CASES: RA 9282

A. G.R. No. 163583 August 20, 2008

BRITISH AMERICAN TOBACCO, petitioner,

vs.
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO,
JR., in his capacity as Commissioner of the Bureau of Internal Revenue, respondents.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY CORPORATION, and JT InTERNATIONAL,
S.A., respondents-in-intervention.

This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue Code (NIRC), as recodified
by Republic Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the NIRC on January 1, 2005; (3) Revenue
Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-2003. Petitioner argues that
the said provisions are violative of the equal protection and uniformity clauses of the Constitution.

RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other Purposes,"
took effect on January 1, 1997. In the same year, Congress passed RA 8424 or The Tax Reform Act of 1997, re-codifying
the NIRC. Section 142 was renumbered as Section 145 of the NIRC.

Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of cigarettes. To
determine the applicable tax rates of existing cigarette brands, a survey of the net retail prices per pack of cigarettes was
conducted as of October 1, 1996, the results of which were embodied in Annex "D" of the NIRC as the duly registered,
existing or active brands of cigarettes.

Paragraph (c) of Section 145, 1 states –

SEC. 145. Cigars and cigarettes. –

xxxx

(c) Cigarettes packed by machine. – There shall be levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00)
per pack, the tax shall be Thirteen pesos and forty-four centavos (P13.44) per pack;

(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty
centavos (P6.50) but does not exceed Ten pesos (10.00) per pack, the tax shall be Eight pesos and
ninety-six centavos (P8.96) per pack;

(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does
not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos and sixty centavos
(P5.60) per pack;

(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00)
per pack, the tax shall be One peso and twelve centavos (P1.12) per pack.

Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this
Act shall be taxed under the highest classification of any variant of that brand.

xxxx
 New brands shall be classified according to their current net retail price.

For the above purpose, net retail price shall mean the price at which the cigarette is sold on retail in 20 major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro
Manila, the net retail price shall mean the price at which the cigarette is sold in five major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and the value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set
forth in Annex "D" of this Act, shall remain in force until revised by Congress. (Emphasis supplied)

As such, new brands of cigarettes shall be taxed according to their current net retail price while existing or "old" brands
shall be taxed based on their net retail price as of October 1, 1996.

To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97,2 which classified the
existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands, or those
registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the
appropriate survey to determine their current net retail price is conducted. Pertinent portion of the regulations reads –

SECTION 2. Definition of Terms.

xxxx

3. Duly registered or existing brand of cigarettes – shall include duly registered, existing or active brands of
cigarettes, prior to January 1, 1997.

xxxx

6. New Brands – shall mean brands duly registered after January 1, 1997 and shall include duly registered,
inactive brands of cigarette not sold in commercial quantity before January 1, 1997.

Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands.

xxxx

B. New Brand

New brands shall be classified according to their current net retail price. In the meantime that the current net
retail price has not yet been established, the suggested net retail price shall be used to determine the specific
tax classification. Thereafter, a survey shall be conducted in 20 major supermarkets or retail outlets in Metro
Manila (for brands of cigarette marketed nationally) or in five (5) major supermarkets or retail outlets in the
region (for brands which are marketed only outside Metro Manila) at which the cigarette is sold on retail in
reams/cartons, three (3) months after the initial removal of the new brand to determine the actual net retail
price excluding the excise tax and value added tax which shall then be the basis in determining the specific tax
classification. In case the current net retail price is higher than the suggested net retail price, the former shall
prevail. Any difference in specific tax due shall be assessed and collected inclusive of increments as provided for
by the National Internal Revenue Code, as amended.

In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and
Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack.3 Pursuant to Sec. 145 (c) quoted
above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.
On February 17, 2003, Revenue Regulations No. 9-2003,4 amended Revenue Regulations No. 1-97 by providing, among
others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof for
the purpose of establishing and updating their tax classification, thus:

For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their
current net retail price shall be reviewed periodically through the conduct of survey or any other appropriate
activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However,
notwithstanding any increase in the current net retail price, the tax classification of such new brands shall
remain in force until the same is altered or changed through the issuance of an appropriate Revenue
Regulations.

Pursuant thereto, Revenue Memorandum Order No. 6-20035 was issued on March 11, 2003, prescribing the guidelines
and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products.

Subsequently, Revenue Regulations No. 22-20036 was issued on August 8, 2003 to implement the revised tax
classification of certain new brands introduced in the market after January 1, 1997, based on the survey of their current
net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold
at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively.7 Respondent Commissioner of the
Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike’s
average net retail price is above P10.00 per pack.

Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, Branch 61, a petition for
injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of Section 145 of the NIRC,
Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they
discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the
Constitution.

Respondent Commissioner of Internal Revenue filed an Opposition8 to the application for the issuance of a TRO. On
September 4, 2003, the trial court denied the application for TRO, holding that the courts have no authority to restrain
the collection of taxes.9 Meanwhile, respondent Secretary of Finance filed a Motion to Dismiss,10 contending that the
petition is premature for lack of an actual controversy or urgent necessity to justify judicial intervention.

In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of preliminary injunction
to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No.
6-2003.11 Respondents filed a Motion for Reconsideration12 and Supplemental Motion for Reconsideration.13 At the
hearing on the said motions, petitioner and respondent Commissioner of Internal Revenue stipulated that the only issue
in this case is the constitutionality of the assailed law, order, and regulations.14

On May 12, 2004, the trial court rendered a decision15 upholding the constitutionality of Section 145 of the NIRC,
Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. The trial court also
lifted the writ of preliminary injunction. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of merit. The Writ of
Preliminary Injunction previously issued is hereby lifted and dissolved.

SO ORDERED.16

Petitioner brought the instant petition for review directly with this Court on a pure question of law.

While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol And Tobacco
Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the NIRC of 1997, As Amended), took
effect on January 1, 2005. The statute, among others,–
(1) increased the excise tax rates provided in paragraph (c) of Section 145;

(2) mandated that new brands of cigarettes shall initially be classified according to their suggested net retail price, until
such time that their correct tax bracket is finally determined under a specified period and, after which, their
classification shall remain in force until revised by Congress;

(3) retained Annex "D" as tax base of those surveyed as of October 1, 1996 including the classification of brands for the
same products which, although not set forth in said Annex "D," were registered on or before January 1, 1997 and were
being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Act. Said classification shall remain in force until revised by Congress;
and

(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2, 199717 to December
31, 2003, such that said cigarettes shall remain in the classification under which the BIR has determined them to belong
as of December 31, 2003, until revised by Congress.

Pertinent portions, of RA 9334, provides:

SEC. 145. Cigars and Cigarettes. –

xxxx

(C) Cigarettes Packed by Machine. – There shall be levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack,
the tax shall be:

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;

Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and

Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.

(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not
exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:

Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;

Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;

Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and

Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.

(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos
(P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:

Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;

Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack,
the tax shall be:

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;

Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and

Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.

xxxx

New brands, as defined in the immediately following paragraph, shall initially be classified according to their
suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those
with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue
shall validate the suggested net retail price of the new brand against the net retail price as defined herein and
determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be
classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall
revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order
to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be
classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1,
1997 [should be January 2, 1997] and December 31, 2003 shall remain in the classification under which the
Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of
new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised
except by an act of Congress.

Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the
Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau
of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro
Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major
supermarkets in the region excluding the amount intended to cover the applicable excise tax and value-added
tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set
forth in Annex "D", including the classification of brands for the same products which, although not set forth
in said Annex "D", were registered and were being commercially produced and marketed on or after October
1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall
remain in force until revised by Congress. (Emphasis added)
Under RA 9334, the excise tax due on petitioner’s products was increased to P25.00 per pack. In the implementation
thereof, respondent Commissioner assessed petitioner’s importation of 911,000 packs of Lucky Strike cigarettes at the
increased tax rate of P25.00 per pack, rendering it liable for taxes in the total sum of P22,775,000.00.18

Hence, petitioner filed a Motion to Admit Attached Supplement19 and a Supplement20 to the petition for review,
assailing the constitutionality of RA 9334 insofar as it retained Annex "D" and praying for a downward classification of
Lucky Strike products at the bracket taxable at P8.96 per pack. Petitioner contended that the continued use of Annex
"D" as the tax base of existing brands of cigarettes gives undue protection to said brands which are still taxed based on
their price as of October 1996 notwithstanding that they are now sold at the same or even at a higher price than new
brands like Lucky Strike. Thus, old brands of cigarettes such as Marlboro and Philip Morris which, like Lucky Strike, are
sold at or more than P22.00 per pack, are taxed at the rate of P10.88 per pack, while Lucky Strike products are taxed at
P26.06 per pack.

In its Comment to the supplemental petition, respondents, through the Office of the Solicitor General (OSG), argued that
the passage of RA 9334, specifically the provision imposing a legislative freeze on the classification of cigarettes
introduced into the market between January 2, 1997 and December 31, 2003, rendered the instant petition academic.
The OSG claims that the provision in Section 145, as amended by RA 9334, prohibiting the reclassification of cigarettes
introduced during said period, "cured’ the perceived defect of Section 145 considering that, like the cigarettes under
Annex "D," petitioner’s brands and other brands introduced between January 2, 1997 and December 31, 2003, shall
remain in the classification under which the BIR has placed them and only Congress has the power to reclassify them.

On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to Intervene with
attached Comment-in-Intervention.21 This was followed by the Motions for Leave to Intervene of Fortune Tobacco
Corporation,22 Mighty Corporation, 23 and JT International, S.A., with their respective Comments-in-Intervention. The
Intervenors claim that they are parties-in-interest who stand to be affected by the ruling of the Court on the
constitutionality of Section 145 of the NIRC and its Annex "D" because they are manufacturers of cigarette brands which
are included in the said Annex. Hence, their intervention is proper since the protection of their interest cannot be
addressed in a separate proceeding.

According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on their net retail price
as of December 31, 2003 now enjoy the same status quo provision that prevents the BIR from reclassifying cigarettes
included in Annex "D." It added that the Court has no power to pass upon the wisdom of the legislature in retaining
Annex "D" in RA 9334; and that the nullification of said Annex would bring about tremendous loss of revenue to the
government, chaos in the collection of taxes, illicit trade of cigarettes, and cause decline in cigarette demand to the
detriment of the farmers who depend on the tobacco industry.

Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the constitutionality of
Section 145 and its implementing rules and regulations because it entered into the cigarette industry fully aware of the
existing tax system and its consequences. Petitioner imported cigarettes into the country knowing that its suggested
retail price, which will be the initial basis of its tax classification, will be confirmed and validated through a survey by the
BIR to determine the correct tax that would be levied on its cigarettes.

Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have been brought by
petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the CTA which has exclusive appellate
jurisdiction over decisions of the BIR in tax disputes.

On August 7, 2006, the OSG manifested that it interposes no objection to the motions for intervention.24 Therefore,
considering the substantial interest of the intervenors, and in the higher interest of justice, the Court admits their
intervention.

Before going into the substantive issues of this case, we must first address the matter of jurisdiction, in light of Fortune
Tobacco’s contention that petitioner should have brought its petition before the Court of Tax Appeals rather than the
regional trial court.
The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282.
Section 7 thereof states, in pertinent part:

Sec. 7. Jurisdiction. — The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;
xxx.25

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases
where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a
law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the
regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine in
an appropriate action the validity of the acts of the political departments. Judicial power includes the duty of the courts
of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.26

In Drilon v. Lim,27 it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this
authority being embraced in the general definition of the judicial power to determine what are the valid and
binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the
regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary
estimation, even as the accused in a criminal action has the right to question in his defense the constitutionality
of a law he is charged with violating and of the proceedings taken against him, particularly as they contravene
the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate
jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity
of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.

The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C)
of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC limited the
resolution of the subject case to the issue of the constitutionality of the assailed provisions. The determination of
whether the assailed law and its implementing rules and regulations contravene the Constitution is within the
jurisdiction of regular courts. The Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts,
including the regional trial courts.28 Petitioner, therefore, properly filed the subject case before the RTC.

We come now to the issue of whether petitioner is estopped from assailing the authority of the Commissioner of
Internal Revenue. Fortune Tobacco raises this objection by pointing out that when petitioner requested the
Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a "new brand" rather than a variant of an existing
brand, and thus subject to a lower specific tax rate, petitioner executed an undertaking to comply with the procedures
under existing regulations for the assessment of deficiency internal revenue taxes.

Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of Internal Revenue, cannot
later on turn around when the ruling is adverse to it.

Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and
representations, to the prejudice of others who have relied on them.29 The principle is codified in Article 1431 of the Civil
Code, which provides:

Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be
denied or disproved as against the person relying thereon.

Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:

Sec. 2. Conclusive presumptions. — The following are instances of conclusive presumptions:

(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission be permitted to falsify it.

The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact
relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the
actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or
foresees that the other would act upon the information given or that a reasonable person in the actor's position would
expect or foresee such action.30

In the early case of Kalalo v. Luz,31 the elements of estoppel, as related to the party to be estopped, are: (1) conduct
amounting to false representation or concealment of material facts; or at least calculated to convey the impression that
the facts are other than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at
least expectation that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge,
actual or constructive, of the real facts.

We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of the BIR,
which at that time it considered as valid, petitioner did not commit any false misrepresentation or misleading act.
Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself to the operation of
Section 145(C), and only later on filing the subject case praying for the declaration of its unconstitutionality when the
circumstances change and the law results in what it perceives to be unlawful discrimination. The mere fact that a law
has been relied upon in the past and all that time has not been attacked as unconstitutional is not a ground for
considering petitioner estopped from assailing its validity. For courts will pass upon a constitutional question only when
presented before it in bona fide cases for determination, and the fact that the question has not been raised before is not
a valid reason for refusing to allow it to be raised later.32

Now to the substantive issues.

To place this case in its proper context, we deem it necessary to first discuss how the assailed law operates in order to
identify, with precision, the specific provisions which, according to petitioner, have created a grossly discriminatory
classification scheme between old and new brands. The pertinent portions of RA 8240, as amended by RA 9334, are
reproduced below for ready reference:

SEC. 145. Cigars and Cigarettes. –

xxxx

(C) Cigarettes Packed by Machine. – There shall be levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack,
the tax shall be:

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;

Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and

Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.

(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not
exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be:

Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;

Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;

Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and

Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.

(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos
(P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be:

Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;

Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;

Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack,
the tax shall be:

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;

Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and

Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.

xxxx
 New brands, as defined in the immediately following paragraph, shall initially be classified according to their
suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those
with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue
shall validate the suggested net retail price of the new brand against the net retail price as defined herein and
determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be
classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall
revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order
to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified;
Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997
[should be January 2, 1997] and December 31, 2003 shall remain in the classification under which the Bureau of
Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands
and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress.

Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the
Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau
of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro
Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major
supermarkets in the region excluding the amount intended to cover the applicable excise tax and value-added
tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set
forth in Annex "D", including the classification of brands for the same products which, although not set forth in
said Annex "D", were registered and were being commercially produced and marketed on or after October 1,
1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall
remain in force until revised by Congress.

