDCP, ordered the return of
all amounts paid by respondent Colon Heritage to FDCP by way of amusement tax. Thus:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:

(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;

(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;

(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the legal rate of
interest thereof, until the whole amount is paid in full.

As regards the refund, the Court cannot subscribe to this position.

It is a well-settled rule that an unconstitutional act is not a law; it . confers no rights; it imposes no duties; it affords no protection; it
creates no office; it is inoperative as if it has not been passed at all. Applying this principle, the logical conclusion would be to order
the return of all the amounts remitted to FDCP and given to the producers of graded films, by all of the covered cities, which actually
amounts to hundreds of millions, if not billions. In fact, just for Cebu City, the aggregate deficiency claimed by FDCP is ONE
HUNDRED FIFTY NINE MILLION THREE HUNDRED SEVENTY SEVEN THOUSAND NINE HUNDRED EIGHTY-EIGHT PESOS AND FIFTY FOUR
CENTAVOS (₱159,377,988.54). Again, this amount represents the unpaid amounts to FDCP by eight cinema operators or proprietors
in only one covered city.

An exception to the above rule, however, is the doctrine of operative fact, which applies as a matter of equity and fair play. This
doctrine nullifies the effects of an unconstitutional law or an executive act by recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative fact and may have consequences that cannot always be ignored. It applies when
a declaration of unconstitutionality will impose an undue burden on those who have relied on the invalid law. 45

In Hacienda Luisita v. PARC, the Court elucidated the meaning and scope of the operative fact doctrine, viz:

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or executive act,
prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:

xxx xxx xxx

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled that:

Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do so, much less
retroactively apply such nullification to deprive private respondent of a compelling and valid reason for not filing the leave
application. For as we have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy upon past acts or
omissions done in reliance thereof. Consequently, the existence of a statute or executive order prior to its being adjudged void is an
operative fact to which legal consequences are attached. It would indeed be ghastly unfair to prevent private respondent from
relying upon the order of suspension in lieu of a formal leave application.

The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v. People, thus:

Petitioner contends that his arrest by virtue of Arrest . Search and Seizure Order (ASSO) No. 4754 was invalid, as the law upon which
it was predicated-General Order No. 60, issued by then President Ferdinand E. Marcos - was subsequently declared by the Court, in
Tanada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained pursuant thereto is inadmissible in
evidence.

We do not agree. In Tanada, the Court addressed the possible effects of its declaration of the invalidity of various presidential
issuances.1a\^/phi1 Discussing therein how such a declaration might affect acts done on a presumption of their validity, the Court
said:

" ... In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County Drainage
District vs. Baxter Bank to wit:

'The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law;
that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged decree. . . . It is
quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with
qualifications. The actual existence of a statute, prior to [the determination of its invalidity], is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the
subsequent ruling as to invalidity may have to be considered in various aspects – with respect to particular conduct, private and
official. Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and acted
upon accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand examination.
These questions are among the most difficult of those which have engaged the attention of courts, state and federal, and it is
manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.'

xxx xxx xxx

"Similarly, the implementation/ enforcement of presidential decrees prior to their publication in the Official Gazette is 'an operative
fact which may have consequences which cannot be justly ignored. The past cannot always be erased by a new judicial declaration ...
that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified."

The Chicot doctrine cited in Tanada advocates that, prior to the nullification of a statute, there is an imperative necessity of taking
into account its actual existence as an operative fact negating the acceptance of "a principle of absolute retroactive invalidity."
Whatever was done while the legislative or the executive act was in operation should be duly recognized and presumed to be valid
in all respects. The ASSO that was issued in 1979 under General Order No. 60 - long before our Deeision n Taiiada and the arrest of
petitioner - is an operative fact that can no longer be disturbed or simply ignored. (citations omitted; emphasis in the original.)

Bearing in mind that PARC Resolution No. 89-12-2-an executive act-was declared invalid in the instant case, the operative fact
doctrine is clearly applicable.46

Here, to order FDCP and the producers of graded films which may have already received the amusement tax incentive reward
pursuant to the questioned provisions of RA 9167, to return the amounts received to the respective taxing authorities would
certainly impose a heavy, and possibly crippling, financial burden upon them who merely, and presumably in good faith, complied
with the legislative fiat subject of this case. For these reasons, We are of the considered view that the application of the doctrine of
operative facts in the case at bar is proper so as not to penalize FDCP for having complied with the legislative command in RA 9167,
and the producers of graded films who have already received their tax cut prior to this Decision for having produced top-quality
films.

With respect to the amounts retained by the cinema proprietors due to petitioner FDCP, said proprietors are required under the law
to remit the same to petitioner. Obeisance to the rule of law must always be protected and preserved at all times and the unjustified
refusal of said proprietors cannot be tolerated. The operative fact doctrine equally applies to the non-remittance by said proprietors
since the law produced legal effects prior to the declaration of the nullity of Secs. 13 and 14 in these instant petitions. It can be
surmised, however, that the proprietors were at a loss whether or not to remit said amounts to FDCP considering the position of the
City of Cebu for them to remit the amusement taxes directly to the local government. For this reason, the proprietors shall not be
liable for surcharges.