As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,33 medium-priced,34 high-
priced,35 and premium-priced36 tax brackets. When a brand is introduced in the market, the current net retail price is
determined through the aforequoted specified procedure. The current net retail price is then used to classify under
which tax bracket the brand belongs in order to finally determine the corresponding excise tax rate on a per pack basis.
The assailed feature of this law pertains to the mechanism where, after a brand is classified based on its current net
retail price, the classification is frozen and only Congress can thereafter reclassify the same. From a practical point of
view, Annex "D" is merely a by-product of the whole mechanism and philosophy of the assailed law. That is, the brands
under Annex "D" were also classified based on their current net retail price, the only difference being that they were the
first ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to the effectivity of RA
8240 on January 1, 1997.37

Due to this legislative classification scheme, it is possible that over time the net retail price of a previously classified
brand, whether it be a brand under Annex "D" or a new brand classified after the effectivity of RA 8240 on January 1,
1997, would increase (due to inflation, increase of production costs, manufacturer’s decision to increase its prices,
etc.) to a point that its net retail price pierces the tax bracket to which it was previously classified.38 Consequently, even if
its present day net retail price would make it fall under a higher tax bracket, the previously classified brand would
continue to be subject to the excise tax rate under the lower tax bracket by virtue of the legislative classification freeze.
Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands, which were permanently
classified under Annex "D." As of October 1, 1996, Marlboro had net retail prices ranging from P6.78 to P6.84 while
Philip Morris had net retail prices ranging from P7.39 to P7.48. Thus, pursuant to RA 8240,39 Marlboro and Philip Morris
were classified under the high-priced tax bracket and subjected to an excise tax rate of P8.96 per pack. Petitioner then
presented evidence showing that after the lapse of about seven years or sometime in 2004, Marlboro’s and Philip
Morris’ net retail prices per pack both increased to about P15.59.40 This meant that they would fall under the premium-
priced tax bracket, with a higher excise tax rate of P13.44 per pack,41 had they been classified based on their 2004 net
retail prices. However, due to the legislative classification freeze, they continued to be classified under the high-priced
tax bracket with a lower excise tax rate. Petitioner thereafter deplores the fact that its Lucky Strike Filter, Lucky Strike
Lights, and Lucky Strike Menthol Lights cigarettes, introduced in the market sometime in 2001 and validated by a BIR
survey in 2003, were found to have net retail prices of P11.53, P11.59 and P10.34,42 respectively, which are lower than
those of Marlboro and Philip Morris. However, since petitioner’s cigarettes were newly introduced brands in the market,
they were taxed based on their current net retail prices and, thus, fall under the premium-priced tax bracket with a
higher excise tax rate of P13.44 per pack. This unequal tax treatment between Marlboro and Philip Morris, on the one
hand, and Lucky Strike, on the other, is the crux of petitioner’s contention that the legislative classification freeze
violates the equal protection and uniformity of taxation clauses of the Constitution.

It is apparent that, contrary to its assertions, petitioner is not only questioning the undue favoritism accorded to brands
under Annex "D," but the entire mechanism and philosophy of the law which freezes the tax classification of a cigarette
brand based on its current net retail price. Stated differently, the alleged discrimination arising from the legislative
classification freeze between the brands under Annex "D" and petitioner’s newly introduced brands arose only
because the former were classified based on their "current" net retail price as of October 1, 1996 and petitioner’s newly
introduced brands were classified based on their "current" net retail price as of 2003. Without this corresponding
freezing of the classification of petitioner’s newly introduced brands based on their current net retail price, it would be
impossible to establish that a disparate tax treatment occurred between the Annex "D" brands and petitioner’s newly
introduced brands.

This clarification is significant because, under these circumstances, a declaration of unconstitutionality would necessarily
entail nullifying the whole mechanism of the law and not just Annex "D." Consequently, if the assailed law is declared
unconstitutional on equal protection grounds, the entire method by which a brand of cigarette is classified would have
to be invalidated. As a result, no method to classify brands under Annex "D" as well as new brands would be left behind
and the whole Section 145 of the NIRC, as amended, would become inoperative.43

To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy of the assailed law which
freezes the tax classification of a cigarette brand based on its current net retail price and which, thus, produced different
classes of brands based on the time of their introduction in the market (starting with the brands in Annex "D" since they
were the first brands so classified as of October 1, 1996) as the classification freeze provision.44

As thus formulated, the central issue is whether or not the classification freeze provision violates the equal protection
and uniformity of taxation clauses of the Constitution.

In Sison, Jr. v. Ancheta,45 this Court, through Chief Justice Fernando, explained the applicable standard in deciding equal
protection and uniformity of taxation challenges:

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

Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shall be uniform and equitable." This requirement is met according to Justice Laurel in Philippine Trust
Company v. Yatco, decided in 1940, when the tax "operates with the same force and effect in every place where
the subject may be found." He likewise added: "The rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable." The problem of classification did not present itself in that
case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes of taxation, . . . As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of
justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." There is
quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally
to all persons, firms and corporations placed in similar situation."46 (Emphasis supplied)

In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal protection challenges in
the main have followed the ‘rational basis’ test, coupled with a deferential attitude to legislative classifications and a
reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution."47 Within
the present context of tax legislation on sin products which neither contains a suspect classification nor impinges on a
fundamental right, the rational-basis test thus finds application. Under this test, a legislative classification, to survive an
equal protection challenge, must be shown to rationally further a legitimate state interest.48 The classifications must be
reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the
legislation.49 Since every law has in its favor the presumption of constitutionality, the burden of proof is on the one
attacking the constitutionality of the law to prove beyond reasonable doubt that the legislative classification is without
rational basis.50 The presumption of constitutionality can be overcome only by the most explicit demonstration that a
classification is a hostile and oppressive discrimination against particular persons and classes, and that there is no
conceivable basis which might support it.51

A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the
laws. The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is
germane to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it
applies equally to all those belonging to the same class.52

The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law for reasons
of practicality and expediency. That is, since a new brand was not yet in existence at the time of the passage of RA 8240,
then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price, similar to
what was used to classify the brands under Annex "D" as of October 1, 1996, was thus the logical and practical choice.
Further, with the amendments introduced by RA 9334, the freezing of the tax classifications now expressly applies not
just to Annex "D" brands but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any
new brand that will be introduced in the future.53 (However, as will be discussed later, the intent to apply the freezing
mechanism to newer brands was already in place even prior to the amendments introduced by RA 9334 to RA 8240.)
This does not explain, however, why the classification is "frozen" after its determination based on current net retail price
and how this is germane to the purpose of the assailed law. An examination of the legislative history of RA 8240
provides interesting answers to this question.

RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being pushed by the Ramos
Administration. It was enacted with the following objectives stated in the Sponsorship Speech of Senator Juan Ponce
Enrile (Senator Enrile), viz:

First, to evolve a tax structure which will promote fair competition among the players in the industries
concerned and generate buoyant and stable revenue for the government.

Second, to ensure that the tax burden is equitably distributed not only amongst the industries affected but
equally amongst the various levels of our society that are involved in various markets that are going to be
affected by the excise tax on distilled spirits, fermented liquor, cigars and cigarettes.

In the case of firms engaged in the industries producing the products that we are about to tax, this means
relating the tax burden to their market share, not only in terms of quantity, Mr. President, but in terms of value.

In case of consumers, this will mean evolving a multi-tiered rate structure so that low-priced products are
subject to lower tax rates and higher-priced products are subject to higher tax rates.

Third, to simplify the tax administration and compliance with the tax laws that are about to unfold in order to
minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion.54

In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended to Congress a
shift from the then existing ad valorem taxation system to a specific taxation system with respect to sin products,
including cigarettes. The DOF noted that the ad valorem taxation system was a source of massive tax leakages because
the taxpayer was able to evade paying the correct amount of taxes through the undervaluation of the price of cigarettes
using various marketing arms and dummy corporations. In order to address this problem, the DOF proposed a specific
taxation system where the cigarettes would be taxed based on volume or on a per pack basis which was believed to be
less susceptible to price manipulation. The reason was that the BIR would only need to monitor the sales volume of
cigarettes, from which it could easily compute the corresponding tax liability of cigarette manufacturers. Thus, the DOF
suggested the use of a three-tiered system which operates in substantially the same manner as the four-tiered system
under RA 8240 as earlier discussed. The proposal of the DOF was embodied in House Bill (H.B.) No. 6060, the pertinent
portions of which states—

SEC. 142. Cigars and cigarettes.—

(c) Cigarettes packed by machine.— There shall be levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:

(1) If the manufacturer’s or importer’s wholesale price (net of excise tax and value-added tax) per pack exceeds
four pesos and twenty centavos (P4.20), the tax shall be seven pesos and fifty centavos (P7.50);

(2) If the manufacturer’s or importer’s wholesale price (net of excise tax and value-added tax) per pack exceeds
three pesos and ninety centavos (P3.90) but does not exceed four pesos and twenty centavos (P4.20), the tax
shall be five pesos and fifty centavos (P5.50): provided, that after two (2) years from the effectivity of this Act,
cigarettes otherwise subject to tax under this subparagraph shall be taxed under subparagraph (1) above.

(3) If the manufacturer’s or importer’s wholesale price (net of excise tax and value-added tax) per pack does not
exceeds three pesos and ninety centavos (P3.90), the tax rate shall be one peso (P1.00).
 Variants of existing brands and new brands of cigarettes packed by machine to be introduced in the domestic
market after the effectivity of this Act, shall be taxed under paragraph (c)(1) hereof.

The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c) hereof, including the price
levels for purposes of classifying cigarettes packed by machine, shall be revised upward two (2) years after the
effectivity of this Act and every two years thereafter by the Commissioner of Internal Revenue, subject to the
approval of the Secretary of Finance, taking into account the movement of the consumer price index for cigars
and cigarettes as established by the National Statistics Office: provided, that the increase in taxes and/or price
levels shall be equal to the present change in such consumer price index for the two-year
period: provided, further, that the President, upon the recommendation of the Secretary of Finance, may
suspend or defer the adjustment in price levels and tax rates when the interest of the national economy and
general welfare so require, such as the need to obviate unemployment, and economic and social
dislocation: provided, finally, that the revised price levels and tax rates authorized herein shall in all cases be
rounded off to the nearest centavo and shall be in force and effect on the date of publication thereof in a
newspaper of general circulation. x x x (Emphasis supplied)

What is of particular interest with respect to the proposal of the DOF is that it contained a provision for the periodic
adjustment of the excise tax rates and tax brackets, and a corresponding periodic resurvey and reclassification of
cigarette brands based on the increase in the consumer price index as determined by the Commissioner of Internal
Revenue subject to certain guidelines. The evident intent was to prevent inflation from eroding the value of the excise
taxes that would be collected from cigarettes over time by adjusting the tax rate and tax brackets based on the increase
in the consumer price index. Further, under this proposal, old brands as well as new brands introduced thereafter would
be subjected to a resurvey and reclassification based on their respective values at the end of every two years in order to
align them with the adjustment of the excise tax rate and tax brackets due to the movement in the consumer price
index.55

Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates and tax brackets, and the
periodic resurvey and reclassification of cigarette brands are concerned, did not gain approval from Congress. The House
and Senate pushed through with their own versions of the excise tax system on beers and cigarettes both denominated
as H.B. No. 7198. For convenience, we shall refer to the bill deliberated upon by the House as the House Version and
that of the Senate as the Senate Version.

The House’s Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier (Congressman Javier),
roundly rejected the DOF proposal. Instead, in its Committee Report submitted to the plenary, it proposed a different
excise tax system which used a specific tax as a basic tax with an ad valorem comparator. Further, it deleted the
proposal to have a periodic adjustment of tax rates and the tax brackets as well as periodic resurvey and reclassification
of cigarette brands, to wit:

The rigidity of the specific tax system calls for the need for frequent congressional intervention to adjust the tax
rates to inflation and to keep pace with the expanding needs of government for more revenues. The DOF admits
this flaw inherent in the tax system it proposed. Hence, to obviate the need for remedial legislation, the DOF is
asking Congress to grant to the Commissioner the power to revise, one, the specific tax rates: and two, the price
levels of beer and cigarettes. What the DOF is asking, Mr. Speaker, is for Congress to delegate to the
Commissioner of Internal Revenue the power to fix the tax rates and classify the subjects of taxation based on
their price levels for purposes of fixing the tax rates. While we sympathize with the predicament of the DOF, it is
not for Congress to abdicate such power. The power sought to be delegated to be exercised by the
Commissioner of Internal Revenue is a legislative power vested by the Constitution in Congress pursuant to
Section 1, Article VI of the Constitution. Where the power is vested, there it must remain— in Congress, a body
of representatives elected by the people. Congress may not delegate such power, much less abdicate it.

xxxx
 Moreover, the grant of such power, if at all constitutionally permissible, to the Commissioner of Internal
Revenue is fraught with ethical implications. The debates on how much revenue will be raised, how much
money will be taken from the pockets of taxpayers, will inexorably shift from the democratic Halls of Congress to
the secret and non-transparent corridors of unelected agencies of government, the Department of Finance and
the Bureau of Internal Revenue, which are not accountable to our people. We cannot countenance the shift for
ethical reasons, lest we be accused of betraying the trust reposed on this Chamber by the people. x x x

A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the Commissioner of Internal
Revenue which will be triggered by inflation rates based on the consumer price index. Simply stated, Mr.
Speaker, the specific tax rates will be fixed by the Commissioner depending on the price levels of beers and
cigarettes as determined by the consumers’ price index. This is a novel idea, if not necessarily weird in the field
of taxation. What if the brewer or the cigarette manufacturer sells at a price below the consumers’ price index?
Will it be taxed on the basis of the consumer’s price index which is over and above its wholesale or retail price as
the case may be? This is a weird form of exaction where the tax is based not on what the brewer or
manufacturer actually realized but on an imaginary wholesale or retail price. This amounts to a taxation based
on presumptive price levels and renders the specific tax a presumptive tax. We hope, the DOF and the BIR will
also honor a presumptive tax payment.

Moreover, specific tax rates based on price levels tied to consumer’s price index as proposed by the DOF
engenders anti-trust concerns. The proposal if enacted into law will serve as a barrier to the entry of new players
in the beer and cigarette industries which are presently dominated by shared monopolies. A new player in these
industries will be denied business flexibility to fix its price levels to promote its product and penetrate the
market as the price levels are dictated by the consumer price index. The proposed tax regime, Mr. Speaker, will
merely enhance the stranglehold of the oligopolies in the beer and cigarette industries, thus, reversing the
government’s policy of dismantling monopolies and combinations in restraint of trade.56

For its part, the Senate’s Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile (Senator Enrile),
developed its own version of the excise tax system on cigarettes. The Senate Version consisted of a four-tiered system
and, interestingly enough, contained a periodic excise tax rate and tax bracket adjustment as well as a periodic resurvey
and reclassification of brands provision ("periodic adjustment and reclassification provision," for brevity) to be
conducted by the DOF in coordination with the BIR and the National Statistics Office based on the increase in the
consumer price index— similar to the one proposed by the DOF, viz:

SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further amended to read as
follows:

"SEC. 142. Cigars and cigarettes. –

xxxx

(c) Cigarettes packed by machine. – There shall be levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack,
the tax shall be Twelve pesos (P12.00) per pack;

(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos
(P6.50) per pack, the tax shall be Eight pesos (P8.00) per pack;

(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) up to Six pesos
and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
 (4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack,
the tax shall be One peso (P1.00) per pack.

Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this
Act shall be taxed under the highest classification of any variant of that brand.

xxx

The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c) hereof, including the net
retail prices for purposes of classification, shall be adjusted on the sixth of January three years after the
effectivity of this Act and every three years thereafter. The adjustment shall be in accordance with the
inflation rate measured by the average increase in the consumer price index over the three-year period. The
adjusted tax rates and net price levels shall be in force on the eighth of January.

Within the period hereinabove mentioned, the Secretary of Finance shall direct the conduct of a survey of
retail prices of each brand of cigarettes in coordination with the Bureau of Internal Revenue and the National
Statistics Office.

For purposes of this Section, net retail price shall mean the price at which the cigarette is sold on retail in 20
major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount
intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only
outside Metro Manila, the net retail price shall mean the price at which the cigarette is sold in five major
supermarkets in the region excluding the amount intended to cover the applicable excise tax and the value-
added tax.

The classification of each brand of cigarettes in the initial year of implementation of this Act shall be based on
its average net retail price as of October 1, 1996. The said classification by brand shall remain in force until
January 7, 2000.

New brands shall be classified according to their current net retail price.57 (Emphasis supplied)

During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts as to the legality and
wisdom of putting a periodic adjustment and reclassification provision:

Senator Enrile: This will be the first time that a tax burden will be allowed to be automatically adjusted upwards
based on a system of indexing tied up with the Consumers Price Index (CPI). Although I must add that we have
adopted a similar system in adjusting the personal tax exemption from income tax of our individual taxpayers.

Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that this the first time
we are trying to put an automatic adjustment. My concern is, why do we propose now this automatic
adjustment? What is the reason that impels the committee? Maybe we can be enlightened and maybe we shall
embrace it forthwith. But what is the reason?

Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has adopted a tax proposal
on these products based on a specific tax as a basic tax with an ad valorem comparator. The Committee on Ways
and Means of the Senate has not seen it fit to adopt this system, but it recognized the possibility that there may
be an occasion where the price movement in the country might unwarrantedly move upwards, in which case, if
we peg the government to a specific tax rate of P6.30, P9.30 and P12.30 for beer, since we are talking of
beer, 58 the government might lose in the process.

In order to consider the interest of the government in this, Mr. President, and in order to obviate the possibility
that some of these products categorized under the different tiers with different specific tax rates from moving
upwards and piercing their own tiers and thereby expose themselves to an incremental tax of higher magnitude,
it was felt that we should adopt a system where, in spite of any escalation in the price of these products in the
future, the tax rates could be adjusted upwards so that none of these products would leave their own tier. That
was the basic principle under which we crafted this portion of the tax proposal.

Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman as regards the
comparator provision in the House of Representatives and we appreciate the reasons given. But we are under
the impression that the House also, aside from the comparator, has an adjustment clause that is fixed. It has
fixed rates for the adjustment. So that one of the basic differences between the Senate proposed version now
and the House version is that, the House of Representatives has manifested its will and judgment as regards the
tax to which we will adjust, whereas the Senate version relegates fundamentally that judgment to the
Department of Finance.

Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed adjustment, we might be
fixing an amount that is either too high or too low. We cannot foresee the economic trends in this country over
a period of two years, three years, let alone ten years. So we felt that a mechanism ought to be adopted in order
to serve the interest of the government, the interest of the producers, and the interest of the consuming public.

Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution— I think it is
Article VI, Section 24, and it was the distinguished chairman of the Committee on Ways and Means who made
this Chamber very conscious of this provision— revenue measures and tariff measures shall originate exclusively
from the House of Representatives.

The reason for this, Mr. President, is, there is a long history why the House of Representatives must originate
judgments on tax. The House members represent specific districts. They represent specific constituencies, and
the whole history of parliamentarism, the whole history of Congress as an institution is founded on the
proposition that the direct representatives of the people must speak about taxes.

Mr. President, while the Senate can concur and can introduce amendments, the proposed change here is
radical. This is the policy difficulty that I wish to clarify with the gentleman because the judgment call now on
the amount of tax to be imposed is not coming from Congress. It is shifted to the Department of Finance. True,
the Secretary of Finance may have been the best finance officer two years ago and now the best finance officer
in Asia, but that does not make him qualified to replace the judgment call of the House of Representatives. That
is my first difficulty.

Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand. The computation of
the rate is the only thing that was left to the Department of Finance as a tax implementor of Congress. This is
not unusual because we have already, as I said, adopted a system similar to this. If we adjust the personal
exemption of an individual taxpayer, we are in effect adjusting the applicable tax rate to him.

Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart precisely from the
mandate of the Constitution that judgment on revenue must emanate from Congress. Here, it is shifted to the
Department of Finance for no visible or patent reason insofar as I could understand. The only difference is, who
will make the judgment? Should it be Congress?

Senator Enrile: Mr. President, forgive me for answering sooner than I should. My understanding of the
Constitution is that all revenue measures must emanate from the House. That is all the Constitution says.

Now, it does not say that the judgment call must belong to the House. The judgment call can belong both to the
House and to the Senate. We can change whatever proposal the House did. Precisely, we are now crafting a
measure, and we are saying that this is the rate subject to an adjustment which we also provide. We are not
giving any unusual power to the Secretary of Finance because we tell him, "This is the formula that you must
adopt in arriving at the adjustment so that you do not have to come back to us."59
Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR, Senator Roco also voiced
out his concern about the possible abuse and corruption that will arise from the periodic adjustment and reclassification
provision. Continuing—

Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a different legal
interpretation, we will then now examine the choice. Because his legal interpretation is different from mine,
then the issues becomes: Is it more advantageous that this judgment be exercised by the House? Should we
not concur or modify in terms of the exercise by the House of its power or are we better off giving this
judgment call to the Department of Finance?

Let me now submit, Mr. President, that in so doing, it is more advantageous to fix the rate so that even if we
modify the rates identified by Congress, it is better and less susceptible to abuse.

For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be done? On page 8,
lines 5 to 9, there is a provision here as to when the Secretary of Finance shall direct the conduct of survey of
retail prices of each brand of fermented liquor in coordination with the Bureau of Internal Revenue and the
National Statistics Office.

These offices are not exactly noted, Mr. President, for having been sanctified by the Holy Spirit in their noble
intentions. x x x60 (Emphasis supplied)

Pressing this point, Senator Roco continued his query:

Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the Secretary of Finance shall
direct the conduct of the survey. How? When? Which retail prices and what brand shall he consider? When he
coordinates with the Bureau of Internal Revenue, what is the Bureau of Internal Revenue supposed to be doing?
What is the National Statistics Office supposed to be doing, and under what guides and standards?

May the gentleman wish to demonstrate how this will be done? My point, Mr. President, is, by giving the
Secretary of Finance, the BIR and the National Statistics Office discretion over a two-year period will invite
corruption and arbitrariness, which is more dangerous than letting the House of Representatives and this
Chamber set the adjustment rate. Why not set the adjustment rate? Why should Congress not exercise that
judgment now? x x x

Senator Enrile: x x x

Senator Roco: x x x We respectfully submit that the Chairman consider choosing the judgment of this Chamber
and the House of Representatives over a delegated judgment of the Department of Finance.

Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I also trust the
undersecretary. But that is beside the point. Tomorrow, they may not be there.61 (Emphasis supplied)

This point was further dissected by the two senators. There was a genuine difference of opinion as to which system—
one with a fixed excise tax rate and classification or the other with a periodic adjustment of excise tax rate and
reclassification— was less susceptible to abuse, as the following exchanges show:

Senator Enrile: Mr. President, considering the sensitivity of these products from the viewpoint of exerted
pressures because of the understandable impact of this measure on the pockets of the major players producing
these products, the committee felt that perhaps to lessen such pressures, it is best that we now establish a
norm where the tax will be adjusted without incurring too much political controversy as has happened in the
case of this proposal.
 Senator Roco: But that is exactly the same reason we say we must rely upon Congress because Congress, if it is
subjected to pressure, at least balances off because of political factors.

When the Secretary of Finance is now subjected to pressure, are we saying that the Secretary of Finance and the
Department of Finance is better-suited to withstand the pressure? Or are we saying "Let the Finance Secretary
decide whom to yield"?

I am saying that the temptation and the pressure on the Secretary of Finance is more dangerous and more
corruption-friendly than ascertaining for ourselves now a fixed rate of increase for a fixed period.

Senator Enrile: Mr. President, perhaps the gentleman may not agree with this representation, but in my humble
opinion, this formulation is less susceptible to pressure because there is a definite point of reference which is
the consumer price index, and that consumer price index is not going to be used only for this purpose. The CPI is
used for a national purpose, and there is less possibility of tinkering with it.62

Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment and reclassification
provision would create an anti-competitive atmosphere. Again, Senators Roco and Enrile had genuine divergence of
opinions on this matter, to wit:

Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be disadvantageous to both
companies, whether it is the Lucio Tan companies or the San Miguel companies. If we have to adjust our
marketing position every two years based on the adjustment clause, the established company may survive, but
the new ones will have tremendous difficulty. Therefore, this provision tends to indicate an anticompetitive bias.

It is good for San Miguel and the Lucio Tan companies, but the new companies— assuming there may be new
companies and we want to encourage them because of the old point of liberalization— will be at a disadvantage
under this situation. If this observation will find receptivity in the policy consideration of the distinguished
Gentleman, maybe we can also further, later on, seek amendments to this automatic adjustment clause in some
manner.

Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with respect to a new
entrant, because a new entrant will not just come in without studying the market. He is a lousy businessman if
he will just come in without studying the market. If he comes in, he will determine at what retail price level he
will market his product, and he will be coming under any of the tiers depending upon his net retail price.
Therefore, I do not see how this particular provision will affect a new entrant.

Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until this evening, and we
will have to look for other ways of resolving the policy options.

Let me just close that particular area of my interpellation, by summarizing the points we were hoping could be
clarified.

1. That the automatic adjustment clause is at best questionable in law.

2. It is corruption-friendly in the sense that it shifts the discretion from the House of Representatives
and this Chamber to the Secretary of Finance, no matter how saintly he may be.

3. There is,— although the judgment call of the gentleman disagrees— to our view, an anticompetitive
situation that is geared at…63

After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate Body because
the Senate Version was passed on Third Reading without substantially altering the periodic adjustment and
reclassification provision.
It was actually at the Bicameral Conference Committee level where the Senate Version underwent major changes. The
Senate Panel prevailed upon the House Panel to abandon the basic excise tax rate and ad valorem comparator as the
means to determine the applicable excise tax rate. Thus, the Senate’s four-tiered system was retained with minor
adjustments as to the excise tax rate per tier. However, the House Panel prevailed upon the Senate Panel to delete the
power of the DOF and BIR to periodically adjust the excise tax rate and tax brackets, and periodically resurvey and
reclassify the cigarette brands based on the increase in the consumer price index.

In lieu thereof, the classification of existing brands based on their average net retail price as of October 1, 1996 was
"frozen" and a fixed across-the-board 12% increase in the excise tax rate of each tier after three years from the
effectivity of the Act was put in place. There is a dearth of discussion in the deliberations as to the applicability of the
freezing mechanism to new brands after their classification is determined based on their current net retail price. But a
plain reading of the text of RA 8240, even before its amendment by RA 9334, as well as the previously discussed
deliberations would readily lead to the conclusion that the intent of Congress was to likewise apply the freezing
mechanism to new brands. Precisely, Congress rejected the proposal to allow the DOF and BIR to periodically adjust the
excise tax rate and tax brackets as well as to periodically resurvey and reclassify cigarettes brands which would have
encompassed old and new brands alike. Thus, it would be absurd for us to conclude that Congress intended to allow the
periodic reclassification of new brands by the BIR after their classification is determined based on their current net retail
price. We shall return to this point when we tackle the second issue.

In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in his report to the Senate
plenary, noted that the fixing of the excise tax rates was done to avoid confusion.64 Congressman Javier, for his part,
reported to the House plenary the reasons for fixing the excise tax rate and freezing the classification, thus:

Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the Senate version
which seeks to abdicate the power of Congress to tax by pegging the rates as well as the classification of sin
products to consumer price index which practically vests in the Secretary of Finance the power to fix the rates
and to classify the products for tax purposes.65 (Emphasis supplied)

Congressman Javier later added that the frozen classification was intended to give stability to the industry as the BIR
would be prevented from tinkering with the classification since it would remain unchanged despite the increase in the
net retail prices of the previously classified brands.66 This would also assure the industry players that there would be no
new impositions as long as the law is unchanged.67

From the foregoing, it is quite evident that the classification freeze provision could hardly be considered arbitrary, or
motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands. Congress was unequivocal
in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets as well as to
periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF
and the BIR. Congress doubted the constitutionality of such delegation of power, and likewise, considered the ethical
implications thereof. Curiously, the classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere in the
market. Yet, as it is, this same criticism is being foisted by petitioner upon the classification freeze provision.

To our mind, the classification freeze provision was in the main the result of Congress’s earnest efforts to improve the
efficiency and effectivity of the tax administration over sin products while trying to balance the same with other state
interests. In particular, the questioned provision addressed Congress’s administrative concerns regarding delegating too
much authority to the DOF and BIR as this will open the tax system to potential areas for abuse and corruption. Congress
may have reasonably conceived that a tax system which would give the least amount of discretion to the tax
implementers would address the problems of tax avoidance and tax evasion.

To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the Senate Version, the
periodic reclassification of brands would tempt the cigarette manufacturers to manipulate their price levels or bribe the
tax implementers in order to allow their brands to be classified at a lower tax bracket even if their net retail prices have
already migrated to a higher tax bracket after the adjustment of the tax brackets to the increase in the consumer price
index. Presumably, this could be done when a resurvey and reclassification is forthcoming. As briefly touched upon in
the Congressional deliberations, the difference of the excise tax rate between the medium-priced and the high-priced
tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderately popular brand which sells around 100
million packs per year, this easily translates to P336,000,000.68 The incentive for tax avoidance, if not outright tax
evasion, would clearly be present. Then again, the tax implementers may use the power to periodically adjust the tax
rate and reclassify the brands as a tool to unduly oppress the taxpayer in order for the government to achieve its
revenue targets for a given year.

Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these potential areas
of abuse and corruption from both the side of the taxpayer and the government. Without doubt, the classification freeze
provision was an integral part of this overall plan. This is in line with one of the avowed objectives of the assailed law "to
simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses
arising from inefficiencies and tax avoidance scheme, if not outright tax evasion."69 RA 9334 did not alter
this classification freeze provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying
the wording of the law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show, that the
administrative concerns in tax administration, which moved Congress to enact the classification freeze provision in RA
8240, were merely continued by RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for
legislative classification.70 In the case at bar, these administrative concerns in the measurement and collection of excise
taxes on sin products are readily apparent as afore-discussed.

Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax
administration of sin products, the legislative deliberations also show that the classification freeze provision was
intended to generate buoyant and stable revenues for government. With the frozen tax classifications, the revenue
inflow would remain stable and the government would be able to predict with a greater degree of certainty the amount
of taxes that a cigarette manufacturer would pay given the trend in its sales volume over time. The reason for this is that
the previously classified cigarette brands would be prevented from moving either upward or downward their tax
brackets despite the changes in their net retail prices in the future and, as a result, the amount of taxes due from them
would remain predictable. The classification freeze provision would, thus, aid in the revenue planning of the
government.71

All in all, the classification freeze provision addressed Congress’s administrative concerns in the simplification of tax
administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and
stable revenue generation, and ease of projection of revenues. Consequently, there can be no denial of the equal
protection of the laws since the rational-basis test is amply satisfied.

Going now to the contention of petitioner that the classification freeze provision unduly favors older brands over newer
brands, we must first contextualize the basis of this claim. As previously discussed, the evidence presented by the
petitioner merely showed that in 2004, Marlboro and Philip Morris, on the one hand, and Lucky Strike, on the other,
would have been taxed at the same rate had the classification freeze provision been not in place. But due to the
operation of the classification freeze provision, Lucky Strike was taxed higher. From here, petitioner generalizes that this
differential tax treatment arising from the classification freeze provision adversely impacts the fairness of the playing
field in the industry, particularly, between older and newer brands. Thus, it is virtually impossible for new brands to
enter the market.

Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been shown that the net
retail prices of other older brands previously classified under this classification system have already pierced their tax
brackets, and, if so, how this has affected the overall competition in the market. Further, it does not necessarily follow
that newer brands cannot compete against older brands because price is not the only factor in the market as there are
other factors like consumer preference, brand loyalty, etc. In other words, even if the newer brands are priced higher
due to the differential tax treatment, it does not mean that they cannot compete in the market especially since
cigarettes contain addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand
solely due to its unique formulation. It may also be noted that in 2003, the BIR surveyed 29 new brands72 that were
introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus negating the sweeping generalization
of petitioner that the classification freeze provision has become an insurmountable barrier to the entry of new brands.
Verily, where there is a claim of breach of the due process and equal protection clauses, considering that they are not
fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.73

Be that as it may, petitioner’s evidence does suggest that, at least in 2004, Philip Morris and Marlboro, older brands,
would have been taxed at the same rate as Lucky Strike, a newer brand, due to certain conditions (i.e., the increase of
the older brands’ net retail prices beyond the tax bracket to which they were previously classified after the lapse of
some time) were it not for the classification freeze provision. It may be conceded that this has adversely affected, to a
certain extent, the ability of petitioner to competitively price its newer brands vis-à-vis the subject older brands. Thus, to
a limited extent, the assailed law seems to derogate one of its avowed objectives, i.e. promoting fair competition among
the players in the industry. Yet, will this occurrence, by itself, render the assailed law unconstitutional on equal
protection grounds?