In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14 of RA 9167, all amusement taxes remitted to petitioner
FDCP prior to the date of the finality of this decision shall remain legal and valid under the operative fact doctrine. Amusement taxes
due to petitioner but unremitted up to the finality of this decision shall be remitted to petitioner within thirty (30) days from date of
finality. Thereafter, amusement taxes previously covered by RA 9167 shall be remitted to the local governments.

WHEREFORE, premises considered, the consolidated petitions are hereby PARTIALLY GRANTED. The questioned Decision of the RTC,
Branch 5 of Cebu City in Civil Case No. CEB-35601 dated September 25, 2012 and that of the R TC, Branch 14, Cebu City in Civil Case
No. CEB-35529 dated October 24, 2012, collectively declaring Sections 13 and 14 of Republic Act No. 9167 invalid and
unconstitutional, are hereby AFFIRMED with MODIFICATION.

As modified, the decisions of the lower courts shall read:

1. Civil Case No. CEB-35601 entitled Colon Heritage Realty Corp. v. Film Development Council of the Philippines:

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of Colon Heritage Realty Corp. and against the Film
Development council of the Philippines, as follows: 1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known as an
Act Creating the Film Development Council of the Philippines, Defining its Powers and Functions, Appropriating Funds therefor arid
for other purposes, as invalid and unconstitutional;

2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and 14 of R.A. 9167 as of
the finality of the decision in G.R. Nos. 203754 and 204418;

3. Declaring that Colon Heritage Realty Corp. has the obligation to remit the amusement taxes withheld on graded cinema
films to FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality of this Decision, without surcharges;

4. Declaring that upon the finality of this decision, all amusement taxes withheld and those which may be collected by
Colon Heritage Realty Corp. on graded films shown in its cinemas in Cebu City shall be remitted to Cebu City pursuant to
City Ordinance LXIX, Chapter XI, Section 42.
2. Civil Case No. CEB-35529 entitled City of Cebu v. Film Development Council of the Philippines:

WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of the City of Cebu against the Film development Council
of the Philippines, as follows:

1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known as an Act Creating the Film Development Council
of the Philippines, Defining its Powers and Functions, Appropriating Funds therefor and for other purposes, void and
unconstitutional;

2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and 14 of R.A. 9167 as of
the finality of this Decision;

3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes, withheld on graded
cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality of this Decision,
without surcharges;

4. Declaring that after the finality of this Decision, all amusement taxes withheld and those which may be collected by
Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be remitted to petitioner Cebu City pursuant to City
Ordinance LXIX, Chapter XI, Section 42.

As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount shall be remitted by the
City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R. Nos. 203754 and 204418 without interests
and surcharges. Since Sections 13 and 14 of Republic Act No. 9167 were declared void and unconstitutional, all remittances of
amusement taxes pursuant to said Sections 13 and 14 of said law prior to the date of finality of this Decision shall remain valid and
legal. Cinema proprietors who failed to remit said amusement taxes to petitioner FDCP prior to the date of finality of this Decision
are obliged to remit the same, without surcharges, to petitioner FDCP under the doctrine of operative fact.

SO ORDERED.

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

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

Sabido, Sabido & Associates for appellant.

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

MARTIN, J.:

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

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with
preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare
Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.

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

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

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

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

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

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

There are three capital questions raised in this appeal:

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

2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?

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

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

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

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

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

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

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

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or
an equivalent of 1-½ centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would not support
the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the
reates of imposable taxes. 25 This is in line with the constutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26
Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance
should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local
autonomy were to be realized. 28

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

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as
amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing
Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant.

SO ORDERED.

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

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

Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.

CONCEPCION, C.J.:

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

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

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

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

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of
Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the
amount of P9,250.40 from January 1 to July 30, 1961.

4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and
those that if may later on pay until the termination of this case on the ground that Ordinance No. 110 as amended of the
City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional.

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

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

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

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

xxx xxx x x x1äwphï1.ñët

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof. Section 2 provides
for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at
specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein named,
and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for purposes of
the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to Section 5, the taxes
"shall be based and computed from the cargo manifest or bill of lading or any other record showing the number of cases of soft
drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to
be added for failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to
pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or
cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to
soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the ordinance provides that the
revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the
School Fund."

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts
to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of
Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers.

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

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks — in the
production and sale of which plaintiff is engaged — or less than P0.0042 per bottle, is manifestly too small to be excessive,
oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax prescribed
in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated
drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association, partnership, company or
corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was inserted by said
Ordinance No. 122:

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

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless they are
agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City.
Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or
shipped to him every month. When we consider, also, that the tax "shall be based and computed from the cargo manifest or bill of
lading ... showing the number of cases" — not sold — but "received" by the taxpayer, the intention to limit the application of the
ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this
angle, the tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by express provision of
law.4

Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents
or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.

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

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

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