We answer in the negative.

Whether Congress acted improvidently in derogating, to a limited extent, the state’s interest in promoting fair
competition among the players in the industry, while pursuing other state interests regarding the simplification of tax
administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and
stable revenue generation, and ease of projection of revenues through the classification freeze provision, and whether
the questioned provision is the best means to achieve these state interests, necessarily go into the wisdom of the
assailed law which we cannot inquire into, much less overrule. The classification freeze provision has not been shown to
be precipitated by a veiled attempt, or hostile attitude on the part of Congress to unduly favor older brands over newer
brands. On the contrary, we must reasonably assume, owing to the respect due a co-equal branch of government and as
revealed by the Congressional deliberations, that the enactment of the questioned provision was impelled by an earnest
desire to improve the efficiency and effectivity of the tax administration of sin products. For as long as the legislative
classification is rationally related to furthering some legitimate state interest, as here, the rational-basis test is satisfied
and the constitutional challenge is perfunctorily defeated.

We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state interest is
superior over another, or which method is better suited to achieve one, some or all of the state’s interests, or what
these interests should be in the first place. This policy-determining power, by constitutional fiat, belongs to Congress as
it is its function to determine and balance these interests or choose which ones to pursue. Time and again we have ruled
that the judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should
be. Under our system of government, policy issues are within the domain of the political branches of government and of
the people themselves as the repository of all state power.74 Thus, the legislative classification under the classification
freeze provision, after having been shown to be rationally related to achieve certain legitimate state interests and done
in good faith, must, perforce, end our inquiry.

Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its avowed objectives (i.e.
promoting fair competition among the players in the industry) would suggest that, by Congress’s own standards, the
current excise tax system on sin products is imperfect. But, certainly, we cannot declare a statute unconstitutional
merely because it can be improved or that it does not tend to achieve all of its stated objectives.75 This is especially true
for tax legislation which simultaneously addresses and impacts multiple state interests.76 Absent a clear showing of
breach of constitutional limitations, Congress, owing to its vast experience and expertise in the field of taxation, must be
given sufficient leeway to formulate and experiment with different tax systems to address the complex issues and
problems related to tax administration. Whatever imperfections that may occur, the same should be addressed to the
democratic process to refine and evolve a taxation system which ideally will achieve most, if not all, of the state’s
objectives.

In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and the method by which the
latter sought to achieve the same. But its remedy is with Congress and not this Court. As succinctly articulated in Vance
v. Bradley:77
 The Constitution presumes that, absent some reason to infer antipathy, even improvident decisions will
eventually be rectified by the democratic process, and that judicial intervention is generally unwarranted no
matter how unwisely we may think a political branch has acted. Thus, we will not overturn such a statute unless
the varying treatment of different groups or persons is so unrelated to the achievement of any combination of
legitimate purposes that we can only conclude that the legislature's actions were irrational.78

We now tackle the second issue.

Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 9-2003, Revenue
Regulations No. 22-2003 and Revenue Memorandum Order No. 6-2003, are invalid insofar as they empower the BIR to
reclassify or update the classification of new brands of cigarettes based on their current net retail prices every two years
or earlier. It claims that RA 8240, even prior to its amendment by RA 9334, did not authorize the BIR to conduct said
periodic resurvey and reclassification.

The questioned provisions are found in the following sections of the assailed issuances:

(1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations
9-2003, viz:

For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their
current net retail price shall be reviewed periodically through the conduct of survey or any other appropriate
activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However,
notwithstanding any increase in the current net retail price, the tax classification of such new brands shall
remain in force until the same is altered or changed through the issuance of an appropriate Revenue
Regulations.

(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order
No. 6-2003, insofar as pertinent to cigarettes packed by machine, viz:

II. POLICIES AND GUIDELINES

1. The conduct of survey covered by this Order, for purposes of determining the current retail prices of new
brands of cigarettes and alcohol products introduced in the market on or after January 1, 1997, shall be
undertaken in the following instances:

xxxx

b. For reclassification of new brands of said excisable products that were introduced in the market after January
1, 1997.

xxxx

4. The determination of the current retail prices of new brands of the aforesaid excisable products shall be
initiated as follows:

xxxx

b. After the lapse of the prescribed two-year period or as the Commissioner may otherwise direct, the
appropriate tax reclassification of these brands based on the current net retail prices thereof shall be
determined by a survey to be conducted upon a written directive by the Commissioner.
 For this purpose, a memorandum order to the Assistant Commissioner, Large Taxpayers Service, Heads, Excise
Tax Areas, and Regional Directors of all Revenue Regions, except Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be
issued by the Commissioner for the submission of the list of major supermarkets/retail outlets where the above
excisable products are being sold, as well as the list of selected revenue officers who shall be designated to
conduct the said activity(ies).

xxxx

6. The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be submitted directly to the Chief, LT
Assistance Division II (LTAD II), National Office for consolidation. On the other hand, the results of the survey
conducted in Revenue Regions other than Revenue Region Nos. 4 to 9, shall be submitted to the Office of the
Regional Director for regional consolidation. The consolidated regional survey, together with the accomplished
survey forms shall be transmitted to the Chief, LTAD II for national consolidation within three (3) days from date
of actual receipt from the survey teams. The LTAD II shall be responsible for the evaluation and analysis of the
submitted survey forms and the preparation of the recommendation for the updating/revision of the tax
classification of each brand of cigarettes and alcohol products. The said recommendation, duly validated by the
ACIR, LTS, shall be submitted to the Commissioner for final review within ten (10) days from the date of actual
receipt of complete reports from all the surveying Offices.

7. Upon final review by the Commissioner of the revised tax classification of the different new brands of
cigarettes and alcohol products, the appropriate revenue regulations shall be prepared and submitted for
approval by the Secretary of Finance.

xxxx

III. PROCEDURES

xxxx

Large Taxpayers Assistance Division II

xxxx

1. Perform the following preparatory procedures on the identification of brands to be surveyed,

supermarkets/retail outlets where the survey shall be conducted, and the personnel selected to conduct the
survey.

xxxx

b. On the tax reclassification of new brands

i. Submit a master list of registered brands covered by the survey pursuant to the provisions of Item II.2 of this
Order containing the complete description of each brand, existing net retail price and the corresponding tax rate
thereof.

ii. Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within the territorial jurisdiction of the
concerned revenue regions where the survey will be conducted to be used as basis in the issuance of Mission
Orders. Ensure that the minimum number of establishments to be surveyed, as prescribed under existing
revenue laws and regulations, is complied with. In addition, the names and designations of revenue officers
selected to conduct the survey shall be clearly indicated opposite the names of the establishments to be
surveyed.

There is merit to the contention.

In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued Revenue Regulations No. 1-97,
dated December 13, 1996, which mandates a one-time classification only.79 Upon their launch, new brands shall be
initially taxed based on their suggested net retail price. Thereafter, a survey shall be conducted within three (3) months
to determine their current net retail prices and, thus, fix their official tax classifications. However, the BIR made a
turnaround by issuing Revenue Regulations No. 9-2003, dated February 17, 2003, which partly amended Revenue
Regulations No. 1-97, by authorizing the BIR to periodically reclassify new brands (i.e., every two years or earlier) based
on their current net retail prices. Thereafter, the BIR issued Revenue Memorandum Order No. 6-2003, dated March 11,
2003, prescribing the guidelines on the implementation of Revenue Regulations No. 9-2003. This was patent error on
the part of the BIR for being contrary to the plain text and legislative intent of RA 8240.

It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue
Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the operation of Section 145
of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands
every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section
145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify cigarette brands
remains a prerogative of the legislature which cannot be usurped by the former.

More importantly, as previously discussed, the clear legislative intent was for new brands to benefit from the same
freezing mechanism accorded to Annex "D" brands. To reiterate, in enacting RA 8240, Congress categorically rejected
the DOF proposal and Senate Version which would have empowered the DOF and BIR to periodically adjust the excise
tax rate and tax brackets, and to periodically resurvey and reclassify cigarette brands. (This resurvey and reclassification
would have naturally encompassed both old and new brands.) It would thus, be absurd for us to conclude that Congress
intended to allow the periodic reclassification of new brands by the BIR after their classification is determined based on
their current net retail price while limiting the freezing of the classification to Annex "D" brands. Incidentally, Senator
Ralph G. Recto expressed the following views during the deliberations on RA 9334, which later amended RA 8240:

Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system [under R.A. 8240],
when Congress did not index the brackets, and Congress did not index the rates but only provided for a one rate
increase in the year 2000, we shifted from ad valorem which was based on value to a system of specific which is
based on volume. Congress then, in effect, determined the classification based on the prices at that particular
period of time and classified these products accordingly.

Of course, Congress then decided on what will happen to the new brands or variants of existing brands. To favor
government, a variant would be classified as the highest rate of tax for that particular brand. In case of a new
brand, Mr. President, then the BIR should classify them. But I do not think it was the intention of Congress then
to give the BIR the authority to reclassify them every so often. I do not think it was the intention of Congress to
allow the BIR to classify a new brand every two years, for example, because it will be arbitrary for the BIR to do
so. x x x80 (Emphasis supplied)

For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism is concerned,
must be seen merely as underscoring the legislative intent already in place then, i.e. new brands as being covered by the
freezing mechanism after their classification based on their current net retail prices.

Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It will be recalled that
petitioner introduced Lucky Strike in June 2001. However, as admitted by petitioner itself, the BIR did not conduct the
required market survey within three months from product launch. As a result, Lucky Strike was never classified based on
its actual current net retail price. Petitioner failed to timely seek redress to compel the BIR to conduct the requisite
market survey in order to fix the tax classification of Lucky Strike. In the meantime, Lucky Strike was taxed based on
its suggested net retail price of P9.90 per pack, which is within the high-priced tax bracket. It was only after the lapse of
two years or in 2003 that the BIR conducted a market survey which was the first time that Lucky Strike’s actual current
net retail price was surveyed and found to be from P10.34 to P11.53 per pack, which is within the premium-priced tax
bracket. The case of petitioner falls under a situation where there was no reclassification based on its current net retail
price which would have been invalid as previously explained. Thus, we cannot grant petitioner’s prayer for a downward
reclassification of Lucky Strike because it was never reclassified by the BIR based on its actual current net retail price.

It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-2003 which implemented
the revised tax classifications of new brands based on their current net retail prices through the market survey
conducted pursuant to Revenue Regulations No. 9-2003. Annex "A" of Revenue Regulations No. 22-2003 lists the result
of the market survey and the corresponding recommended tax classification of the new brands therein aside from Lucky
Strike. However, whether these other brands were illegally reclassified based on their actual current net retail prices by
the BIR must be determined on a case-to-case basis because it is possible that these brands were classified based on
their actual current net retail price for the first time in the year 2003 just like Lucky Strike. Thus, we shall not make any
pronouncement as to the validity of the tax classifications of the other brands listed therein.

Finally, it must be noted that RA 9334 introduced changes in the manner by which the current net retail price of a new
brand is determined and how its classification is permanently fixed, to wit:

New brands, as defined in the immediately following paragraph, shall initially be classified according to their
suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240 [on January 1, 1997].

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported cigarettes are intended by the manufacture or importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those
with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal
Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined
herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined
above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal
Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of
revalidation in order to finally determine the correct tax bracket under which a particular new brand of
cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market
between January 1, 1997 and December 31, 2003 shall remain in the classification under which the Bureau of
Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands
and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act
of Congress. (Emphasis supplied)

Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed modified by the
above provisions from the date of effectivity of RA 9334 on January 1, 2005.

In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue
Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, as pertinent to cigarettes packed by machine, are invalid insofar as they grant the BIR
the power to reclassify or update the classification of new brands every two years or earlier. Further, these provisions
are deemed modified upon the effectivity of RA 9334 on January 1, 2005 insofar as the manner of determining the
permanent classification of new brands is concerned.

We now tackle the last issue.

Petitioner contends that RA 8240, as amended by RA 9334, and its implementing rules and regulations violate the
General Agreement on Tariffs and Trade (GATT) of 1947, as amended, specifically, Paragraph 2, Article III, Part II:

2. The products of the territory of any contracting party imported into the territory of any other contracting
party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess
of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise
 apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1.

It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency exists between the
assailed law and the GATT in order to prevent triggering the international dispute settlement mechanism under the
GATT-WTO Agreement.

We disagree.

The classification freeze provision uniformly applies to all newly introduced brands in the market, whether imported or
locally manufactured. It does not purport to single out imported cigarettes in order to unduly favor locally produced
ones. Further, petitioner’s evidence was anchored on the alleged unequal tax treatment between old and new brands
which involves a different frame of reference vis-à-vis local and imported products. Petitioner has, therefore, failed to
clearly prove its case, both factually and legally, within the parameters of the GATT.

At any rate, even assuming arguendo that petitioner was able to prove that the classification freeze provision violates
the GATT, the outcome would still be the same. The GATT is a treaty duly ratified by the Philippine Senate and under
Article VII, Section 2181 of the Constitution, it merely acquired the status of a statute.82 Applying the basic principles of
statutory construction in case of irreconcilable conflict between statutes, RA 8240, as amended by RA 9334, would
prevail over the GATT either as a later enactment by Congress or as a special law dealing with the taxation of sin
products. Thus, in Abbas v. Commission on Elections,83 we had occasion to explain:

Petitioners premise their arguments on the assumption that the Tripoli Agreement is part of the law of the land,
being a binding international agreement. The Solicitor General asserts that the Tripoli Agreement is neither a
binding treaty, not having been entered into by the Republic of the Philippines with a sovereign state and
ratified according to the provisions of the 1973 or 1987 Constitutions, nor a binding international agreement.

We find it neither necessary nor determinative of the case to rule on the nature of the Tripoli Agreement and its
binding effect on the Philippine Government whether under public international or internal Philippine law. In
the first place, it is now the Constitution itself that provides for the creation of an autonomous region in Muslim
Mindanao. The standard for any inquiry into the validity of R.A. No. 6734 would therefore be what is so provided
in the Constitution. Thus, any conflict between the provisions of R.A. No. 6734 and the provisions of the Tripoli
Agreement will not have the effect of enjoining the implementation of the Organic Act. Assuming for the sake of
argument that the Tripoli Agreement is a binding treaty or international agreement, it would then constitute
part of the law of the land. But as internal law it would not be superior to R.A. No. 6734, an enactment of the
Congress of the Philippines, rather it would be in the same class as the latter [SALONGA, PUBLIC INTERNATIONAL
LAW 320 (4th ed., 1974), citing Head Money Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253 (1829)].
Thus, if at all, R.A. No. 6734 would be amendatory of the Tripoli Agreement, being a subsequent law. Only a
determination by this Court that R.A. No. 6734 contravenes the Constitution would result in the granting of the
reliefs sought. (Emphasis supplied)

WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati, Branch 61, in
Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court declares that:

(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that

(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations
9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, are INVALID insofar as they grant
the BIR the power to reclassify or update the classification of new brands every two years or earlier.

SO ORDERED.
 B. DACUDAO (pdf)
C. THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS. LIBERTY M. TOLEDO, in her
capacity as the City Treasurer of Manila, Petitioners,
vs.
HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of the Regional Trial Court, Branch 112,
Pasay City; SM MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.; ACE
HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS., INC.; JOLLIMART PHILS., CORP.;
SURPLUS MARKETING CORPORATION and SIGNATURE LINES, Respondents.

G.R. No. 175723 February 4, 2014.

Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court seeking to reverse and set aside
the Resolutions1 dated April 6, 2006 and November 29, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 87948.

The antecedents of the case, as summarized by the CA, are as follows:

The record shows that petitioner City of Manila, through its treasurer, petitioner Liberty Toledo, assessed taxes for the
taxable period from January to December 2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star
Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons Personal Care Stores Phils., Inc., Jollimart
Philippines Corp., Surplus Marketing Corp. and Signature Lines. In addition to the taxes purportedly due from private
respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of Manila (RRCM), said assessment covered
the local business taxes petitioners were authorized to collect under Section 21 of the same Code. Because payment of
the taxes assessed was a precondition for the issuance of their business permits, private respondents were constrained
to pay the ₱19,316,458.77 assessment under protest.

On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay City] the complaint denominated
as one for "Refund or Recovery of Illegally and/or Erroneously-Collected Local Business Tax, Prohibition with Prayer to
Issue TRO and Writ of Preliminary Injunction"

which was docketed as Civil Case No. 04-0019-CFM before public respondent's sala [at Branch 112]. In the amended
complaint they filed on February 16, 2004, private respondents alleged that, in relation to Section 21 thereof, Sections
14, 15, 16, 17, 18, 19 and 20 of the RRCM were violative of the limitations and guidelines under Section 143 (h) of
Republic Act. No. 7160 [Local Government Code] on double taxation. They further averred that petitioner city's
Ordinance No. 8011 which amended pertinent portions of the RRCM had already been declared to be illegal and
unconstitutional by the Department of Justice.2

In its Order3 dated July 9, 2004, the RTC granted private respondents' application for a writ of preliminary injunction.

Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its Order5 dated October 15, 2004.

Petitioners then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and October 15, 2004
Orders of the RTC.6

In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners' petition for certiorari holding that it has no
jurisdiction over the said petition. The CA ruled that since appellate jurisdiction over private respondents' complaint for
tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its expanded
jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the CTA.

Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its Resolution dated November 29, 2006.

Hence, the present petition raising the following issues:

 I- Whether or not the Honorable Court of Appeals gravely erred in dismissing the case for lack of jurisdiction.

II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess
of jurisdiction in enjoining by issuing a Writ of Injunction the petitioners, their agents and/or authorized
representatives from implementing Section 21 of the Revised Revenue Code of Manila, as amended, against
private respondents.

III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or
excess of jurisdiction in issuing the Writ of Injunction despite failure of private respondents to make a written
claim for tax credit or refund with the City Treasurer of Manila.

IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or
excess of jurisdiction considering that under Section 21 of the Manila Revenue Code, as amended, they are mere
collecting agents of the City Government.

V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess
of jurisdiction in issuing the Writ of Injunction because petitioner City of Manila and its constituents would result
to greater damage and prejudice thereof. (sic)8

Without first resolving the above issues, this Court finds that the instant petition should be denied for being moot and
academic.

Upon perusal of the original records of the instant case, this Court discovered that a Decision9 in the main case had
already been rendered by the RTC on August 13, 2007, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor of the plaintiff and against the
defendant to grant a tax refund or credit for taxes paid pursuant to Section 21 of the Revenue Code of the City of Manila
as amended for the year 2002 in the following amounts:

To plaintiff SM Mart, Inc. - P 11,462,525.02

To plaintiff SM Prime Holdings, Inc. - 3,118,104.63

To plaintiff Star Appliances Center - 2,152,316.54

To plaintiff Supervalue, Inc. - 1,362,750.34

To plaintiff Ace Hardware Phils., Inc. - 419,689.04

To plaintiff Watsons Personal Care Health - 231,453.62

Stores Phils., Inc.

To plaintiff Jollimart Phils., Corp. - 140,908.54

To plaintiff Surplus Marketing Corp. - 220,204.70

To plaintiff Signature Mktg. Corp. - 94,906.34

TOTAL: - P 19,316,458.77

Defendants are further enjoined from collecting taxes under Section 21, Revenue Code of Manila from herein plaintiff.

SO ORDERED.10
The parties did not inform the Court but based on the records, the above Decision had already become final and
executory per the Certificate of Finality11 issued by the same trial court on October 20, 2008. In fact, a Writ of
Execution12 was issued by the RTC on November 25, 2009. In view of the foregoing, it clearly appears that the issues
raised in the present petition, which merely involve the incident on the preliminary injunction issued by the RTC, have
already become moot and academic considering that the trial court, in its decision on the merits in the main case, has
already ruled in favor of respondents and that the same decision is now final and executory. Well entrenched is the rule
that where the issues have become moot and academic, there is no justiciable controversy, thereby rendering the
resolution of the same of no practical use or value.13

In any case, the Court finds it necessary to resolve the issue on jurisdiction raised by petitioners owing to its significance
and for future guidance of both bench and bar. It is a settled principle that courts will decide a question otherwise moot
and academic if it is capable of repetition, yet evading review.14

However, before proceeding, to resolve the question on jurisdiction, the Court deems it proper to likewise address a
procedural error which petitioners committed.

Petitioners availed of the wrong remedy when they filed the instant special civil action for certiorari under Rule 65 of the
Rules of Court in assailing the Resolutions of the CA which dismissed their petition filed with the said court and their
motion for reconsideration of such dismissal. There is no dispute that the assailed Resolutions of the CA are in the
nature of a final order as they disposed of the petition completely. It is settled that in cases where an assailed judgment
or order is considered final, the remedy of the aggrieved party is appeal. Hence, in the instant case, petitioner should
have filed a petition for review on certiorari under Rule 45, which is a continuation of the appellate process over the
original case.15

Petitioners should be reminded of the equally-settled rule that a special civil action for certiorari under Rule 65 is an
original or independent action based on grave abuse of discretion amounting to lack or excess of jurisdiction and it will
lie only if there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law.16 As such, it
cannot be a substitute for a lost appeal.17

Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and in the interest of substantial justice,
this Court has, before, treated a petition for certiorari as a petition for review on certiorari, particularly (1) if the petition
for certiorari was filed within the reglementary period within which to file a petition for review on certiorari; (2) when
errors of judgment are averred; and (3) when there is sufficient reason to justify the relaxation of the
rules.18 Considering that the present petition was filed within the 15-day reglementary period for filing a petition for
review on certiorari under Rule 45, that an error of judgment is averred, and because of the significance of the issue on
jurisdiction, the Court deems it proper and justified to relax the rules and, thus, treat the instant petition for certiorari as
a petition for review on certiorari.

Having disposed of the procedural aspect, we now turn to the central issue in this case. The basic question posed before
this Court is whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory
order issued by the RTC in a local tax case.

This Court rules in the affirmative.

On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA and giving to the said court
jurisdiction over the following:

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in
 relation thereto; or other matters arising under the Customs Law or other law or part of law administered by the
Bureau of Customs; and

(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving the assessment and taxation
of real property or other matters arising under the Assessment Law, including rules and regulations relative
thereto.

On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125 by expanding
the jurisdiction of the CTA, enlarging its membership and elevating its rank to the level of a collegiate court with special
jurisdiction. Pertinent portions of the amendatory act provides thus:

Sec. 7. Jurisdiction. - The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial;

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the
Bureau of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals;

6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal
the decision to impose or not to impose said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is
 less than One million pesos (₱1,000,000.00) or where there is no specified amount claimed shall be tried
by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules
of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action
separately from the criminal action will be recognized.

2. Exclusive appellate jurisdiction in criminal offenses:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by
them, in their respected territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in their respective jurisdiction.

c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for
taxes, fees, charges and penalties: Provides, however, that collection cases where the principal amount
of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos
(₱1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional
Trial Court.

2. Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally
decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their
appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts, in their respective jurisdiction.19

A perusal of the above provisions would show that, while it is clearly stated that the CTA has exclusive appellate
jurisdiction over decisions, orders or resolutions of the RTCs in local tax cases originally decided or resolved by them in
the exercise of their original or appellate jurisdiction, there is no categorical statement under RA 1125 as well as the
amendatory RA 9282, which provides that th e CTA has jurisdiction over petitions for certiorari assailing interlocutory
orders issued by the RTC in local tax cases filed before it.

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction which
must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of appellate
jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v. De Jesus,22 Veloria v. COMELEC,23 Department of
Agrarian Reform Adjudication Board v. Lubrica,24 and Garcia v. Sandiganbayan,25 this Court has ruled against the
jurisdiction of courts or tribunals over petitions for certiorari on the ground that there is no law which expressly gives
these tribunals such power.26 It must be observed, however, that with the exception of Garcia v. Sandiganbayan,27 these
rulings pertain not to regular courts but to tribunals exercising quasi-judicial powers. With respect to the Sandiganbayan,
Republic Act No. 824928 now provides that the special criminal court has exclusive original jurisdiction over petitions for
the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus, injunctions, and other ancillary writs and
processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the
exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original
jurisdiction, the power to issue, among others, a writ of certiorari,whether or not in aid of its appellate jurisdiction. As to
Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original jurisdiction, is provided
under Section 21 of BP 129.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1, Article
VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes
that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the
tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari
in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to
issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not indispensable,
in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be considered as partial,
not total.

Consistent with the above pronouncement, this Court has held as early as the case of J.M. Tuason & Co., Inc. v. Jaramillo,
et al.29 that "if a case may be appealed to a particular court or judicial tribunal or body, then said court or judicial
tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate jurisdiction."30 This
principle was affirmed in De Jesus v. Court of Appeals,31 where the Court stated that "a court may issue a writ of
certiorari in aid of its appellate jurisdiction if said court has jurisdiction to review, by appeal or writ of error, the final
orders or decisions of the lower court."32 The rulings in J.M. Tuason and De Jesus were reiterated in the more recent
cases of Galang, Jr. v. Geronimo33 and Bulilis v. Nuez.34

Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when by law, jurisdiction is conferred on a
court or judicial officer, all auxiliary writs, processes and other means necessary to carry it into effect may be employed
by such court or officer.

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with the CA, this
Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically the
same subject matter – precisely the split-jurisdiction situation which is anathema to the orderly administration of
justice.35 The Court cannot accept that such was the legislative motive, especially considering that the law expressly
confers on the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial review
over local tax cases without mention of any other court that may exercise such power. Thus, the Court agrees with the
ruling of the CA that since appellate jurisdiction over private respondents' complaint for tax refund is vested in the CTA,
it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case should,
likewise, be filed with the same court. To rule otherwise would lead to an absurd situation where one court decides an
appeal in the main case while another court rules on an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split jurisdiction to
conclude that the intention of the law is to divide the authority over a local tax case filed with the RTC by giving to the
CA or this Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to the CTA the
jurisdiction over the appeal from the decision of the trial court in the same case. It is more in consonance with logic and
legal soundness to conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by the
RTC carries with it the power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction. The
supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate jurisdiction should co-exist
with, and be a complement to, its appellate jurisdiction to review, by appeal, the final orders and decisions of the RTC, in
order to have complete supervision over the acts of the latter.36

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to make
all orders that will preserve the subject of the action, and to give effect to the final determination of the appeal. It
carries with it the power to protect that jurisdiction and to make the decisions of the court thereunder effective. The
court, in aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the
efficient and proper exercise of that jurisdiction.1âwphi1 For this purpose, it may, when necessary, prohibit or restrain
the performance of any act which might interfere with the proper exercise of its rightful jurisdiction in cases pending
before it.37

Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should have powers
which are necessary to enable it to act effectively within such jurisdiction. These should be regarded as powers which
are inherent in its jurisdiction and the court must possess them in order to enforce its rules of practice and to suppress
any abuses of its process and to defeat any attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all the
inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction, in
addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the ordinary
and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as to
the due administration of justice; or are directly appropriate, convenient and suitable to the execution of their granted
powers; and include the power to maintain the court's jurisdiction and render it effective in behalf of the litigants.38

Thus, this Court has held that "while a court may be expressly granted the incidental powers necessary to effectuate its
jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual incidental
powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every regularly constituted
court has power to do all things that are reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates."39 Hence, demands, matters or questions ancillary
or incidental to, or growing out of, the main action, and coming within the above principles, may be taken cognizance of
by the court and determined, since such jurisdiction is in aid of its authority over the principal matter, even though the
court may thus be called on to consider and decide matters which, as original causes of action, would not be within its
cognizance.40

Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the CTA to take cognizance of
petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in the powers
granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction.

Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasi-judicial tribunals are
concerned, the authority to issue writs of certiorari must still be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of their appellate jurisdiction. This doctrine remains as it applies only to
quasi-judicial bodies.

WHEREFORE, the petition is DENIED.

SO ORDERED.

D. ST. PAUL COLLEGE

E. ERWIN SALAVERIA
 F. COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
FORTUNE TOBACCO CORPORATION, Respondent.

G.R. Nos. 167274-75 September 11, 2013

Fortune Tobacco Corporation (FTC), as petitioner in G.R. No. 192576,1 assails and seeks the reversal of the Decision of
the Court of Tax Appeals (CTA) En Banc dated March 12, 2010, as effectively reiterated in a Resolution of June 11, 2010,
both rendered in C.T.A. EB No. 530 entitled Fortune Tobacco Corporation v. Commissioner of Internal Revenue. The
assailed issuances affirmed the Resolution of the CTA First Division dated June 4, 2009, denying the Motion for Issuance
of Additional Writ of Execution filed by herein petitioner in CTA Case Nos. 6365, 6383 & 6612, and the Resolution dated
August 10, 2009 which denied its Motion for Reconsideration.

The present appellate proceedings traces its origin from and finds context in the July 21, 2008 Decision2 of the Court in
G.R. Nos. 167274-75, an appeal thereto interposed by the Commissioner of Internal Revenue (BIR Commissioner) from
the consolidated Decision and Resolution issued by the Court of Appeals on September 28, 2004 and March 1, 2005,
respectively, in CA-G.R. SP Nos. 80675 and 83165. The decretal part of the July 21, 2008 Decision reads:

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September
2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.

SO ORDERED.3 (Emphasis supplied.)

The antecedent facts, as summarized by the CTA in its adverted March 12, 2010 Decision, are as follows:

FTC (herein petitioner Fortune Tobacco Corporation) is engaged in manufacturing or producing cigarette brands with tax
rate classification based on net retail price prescribed as follows:

Brand Tax Rate

Champion M 100 ₱1.00

Salem M 100 ₱1.00

Salem M King ₱1.00

Camel F King ₱1.00

Camel Lights Box 20’s ₱1.00

Camel Filters Box 20’s ₱1.00

Winston F King ₱5.00

Winston Lights ₱5.00

Prior to January 1, 1997, the aforesaid cigarette brands were subject to ad-valorem tax under Section 142 of the 1977
Tax Code, as amended. However, upon the effectivity of Republic Act (R.A.) No. 8240on January 1, 1997, a shift from ad
valorem tax system to the specific tax system was adopted imposing excise taxes on cigarette brands under Section 142
thereof, now renumbered as Section 145 of the 1997 Tax Code, stating the following pertinent provision:

The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not
be lower than the tax, which is due from each brand on October 1, 1996. x x x The rates of excise tax on cigars and
cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000.
Upon the Commissioner’s recommendation, the Secretary of Finance, issued Revenue Regulations (RR) No. 17-99 dated
December 16,1999 for the purpose of implementing the provision for a 12% increase of excise tax on, among others,
cigars and cigarettes packed by machines by January 1, 2000. RR No. 17-99 provides that the new specific tax rate for
any existing brand of cigars, cigarettes packed by machine x x x shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000.

FTC paid excise taxes on all its cigarettes manufactured and removed from its place of production for the following
period:

PERIOD PAYMENT
January 1, 2000 to ₱585,705,250.00
January 31, 2000
February 1, 2000 to ₱19,366,783,535.00
December 31, 2001
January 1, 2002 to ₱11,359,578,560.00
December 31, 2002

FTC subsequently sought administrative redress for refund before the Commissioner on the following dates:

PERIOD ADMINISTRATIVE AMOUNT

FILING OF CLAIM CLAIMED
January 1, 2000 to February 7, 2000 ₱35,651,410.00
January 31, 2000
February 1, 2000 Various claims filed from ₱644,735,615.00
to December 31, March 21, 2000 –
2001 January 28, 2002
January 1, 2002 to February 3, 2003 ₱355,385,920.00
December 31, 2002

(CTA En Banc Decision,

Annex "A," Petition, pp. 2-4)

2. Since the claim for refund was not acted upon, petitioner filed on December 11, 2001 and January 30, 2002,
respectively, Petitions for Review before the Court of Tax Appeals (CTA) docketed as CTA Case Nos. 6365 and
6383 questioning the validity of Revenue Regulations No.17-99 with claims for refund in the amounts
₱35,651,410.00 and ₱644,735,615.00, respectively.

These amounts represented overpaid excise taxes for the periods from January 1, 2000 to January 31, 2000 and
February 1, 2000 to December 31, 2001, respectively (Ibid., pp. 4-5).

3. In separate Decision dated October 21, 2002, the CTA in Division ordered the Commissioner of Internal
Revenue (respondent herein) to refund to petitioner the erroneously paid excise taxes in the amounts of
₱35,651,410.00 for the period covering January 1, 2000 to January 31, 2000 (CTA Case No. 6365) and
₱644,735,615.00 for the period February 1, 2000 to December 31, 2001 (CTA Case No.6383) (Ibid.).

4. Respondent filed a motion for reconsideration of the Decision dated October 21, 2002 covering CTA Case Nos.
6365 and 6383which was granted in the Resolution dated July 15, 2003.
5. Subsequently, petitioner filed another petition docketed as CTA Case No. 6612 questioning the validity of
Revenue Regulations No.17-99 with a prayer for the refund of overpaid excise tax amounting
to₱355,385,920.00, covering the period from January 1, 2002 to December 31, 2002 (Ibid., p. 5).

6. Petitioner thereafter filed a consolidated Motion for Reconsideration of the Resolution dated July 15, 2003
(Ibid., pp. 5-6).

7. The CTA in Division issued Resolution dated November 4,2003 which reversed the Resolution dated July 15,
2003 and ordered respondent to refund to petitioner the amounts of 35,651,410.00 for the period covering
January 1 to January 31, 2000 and ₱644,735,615.00 for the period covering February 1, 2000 to December 31,
2001, or in the aggregate amount of ₱680,387,025.00, representing erroneously paid excise taxes (Ibid., p. 6).

8. In its Decision dated December 4, 2003, the CTA in Division in Case No. 6612 declared RR No. 17-99 invalid
and contrary to Section 145 of the 1997 National Internal Revenue Code (NIRC). The Court ordered respondent
to refund to petitioner the amount of ₱355,385,920.00 representing overpaid excise taxes for the period
covering January 1, 2002 to December 21, 2002 (Ibid.)

9. Respondent filed a motion for reconsideration of the Decision dated December 4, 2003 but this was denied in
the Resolution dated March 17, 2004 (Ibid.)

10. On December 10, 2003, respondent Commissioner filed a Petition for Review with the Court of Appeals (CA)
questioning the CTA Resolution dated November 4, 2003 which was issued in CTA Case Nos. 6365 and 6383. The
case was docketed as CA-G.R. SP No.80675 (Ibid.).

11. On April 28, 2004, respondent Commissioner filed another appeal before the CA questioning the CTA
Decision dated December 4, 2003 issued in CTA Case No. 6612. The case was docketed as CA-G.R. SP No. 83165
(Ibid., p. 7).

12. Thereafter, petitioner filed a Consolidated Motion for Execution Pending Appeal before the CTA for CTA Case
Nos. 6365 and 6383 and an Amended Motion for Execution Pending Appeal for CTA Case No. 6612 (Ibid.).

13. The motions were denied in the CTA Resolutions dated August 2, 2004 and August 3, 2004, respectively. The
CTA in Division pointed out that Section 12, Rule 43 of the1997 Rules of Civil Procedure should be interpreted
with Section 18 of R.A. 1125 which provides that CTA rulings become final and conclusive only where there is no
perfected appeal. Considering that respondent filed an appeal with the CA, the CTA in Division’s rulings granting
the amounts of ₱355,385,920.00 and ₱680,387,025.00 were not yet final and executory (Ibid.).

14. In the consolidated CA Decision dated September 28,2004 issued in CA-G.R. SP Nos. 80675 (CTA Case Nos.
6365 and6383) and 83165 (CTA Case No. 6612), the appellate court denied respondent’s petitions and affirmed
petitioner’s refund claims in the amounts of ₱680,387,025.00 (CTA Case Nos. 6365 and 6383)
and₱355,385,920.00 (CTA Case No. 6612), respectively (Ibid., p. 8).

15. Respondent filed a motion for reconsideration of the CA Decision dated September 28, 2004 but this was
denied in the CA’s Resolution dated March 1, 2005 (Ibid.).

16. Respondent, filed a Petition for Review on Certiorari docketed as G.R. Nos. 167274-75 on May 4, 2005
before the Honorable Court. On June 22, 2005, a Supplemental Petition for Review was filed and the petitions
were consolidated (Ibid.).

17. In its Decision dated July 21, 2008 in G.R. Nos. 167274-75, the Honorable Court affirmed the findings of the
CA granting petitioner’s claim for refund. The dispositive portion of said Decision reads:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.80675, dated 28 September
2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Commissioner of Internal
Revenue vs. Fortune Tobacco
Corporation, 559 SCRA 160
(2008)

18. On January 23, 2009, petitioner filed a motion for execution praying for the issuance of a writ of execution of the
Decision of the Honorable Court in G.R. Nos. 167274-75 dated July 21, 2008 which was recorded in the Book of Entries of
Judgments on November 6, 2008(Ibid., p. 10).

Petitioner’s prayer was for the CTA to order the BIR to pay/refund the amounts adjudged by the CTA, as follows:

a) CTA Case No. 6612 under the Decision 04 December 2003 – the amount of Three Hundred Fifty Five Million
Three Hundred Eighty Five Thousand Nine Hundred Twenty Pesos (₱355,385,920.00).

b) CTA Case Nos. 6365 and 6383 under the Decisions dated 21 October 2002 and Resolution dated 04 November
2003 – the amount of Six Hundred Eighty Million Three Hundred Eighty Seven Thousand Twenty Five Pesos
(₱680,387,025.00).

(Petition, p. 11)

19. On April 14, 2009, the CTA issued a Writ of Execution, which reads:

You are hereby ORDERED TO REFUND in favor of the petitioner FORTUNE TOBACCO CORPORATION, pursuant to the
Supreme Court Decision in the above-entitled case (SC G.R. 167274-75),dated July 21, 2008, which has become final and
executory on November 6, 2008, by virtue of the Entry of Judgment by the Supreme Court on said dated, which reads as
follows:

xxxx

the amounts of ₱35,651,410.00 (C.T.A Case No. 6365) and ₱644,735,615.00 (C.T.A Case No. 6383) or a total of
₱680,387,025.00 representing petitioners’ erroneously paid excise taxes for the periods January 1-31, 2000 and
February 1, 2000 to December 31, 2001,respectively under CA G.R. SP No. 80675 (C.T.A. Case No. 6365 and C.T.A. Case
No. 6383).

(CTA – 1st Division

Resolution dated June 04,
2009, pp. 2-3)

20. On April 21, 2009, petitioner filed a motion for the issuance of an additional writ of execution praying that
the CTA order the Commissioner of Internal Revenue to pay petitioner the amount of Three Hundred Fifty-Five
Million Three Hundred Eighty Five Thousand Nine Hundred Twenty Pesos (₱355,385,920.00) representing the
amount of tax to be refunded in C.T.A. Case No. 6612 under its Decision dated December 4, 2003 and affirmed
by the Honorable Court in its Decision dated July 21, 2008 (Petition, p. 12, CTA Decision dated March 12, 2010,
supra, p. 10).

21. In the CTA Resolution dated June 4, 2009, the CTA denied petitioner’s Motion for the Issuance of Additional
Writ of Execution (Ibid., p. 11).
 22. Petitioner filed a motion for reconsideration of the Resolution dated June 4, 2009, but this was denied in the
CTA Resolution dated August 10, 2009 (Ibid.).

The dispositive portion of the Resolution reads:

WHEREFORE, premises considered, the instant" Motion for Reconsideration" is hereby DENIED for lack of merit.

23. Aggrieved by the Decision, petitioner filed a petition for review before the CTA En Banc docketed as CTA EB
Case No. 530,raising the following arguments, to wit:

The Honorable Court of Tax Appeals seriously erred contrary to law and jurisprudence when it held in the
assailed decision and resolution that petitioner Fortune Tobacco Corporation is not entitled to the writ of
execution covering the decision in CTA Case No. 6612.

The Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 has become final and executory.

The Decision of the Honorable Supreme Court in GR Nos. 167274-75 covers both CA GR SP No. 80675 and
83165.

24. The CTA En Banc, in the Decision dated March 12, 2010,dismissed said petition for review. The dispositive
portion of said Decision reads:

WHEREFORE, premises considered, the Petition for Review is DISMISSED. The Resolutions dated June 4,2009 and
August 10, 2009 are AFFIRMED.

SO ORDERED.

(Annex "A," Petition, p. 16)

25. Petitioner filed a Motion for Leave to file Motion for Reconsideration with attached Motion for
Reconsideration but this was denied in the CTA En Banc’s Resolution dated June 11, 2010. The dispositive
portion of said Resolution reads:

WHEREFORE, premises considered, petitioner’s Motion for Leave to file attached Motion for Reconsideration and its
Motion for Reconsideration are hereby DENIED for lack of merit.

SO ORDERED.4 (Emphasis supplied.)

Undeterred by the rebuff from the CTA, petitioner FTC has come to this Court via a petition for review, the recourse
docketed as G.R. 192576,thereat praying in essence that an order issue (a) directing the CTA to issue an additional writ
of execution directing the Bureau of Internal Revenue(BIR) to pay FTC the amount of tax refund (₱355,385,920.00) as
adjudged in CTA Case No. 6612 and (b) clarifying that the Court’s Decision in G.R. Nos. 167274-75 applies to the
affirmatory ruling of the CA in CA G.R. S₱80675 and CA G.R. SP No. 83165. FTC predicates its instant petition on two (2)
stated grounds, viz.:

The Decision of the Honorable Supreme Court in S.C. GR Nos.167274-75, which has become final and executory,
affirmed the Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 and to the Decision of the Court
of Appeals in CA G.R. SP No. 80675 and CAG.R. SP No. 83165.

II
The writ of execution prayed for and pertaining to CTA Case No.6612 and CA G.R. SP No. 83165 is consistent with the
decision of the Supreme Court in GR Nos. 167274-75.

The petition is meritorious. But before delving on the merits of this recourse, certain undisputed predicates have to be
laid and basic premises restated to explain the consolidation of G.R. Nos. 167274-75 and G.R. No.192576, thus:

1. As may be recalled, FTC filed before the CTA three (3) separate petitions for refund covering three different
periods involving varying amounts as hereunder indicated:

a) CTA Case No. 6365 (Jan. 1 to Jan. 31, 2000) for ₱35,651,410.00;

b) CTA Case No. 6383 (Feb. 1, 2000 to Dec. 31, 2001) for ₱644,735,615.00; and

c) CTA Case No. 6612 (Jan. 1 to Dec. 31, 2002) for 355,385,92

In three (3) separate decisions/resolutions, the CTA found the claims for refund for the amounts aforestated
valid and thus ordered the payment thereof.

2. From the adverse ruling of the CTA in the three (3) cases, the BIR Commissioner went to the CA on a petition
for review assailing in CA-G.R.SP No. 80675 the CTA decision/resolution pertaining to consolidated CTA Case
Nos. 6365 & 6383. A similar petition, docketed as CA G.R. SP No.83165, was subsequently filed assailing the CTA
decision/resolution on CTA Case No. 6612.

3. Eventually, the CA, by Decision dated September 4, 2004, denied the Commissioner’s consolidated petition
for review. The appellate Court also denied the Commissioner’s motion for reconsideration on March 1,2005.

4. It is upon the foregoing state of things that the Commissioner came to this Court in G.R. Nos. 167274-75 to
defeat FTC’s claim for refund thus granted initially by the CTA and then by the CA in CA-G.R. SP No. 80675and
CA-G.R. SP No. 83165.

By Decision dated July 21, 2008, the Court found against the Commissioner, disposing as follows:

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September
2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.

SO ORDERED.5 (Emphasis supplied.)

From the foregoing narration, two critical facts are at once apparent. First , the BIR Commissioner came to this Court on
a petition for review in G.R. Nos. 167274-75 to set aside the consolidated decision of the CA in CA-G.R. SP No. 80675 and
CA-G.R. SP No. 83165. Second, while the Court’s Decision dated July 21, 2008 in G.R. Nos. 167274-75 denied the
Commissioner’s petition for review, necessarily implying that the CA’s appealed consolidated decision is affirmed in toto,
the fallo of that decidendi makes no mention or even alludes to the appealed CA decision in CA-G.R. No. 83165, albeit
the main decision’s recital of facts made particular reference to that appealed CA decision. In fine, there exists an
apparent in consistency between the dispositive portion and the body of the main decision, which ideally should have
been addressed before the finality of the said decision.

Owing to the foregoing aberration, but cognizant of the fact that the process of clarifying the dispositive portion in G.R.
Nos. 167274-75 should be acted upon in the main case, the Court, by Resolution6 dated February 25,2013 ordered the
consolidation of this petition (G.R. No. 192576) with G.R. Nos. 167274-75, to be assigned to any of the members of the
Division who participated in the rendition of the decision.

Now to the crux of the controversy.

Petitioner FTC posits that the CTA should have issued the desired additional writ of execution in CTA Case No. 6612 since
the body of the Decision of this Court in G.R. Nos. 167274-75 encompasses both CA G.R. Case No. 80675 which covers
CTA Case Nos. 6365 and 6383 and CA G.R. Case No. 83165 which embraces CTA Case No. 6612. While the fallo of the
Decision dated July 21, 2008 in G.R. Case Nos. 167274-75 did not indeed specifically mention CA G.R. SP No. 83165,
petitioner FTC would nonetheless maintain that such a slip is but an inadvertent omission in the fallo. For the text of the
July 21, 2008 Decision, FTC adds, clearly reveals that said CA case was intended to be included in the disposition of the
case.

Respondent Commissioner, on the other hand, argues that per the CTA, no reversible error may be attributed to the tax
court in rejecting, without more, the prayer for the additional writ of execution pertaining to CTA Case No. 6612, subject
of CA G.R. SP No. 83165. For the purpose, the Commissioner cited a catena of cases on the limits of a writ of execution.
It is pointed out that such writ must conform to the judgment to be executed; its enforcement may not vary the terms of
the judgment it seeks to enforce, nor go beyond its terms. As further asseverated, "whatever may be found in the body
of the decision can only be considered as part of the reasons or conclusions of the court and while they may serve as
guide or enlightenment to determine the ratio decidendi, what is controlling is what appears in the dispositive part of
the decision."7

Respondent Commissioner’s posture on the tenability of the CTA’s assailed denial action is correct. As it were, CTA did
no more than simply apply established jurisprudence that a writ of execution issued by the court of origin tasked to
implement the final decision in the case handled by it cannot go beyond the contents of the dispositive portion of the
decision sought to be implemented. The execution of a judgment is purely a ministerial phase of adjudication. The
executing court is without power its own, to tinker let alone vary the explicit wordings of the dispositive portion, as
couched.

But the state of things under the premises ought not to remain uncorrected. And the BIR cannot plausibly raise a valid
objection for such approach. That bureau knew where it was coming from when it appealed, first before the CA then to
this Court, the award of refund to FTC and the rationale underpinning the award. It cannot plausibly, in all good faith,
seek refuge on the basis of slip on the formulation of the fallo of a decision to evade a duty. On the other hand, FTC has
discharged its burden of establishing its entitlement to the tax refund in the total amount indicated in its underlying
petitions for refund filed with the CTA. The successive favorable rulings of the tax court, the appellate court and finally
this Court in G.R. Nos. 167274-75 say as much. Accordingly, the Court, in the higher interest of justice and orderly
proceedings should make the corresponding clarification on the fallo of its July 21, 2008 Decision in G.R. Case
Nos.162274-75. It is an established rule that when the dispositive portion of a judgment, which has meanwhile become
final and executory, contains a clerical error or an ambiguity arising from a inadvertent omission, such error or ambiguity
may be clarified by reference to the body of the decision itself.

After a scrutiny of the body of the aforesaid July 21, 2008 Decision, the Court finds it necessary to render a judgment
nunc pro tunc and address an error in the fallo of said decision. The office of a judgment nunc pro tunc is to record some
act of the court done at a former time which was not then carried into the record, and the power of a court to make
such entries is restricted to placing upon the record evidence of judicial action which has actually been taken.9 The
object of a judgment nunc pro tunc is not the rendering of a new judgment and the ascertainment and determination of
new rights, but is one placing in proper form on the record, that has been previously rendered, to make it speak the
truth, so as to make it show what the judicial action really was, not to correct judicial errors, such as to render a
judgment which the court ought to have rendered, in place of the one it did erroneously render, not to supply non-
action by the court, however erroneous the judgment may have been.10 The Court would thus have the record reflect
the deliberations and discussions had on the issue. In this particular case it is a correction of a clerical, not a judicial
error. The body of the decision in question is clear proof that the fallo must be corrected, to properly convey the ruling
of this Court.

We thus declare that the dispositive portion of said decision should be clarified to include CA G.R. SP No. 83165 which
affirmed the December 4,2003 Decision of the Court of Tax Appeals in CTA Case No. 6612, for the following reasons,
heretofore summarized:
1. The petition for review on certiorari in G.R. Nos. 167274-75filed by respondent CIR sought the reversal of the
September 28, 2004Decision of the Court of Appeals rendered in the consolidated cases of CA-G.R. SP No. 80675
and CA-G.R. SP No. 83165, thus:Hence, this petition for review on certiorari under Rule 45 of the Rules of Court
which seeks the nullification of the Court of Appeals’ (1)Decision promulgated on September 28, 2004 in CA-G.R.
SP No. 80675and CA-G.R. SP No. 83165, both entitled "Commissioner of Internal Revenue vs. Fortune Tobacco
Corporation," denying the CIR’s petition and affirming the assailed decisions and resolutions of the Court of Tax
Appeals (CTA) in CTA Cases Nos. 6365, 6383 and 6612; and (2)Resolution dated March 1, 2005 denying
petitioner’s motion for reconsideration of the said decision."11

Earlier on, it was made clear that respondent CIR questioned the Decision of the CTA dated October 21, 2002 in
CTA Case Nos. 6365 and 6383 in CA G.R. SP No. 80675 before the Court of Appeals. In CA G.R. SP No. 83165, the
Commissioner also assailed the Decision of the CTA dated December 4, 2003 in CTA Case No. 66l2 also before
the same appellate court. The two CA cases were later consolidated. Since the appellate court rendered its
September 28, 2004 Decision in the consolidated cases of CAG.R. SP Nos. 80675 and 83165, what reached and
was challenged before this Court in G.R. Nos. 167274-75 is the ruling of the Court of Appeals in both cases.
When this Court rendered its July 21, 2008 Decision, the ruling necessarily embraced both CA G.R. SP Case Nos.
80675 and 83165 and adjudicated the respective rights of the parties. Clearly then, there was indeed an
inadvertence in not specifying in the fallo of our July 21, 2008Decision that the September 28, 2004 CA Decision
included not only CAG.R. SP No. 80675 but also CA G.R. SP No. 83165 since the two cases were merged prior to
the issuance of the September 28, 2004 Decision.

Given the above perspective, the inclusion of CA G.R. SP Case No.83165 in the fallo of the Decision dated July 21,
2008 is very much in order and is in keeping with the imperatives of fairness.

2. The very contents of the body of the Decision dated July 21,2008 rendered by this Court in G.R. Nos. 167274-
75 undoubtedly reveal that both CA G.R. SP No. 80675 and CA G.R. SP No. 83165 were the subject matter of the
petition therein. And as FTC would point out at every turn, the Court’s Decision passed upon and decided the
merits of the September 28,2004 Decision of the Court of Appeals in the consolidated cases of CA G.R.SP Case
Nos. 80675 and 83165 and necessarily CA G.R. SP No. 83165 was included in our disposition of G.R. Nos. 167274-
75. We quote the pertinent portions of the said decision:

The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed Decision dated
28 September 2004:

CAG.R. SP No. 80675

xxxx

Petitioner FTC is the manufacturer/producer of, among others, the following cigarette brands, with tax rate
classification based on net retail price prescribed by Annex "D" to R.A. No. 4280, to wit:

Brand Tax Rate

Champion M 100 ₱1.00

Salem M 100 ₱1.00

Salem M King ₱1.00

Camel F King ₱1.00

Camel Lights Box 20’s ₱1.00

Camel Filters Box 20’s ₱1.00

 Winston F Kings ₱5.00

Winston Lights ₱5.00

Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem tax pursuant to
then Section142 of the Tax Code of 1977, as amended. However, on January 1, 1997,R.A. No. 8240 took effect whereby
a shift from the ad valorem tax (AVT)system to the specific tax system was made and subjecting the aforesaid cigarette
brands to specific tax under Section 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent
provisions of which are quoted thus:

xxxx

The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be increased by twelve
percent (12%) on January 1, 2000. (Emphasis supplied.)

xxxx

To implement the provisions for a twelve percent (12%) increase of excise tax on, among others, cigars and cigarettes
packed by machines by January 1, 2000, the Secretary of Finance, xxx issued Revenue Regulations [RR] No. 17-99, dated
December 16, 1999, which provides the increase on the applicable tax rates on cigar and cigarettes x x x.

[tax rates deleted]

Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, "(t)hat the new specific tax
rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor shall not
be lower than the excise tax that is actually being paid prior to January 1, 2000."

For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands manufactured and
removed in the total amounts of ₱585,705,250.00.

On February 7, 2000, petitioner filed with respondent’s Appellate Division a claim for refund or tax credit of its
purportedly overpaid excise tax for the month of January 2000 in the amount of ₱35,651,410.00.

On June 21, 2001, petitioner filed with respondent’s Legal Service a letter dated June 20, 2001 reiterating all the claims
for refund/tax credit of its overpaid excise taxes filed on various dates, including the present claim for the month of
January 2000 in the amount of ₱35,651,410.00.

As there was no action on the part of the respondent, petitioner filed the instant petition for review with this Court on
December 11, 2001,in order to comply with the two-year period for filing a claim for refund.

xxxx

CA G.R. SP No. 83165

The petition contains essentially similar facts, except that the said case questions the CTA’s December 4, 2003 decision
in CTA Case No.6612 granting respondent’s claim for refund of the amount of ₱355,385,920.00 representing erroneously
or illegally collected specific taxes covering the period January 1, 2002 to December 31, 2002, as well as its March 17,
2004 Resolution denying a reconsideration thereof.

xxxx
However, on consolidated motions for reconsideration filed by the respondent in CTA Case Nos. 6363 and 6383, the July
15, 2002 resolution was set aside, and the Tax Court ruled, this time with a semblance of finality, that the respondent is
entitled to the refund claimed. Hence, in are solution dated November 4, 2003, the tax court reinstated its December 21,
2002 Decision and disposed as follows:

WHEREFORE, our Decisions in CTA Case Nos.6365 and 6383 are hereby REINSTATED. Accordingly, respondent is hereby
ORDERED to REFUND petitioner the total amount of ₱680,387,025.00 representing erroneously paid excise taxes for the
period January 1, 2000 to January 31, 2000 and February 1,2000 to December 31, 2001.

SO ORDERED.

Meanwhile, on December 4, 2003, the CTA rendered a decision in CTA Case No. 6612 granting the prayer for the refund
of the amount of ₱355,385,920.00 representing overpaid excise tax for the period covering January 1, 2002 to December
31, 2002. The tax court disposed of the case as follows:

IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent is hereby ORDERED to
REFUND to petitioner the amount of ₱355,385,920.00 representing overpaid excise tax for the period covering January
1, 2002 to December 31, 2002.

SO ORDERED.

Petitioner sought reconsideration of the decision, but the same was denied in a Resolution dated March 17,
2004.1âwphi1 (Emphasis supplied; citations omitted.)

The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the grant of refund in the
amount of ₱680,387,025.00 was docketed as CA-G.R. SP No. 80675, whereas that assailing the grant of refund in the
amount of ₱355,385,920.00 was docketed as CA-G.R. SP No. 83165. The petitions were consolidated and eventually
denied by the CA. The appellate court also denied reconsideration in its Resolution dated 1 March 2005.

In its Memorandum 22 dated November 2006, filed on behalf of the Commissioner, the Office of the Solicitor General
(OSG) seeks to convince the Court that the literal interpretation given by the CTA and the CA of Section 145 of the Tax
Code of 1997 (Tax Code) would lead to a lower tax imposable on 1 January 2000 than that imposable during the
transition period. Instead of an increase of 12% in the tax rate effective on 1 January 2000 as allegedly mandated by the
Tax Code, the appellate court’s ruling would result in a significant decrease in the tax rate by as much as 66%.

xxxx

Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must, therefore, be construed strictly
against the taxpayer, such as Fortune Tobacco. In its Memorandum dated 10 November 2006, Fortune Tobacco argues
that the CTA and the CA merely followed the letter of the law when they ruled that the basis for the 12% increase in the
tax rate should be the net retail price of the cigarettes in the market as outlined in paragraph C, sub par. (1)-(4), Section
145 of the Tax Code. The Commissioner allegedly has gone beyond his delegated rule-making power when he
promulgated, enforced and implemented RR No. 17-99,which effectively created a separate classification for cigarettes
based on the excise tax "actually being paid prior to January 1, 2000."

xxxx

This entire controversy revolves around the interplay between Section 145 of the Tax Code and RR 17-99. The main issue
is an inquiry into whether the revenue regulation has exceeded the allowable limits of legislative delegation.

xxxx
Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the Secretary of Finance to
promulgate rules and regulations for the effective implementation of the Tax Code, interprets the above-quoted
provision and reflects the 12% increase in excise taxes in the following manner:

[table on tax rates deleted]

This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective on 1 January 2000 based
on the taxes indicated under paragraph C, sub-paragraph (1)-(4). However, RR No.17-99 went further and added that
"The new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and
fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000."

Parenthetically, Section 145 states that during the transition period ,i.e., within the next three (3) years from the
effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each
brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be
applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and
unmistakably, Section 145mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase
effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to
be lower than that collected prior to this date.

By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax
actually paid prior to 1January 2000, RR No. 17-99 effectively imposes a tax which is the higher amount between the ad
valorem tax being paid at the end of the three (3)-year transition period and the specific tax under paragraph C, sub-
paragraph (1)-(4), as increased by 12%—a situation not supported by the plain wording of Section 145 of the Tax Code.

This is not the first time that national revenue officials had ventured in the area of unauthorized administrative
legislation.

In Commissioner of Internal Revenue v. Reyes, respondent was not informed in writing of the law and the facts on which
the assessment of estate taxes was made pursuant to Section 228 of the 1997 Tax Code, as amended by Republic Act
(R.A.) No. 8424. She was merely notified of the findings by the Commissioner, who had simply relied upon the old
provisions of the law and RR No. 12-85 which was based on the old provision of the law. The Court held that in case of
discrepancy between the law as amended and the implementing regulation based on the old law, the former necessarily
prevails. The law must still be followed, even though the existing tax regulation at that time provided for a different
procedure.

xxxx

In the case at bar, the OSG’s argument that by 1 January 2000, the excise tax on cigarettes should be the higher tax
imposed under the specific tax system and the tax imposed under the

ad valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the Tax Code, is an unsuccessful
attempt to justify what is clearly an impermissible incursion into the limits of administrative legislation. Such an
interpretation is not supported by the clear language of the law and is obviously only meant to validate the OSG’s thesis
that Section 145 of the Tax Code is ambiguous and admits of several interpretations.

The contention that the increase of 12% starting on 1 January 2000 does not apply to the brands of cigarettes listed
under Annex "D" is likewise unmeritorious, absurd even. Paragraph 8, Section 145of the Tax Code simply states that,
"The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in
Annex ‘D’, shall remain in force until revised by Congress." This declaration certainly does not lend itself to the
interpretation given to it by the OSG. As plainly worded, the average net retail prices of the listed brands under Annex
"D," which classify cigarettes according to their net retail price into low, medium or high, obviously remain the bases for
the application of the increase in excise tax rates effective on 1 January 2000.
The foregoing leads us to conclude that RR No. 17-99 is indeed indefensibly flawed. The Commissioner cannot seek
refuge in his claim that the purpose behind the passage of the Tax Code is to generate additional revenues for the
government. Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code. However,
as borne by the legislative record, the shift from the ad valorem system to the specific tax system is likewise meant to
promote fair competition among the players in the industries concerned, to ensure an equitable distribution of the tax
burden and to simplify tax administration by classifying cigarettes x x x into high, medium and low- priced based on their
net retail price and accordingly graduating tax rates.

xxxx

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September
2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.

SO ORDERED.12

The July 21, 2008 Decision in G.R. Nos. 167274-75 brings into sharp focus the following facts and proceedings:

1. It specifically mentioned CA G.R. SP No. 80675 and CA G.R.SP No. 83165 as the subject matter of the decision
on p. 2 and p. 7,respectively.

2. It traced the history of CTA Case Nos. 6365 and 6383 from the time the CTA peremptorily resolved the twin
refund suits to the appeal of the decisions thereat to the Court of Appeals via a petition docketed as CA-G.R. SP
No. 80675 and eventually to this Court in G.R. Nos. 167274-75. It likewise narrated the events connected with
CTA Case No. 6612 to the time the decision in said case was appealed to the Court of Appeals in CA-G.R.SP No.
83165, consolidated with CA G.R. SP No. 80675 and later decided by the appellate court. It cited the appeal from
the CA decision by the BIR Commissioner to this Court in G.R. Nos. 167274-75.

3. It resolved in the negative the main issue presented in both CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165
as to whether or not the last paragraph of Section 1 of Revenue Regulation No. 17-99 is in accordance with the
pertinent provisions of Republic Act No. 8240, now incorporated in Section 145 of the Tax Code of 1997.

4. The very disposition in the fallo in G.R. Case Nos. 167274-75 that "the petition is denied" and that the
"Decision of the Court of Appeals x x x dated 28 September 2004 and its Resolution dated 1 March 2005 are
affirmed" reflects an intention that CA G.R. SP No. 83165 should have been stated therein, being one of the
cases subject of the September 28, 2004 CA Decision.

The legality of Revenue Regulation No. 17-99 is the only determinative issue resolved by the July 21, 2008 Decision
which was the very same issue resolved by the CA in the consolidated CA-G.R. SP Nos.80675 and 83165 and exactly the
same issue in CTA Nos. 6365, 6383 and 6612.

From the foregoing cogent reasons, We conclude that CA-G.R. SP No. 83165 should be included in the fallo of the July
21, 2008 decision.1âwphi1

It is established jurisprudence that "the only portion of the decision which becomes the subject of execution and
determines what is ordained is the dispositive part, the body of the decision being considered as the reasons or
conclusions of the Court, rather than its adjudication."13

In the case of Ong Ching Kian Chung v. China National Cereals Oil and Foodstuffs Import and Export Corporation, the
Court noted two (2)exceptions to the rule that the fallo prevails over the body of the opinion, viz:

(a) where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of
construing the judgment because the dispositive part of a decision must find support from the decision’s ratio
decidendi;
 (b) where extensive and explicit discussion and settlement of the issue is found in the body of the decision.14

Both exceptions obtain in the present case. We find that there is an ambiguity in the fallo of Our July 21, 2008 Decision
in G.R. Nos. 167274-75 considering that the propriety of the CA holding in CA-G.R. SP No.83165 formed part of the core
issues raised in G.R. Case Nos. 167274-75, but unfortunately was left out in the all-important decretal portion of the
judgment. The fallo of Our July 21, 2008 Decision should, therefore, be correspondingly corrected.

For sure, the CTA cannot, as the Commissioner argues, be faulted for denying petitioner FTC’s Motion for Additional
Writ of Execution filed in CTA Case Nos. 6365, 6383 and 6612 and for denying petitioner’s Motion for Reconsideration
for it has no power nor authority to deviate from the wording of the dispositive portion of Our July 21, 2008 Decision in
G.R. Nos. 167274-75. To reiterate, the CTA simply followed the all too familiar doctrine that "when there is a conflict
between the dispositive portion of the decision and the body thereof, the dispositive portion controls irrespective what
appears in the body of the decision."15 Veering away from the fallo might even be viewed as irregular and may give rise
to a charge of breach of the Code of Judicial Conduct. Nevertheless, it behooves this Court for reasons articulated earlier
to grant relief to petitioner FTC by way of clarifying Our July 21, 2008 Decision. This corrective step constitutes, in the
final analysis, a continuation of the proceedings in G.R. Case Nos. 167274-75. And it is the right thing to do under the
premises. If the BIR, or other government taxing agencies for that matter, expects taxpayers to observe fairness,
honesty, transparency and accountability in paying their taxes, it must, to borrow from BPI Family Savings Bank, Inc. v
Court of Appeals16 hold itself against the same standard in refunding excess payments or illegal exactions. As a necessary
corollary, when the taxpayer’s entitlement to are fund stands undisputed, the State should not misuse technicalities and
legalisms, however exalted, to keep money not belonging to it.17 As we stressed in G.R. Nos. 167274-75, the government
is not exempt from the application of solutio indebiti, a basic postulate proscribing one, including the State, from
enriching himself or herself at the expense of another.18 So it must be here.

WHEREFORE, the petition is GRANTED. The dispositive portion of the Court’s July 21, 2008 Decision in G.R. Nos. 167274-
75 is corrected to reflect the inclusion of CA G.R. SP No. 83165 therein. As amended, the fallo of the aforesaid decision
shall read:

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in the consolidated cases of CA- G.R. SP No.
80675 and 83165 dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement
as to costs.

The Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010 and the Resolution dated June 11, 2010 in
CTA EB No. 530 entitled "Fortune Tobacco Corporation vs. Commissioner of Internal Revenue" as well as the Resolutions
dated June 4, 2009 and August 10, 2009which denied the Motion for Issuance of Additional Writ of Execution of the CTA
First Division in CTA Cases Nos. 6365, 6383 and 6612 are SETASIDE. The CTA is ORDERED to issue a writ of execution
directing the respondent CIR to pay petitioner Fortune Tobacco Corporation the amount of tax refund of
₱355,385,920.00 as adjudged in CTA Case No. 6612.

SO ORDERED.

G. COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
FIRST EXPRESS PAWNSHOP COMPANY, INC., Respondent.

G.R. Nos. 172045-46 June 16, 2009

The Case

The Commissioner of Internal Revenue (petitioner) filed this Petition for Review1 to reverse the Court of Tax Appeals’
Decision2 dated 24 March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and 62. In the assailed decision, the Court
of Tax Appeals (CTA) En Banc partially reconsidered the CTA First Division’s Decision3 dated 24 September 2004.
 The Facts

On 28 December 2001, petitioner, through Acting Regional Director Ruperto P. Somera of Revenue Region 6 Manila,
issued the following assessment notices against First Express Pawnshop Company, Inc. (respondent):

a. Assessment No. 31-1-984 for deficiency income tax of ₱20,712.58 with compromise penalty of ₱3,000;

b. Assessment No. 31-14-000053-985 for deficiency value-added tax (VAT) of ₱601,220.18 with compromise
penalty of ₱16,000;

c. Assessment No. 31-14-000053-986 for deficiency documentary stamp tax (DST) of ₱12,328.45 on deposit on
subscription with compromise penalty of ₱2,000; and

d. Assessment No. 31-1-000053-987 for deficiency DST of ₱62,128.87 on pawn tickets with compromise penalty
of ₱8,500.

Respondent received the assessment notices on 3 January 2002. On 1 February 2002, respondent filed its written
protest on the above assessments. Since petitioner did not act on the protest during the 180-day period,8 respondent
filed a petition before the CTA on 28 August 2002.9

Respondent contended that petitioner did not consider the supporting documents on the interest expenses and
donations which resulted in the deficiency income tax.10 Respondent maintained that pawnshops are not lending
investors whose services are subject to VAT, hence it was not liable for deficiency VAT.11 Respondent also alleged that no
deficiency DST was due because Section 18012 of the National Internal Revenue Code (Tax Code) does not cover any
document or transaction which relates to respondent. Respondent also argued that the issuance of a pawn ticket did not
constitute a pledge under Section 19513 of the Tax Code.14

In its Answer filed before the CTA, petitioner alleged that the assessment was valid and correct and the taxpayer had the
burden of proof to impugn its validity or correctness. Petitioner maintained that respondent is subject to 10% VAT based
on its gross receipts pursuant to Republic Act No. 7716, or the Expanded Value-Added Tax Law (EVAT). Petitioner also
cited BIR Ruling No. 221-91 which provides that pawnshop tickets are subject to DST. 15

On 1 July 2003, respondent paid ₱27,744.88 as deficiency income tax inclusive of interest.16

After trial on the merits, the CTA First Division ruled, thus:

IN VIEW OF ALL THE FOREGOING, the instant petition is hereby PARTIALLY GRANTED. Assessment No. 31-1-000053-98
for deficiency documentary stamp tax in the amount of Sixty-Two Thousand One Hundred Twenty-Eight Pesos and
87/100 (₱62,128.87) and Assessment No. 31-14-000053-98 for deficiency documentary stamp tax on deposits on
subscription in the amount of Twelve Thousand Three Hundred Twenty-Eight Pesos and 45/100 (₱12,328.45)
are CANCELLED and SET ASIDE. However, Assessment No. 31-14-000053-98 is hereby AFFIRMED except the imposition
of compromise penalty in the absence of showing that petitioner consented thereto (UST vs. Collector, 104 SCRA 1062;
Exquisite Pawnshop Jewelry, Inc. vs. Jaime B. Santiago, et al., supra).

Accordingly petitioner is ORDERED to PAY the deficiency value added tax in the amount of Six Hundred One Thousand
Two Hundred Twenty Pesos and 18/100 (₱601,220.18) inclusive of deficiency interest for the year 1998. In addition,
petitioner is ORDERED to PAY 25% surcharge and 20% delinquency interest per annum from February 12, 2002 until
fully paid pursuant to Sections 248 and 249 of the 1997 Tax Code.

SO ORDERED.17 (Boldfacing in the original)

Both parties filed their Motions for Reconsideration which were denied by the CTA First Division for lack of merit.
Thereafter, both parties filed their respective Petitions for Review under Section 11 of Republic Act No. 9282 (RA 9282)
with the CTA En Banc.18

On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondent’s liability to pay the VAT and ordering
it to pay DST on its pawnshop tickets. However, the CTA En Banc found that respondent’s deposit on subscription was
not subject to DST.19

Aggrieved by the CTA En Banc’s Decision which ruled that respondent’s deposit on subscription was not subject to DST,
petitioner elevated the case before this Court.

The Ruling of the Court of Tax Appeals

On the taxability of deposit on subscription, the CTA, citing First Southern Philippines Enterprises, Inc. v. Commissioner of
Internal Revenue,20 pointed out that deposit on subscription is not subject to DST in the absence of proof that an
equivalent amount of shares was subscribed or issued in consideration for the deposit. Expressed otherwise, deposit on
stock subscription is not subject to DST if: (1) there is no agreement to subscribe; (2) there are no shares issued or any
additional subscription in the restructuring plan; and (3) there is no proof that the issued shares can be considered as
issued certificates of stock.21

The CTA ruled that Section 17522 of the Tax Code contemplates a subscription agreement. The CTA explained that there
can be subscription only with reference to shares of stock which have been unissued, in the following cases: (a) the
original issuance from authorized capital stock at the time of incorporation; (b) the opening, during the life of the
corporation, of the portion of the original authorized capital stock previously unissued; or (c) the increase of authorized
capital stock achieved through a formal amendment of the articles of incorporation and registration of the articles of
incorporation with the Securities and Exchange Commission.23

The CTA held that in this case, there was no subscription or any contract for the acquisition of unissued stock for
₱800,000 in the taxable year assessed. The General Information Sheet (GIS) of respondent showed only a capital
structure of ₱500,000 as Subscribed Capital Stock and ₱250,000 as Paid-up Capital Stock and did not include the
assessed amount. Mere reliance on the presumption that the assessment was correct and done in good faith was
unavailing vis-à-vis the evidence presented by respondent. Thus, the CTA ruled that the assessment for deficiency DST
on deposit on subscription has not become final.24

The Issue

Petitioner submits this sole issue for our consideration: whether the CTA erred on a question of law in disregarding the
rule on finality of assessments prescribed under Section 228 of the Tax Code. Corollarily, petitioner raises the issue on
whether respondent is liable to pay ₱12,328.45 as DST on deposit on subscription of capital stock.

The Ruling of the Court

Petitioner contends that the CTA erred in disregarding the rule on the finality of assessments prescribed under Section
228 of the Tax Code.25 Petitioner asserts that even if respondent filed a protest, it did not offer evidence to prove its
claim that the deposit on subscription was an "advance" made by respondent’s stockholders.26 Petitioner alleges that
respondent’s failure to submit supporting documents within 60 days from the filing of its protest as required under
Section 228 of the Tax Code caused the assessment of ₱12,328.45 for deposit on subscription to become final and
unassailable.27

Petitioner alleges that revenue officers are afforded the presumption of regularity in the performance of their official
functions, since they have the distinct opportunity, aside from competence, to peruse records of the assessments.
Petitioner invokes the principle that by reason of the expertise of administrative agencies over matters falling under
their jurisdiction, they are in a better position to pass judgment thereon; thus, their findings of fact are generally
accorded great respect, if not finality, by the courts. Hence, without the supporting documents to establish the non-
inclusion from DST of the deposit on subscription, petitioner’s assessment pursuant to Section 228 of the Tax Code had
become final and unassailable.28

Respondent, citing Standard Chartered Bank-Philippine Branches v. Commissioner of Internal Revenue,29 asserts that the
submission of all the relevant supporting documents within the 60-day period from filing of the protest is directory.

Respondent claims that petitioner requested for additional documents in petitioner’s letter dated 12 March 2002, to
wit: (1) loan agreement from lender banks; (2) official receipts of interest payments issued to respondent; (3)
documentary evidence to substantiate donations claimed; and (4) proof of payment of DST on subscription.30 It must be
noted that the only document requested in connection with respondent’s DST assessment on deposit on subscription is
proof of DST payment. However, respondent could not produce any proof of DST payment because it was not required
to pay the same under the law considering that the deposit on subscription was an advance made by its stockholders for
future subscription, and no stock certificates were issued.31 Respondent insists that petitioner could have issued a
subpoena requiring respondent to submit other documents to determine if the latter is liable for DST on deposit on
subscription pursuant to Section 5(c) of the Tax Code.32

Respondent argues that deposit on future subscription is not subject to DST under Section 175 of the Tax Code.
Respondent explains:

It must be noted that deposits on subscription represent advances made by the stockholders and are in the nature of
liabilities for which stocks may be issued in the future. Absent any express agreement between the stockholders and
petitioner to convert said advances/deposits to capital stock, either through a subscription agreement or any other
document, these deposits remain as liabilities owed by respondent to its stockholders. For these deposits to be subject
to DST, it is necessary that a conversion/subscription agreement be made by First Express and its stockholders. Absent
such conversion, no DST can be imposed on said deposits under Section 175 of the Tax Code.33 (Underscoring in the
original)

Respondent contends that by presenting its GIS and financial statements, it had already sufficiently proved that the
amount sought to be taxed is deposit on future subscription, which is not subject to DST.34 Respondent claims that it
cannot be required to submit proof of DST payment on subscription because such payment is non-existent. Thus, the
burden of proving that there was an agreement to subscribe and that certificates of stock were issued for the deposit on
subscription rests on petitioner and his examiners. Respondent states that absent any proof, the deficiency assessment
has no basis and should be cancelled.35

On the Taxability of Deposit on Stock Subscription

DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or
transfer of an obligation, right or property incident thereto. DST is actually an excise tax because it is imposed on the
transaction rather than on the document.36 DST is also levied on the exercise by persons of certain privileges conferred
by law for the creation, revision, or termination of specific legal relationships through the execution of specific
instruments.37 The Tax Code provisions on DST relating to shares or certificates of stock state:

Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on organization,
reorganization or for any lawful purpose, of shares of stock by any association, company or corporation, there shall be
collected a documentary stamp tax of Two pesos (₱2.00) on each Two hundred pesos (₱200), or fractional part thereof,
of the par value, of such shares of stock: Provided, That in the case of the original issue of shares of stock without par
value the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration for the
issuance of such shares of stock: Provided, further, That in the case of stock dividends, on the actual value represented
by each share.38

Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of Due-bills, Certificates
of Obligation, or Shares or Certificates of Stock. - On all sales, or agreements to sell, or memoranda of sales, or deliveries,
or transfer of due-bills, certificates of obligation, or shares or certificates of stock in any association, company or
corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or
memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such
due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any
due-bill, certificate of obligation or stock, there shall be collected a documentary stamp tax of One peso and fifty
centavos (₱1.50) on each Two hundred pesos (₱200), or fractional part thereof, of the par value of such due-bill,
certificate of obligation or stock: Provided, That only one tax shall be collected on each sale or transfer of stock or
securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued,
indorsed, or delivered in pursuance of such sale or transfer: And provided, further, That in the case of stock without par
value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five percent (25%) of
the documentary stamp tax paid upon the original issue of said stock.39

In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The DST, as an excise tax, is levied
upon the privilege, the opportunity and the facility of issuing shares of stock. In Commissioner of Internal Revenue v.
Construction Resources of Asia, Inc.,40 this Court explained that the DST attaches upon acceptance of the stockholder’s
subscription in the corporation’s capital stock regardless of actual or constructive delivery of the certificates of stock.
Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue,41 the Court held:

The documentary stamp tax under this provision of the law may be levied only once, that is upon the original issue of
the certificate. The crucial point therefore, in the case before Us is the proper interpretation of the word ‘issue.’ In other
words, when is the certificate of stock deemed ‘issued’ for the purpose of imposing the documentary stamp tax? Is it at
the time the certificates of stock are printed, at the time they are filled up (in whose name the stocks represented in the
certificate appear as certified by the proper officials of the corporation), at the time they are released by the
corporation, or at the time they are in the possession (actual or constructive) of the stockholders owning them?

xxx

Ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks in the corporation to
fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership over the
stocks mentioned on its face. The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed, and
they can be conveyed, pledged or encumbered. The certificate as issued by the corporation, irrespective of whether or
not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and
hence the documentary stamp tax must be paid as imposed by Section 212 of the National Internal Revenue Code, as
amended.

In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda of sales, deliveries or
transfer of shares or certificates of stock in any association, company, or corporation, or transfer of such securities by
assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or
sale whether entitling the holder in any manner to the benefit of such certificates of stock, or to secure the future
payment of money, or for the future transfer of certificates of stock. In Compagnie Financiere Sucres et Denrees v.
Commissioner of Internal Revenue, this Court held that under Section 176 of the Tax Code, sales to secure the future
transfer of due-bills, certificates of obligation or certificates of stock are subject to documentary stamp tax.42

Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the corporate stock documentary
stamp tax program. RMO 08-98 states that:

1. All existing corporations shall file the Corporation Stock DST Declaration, and the DST Return, if
applicable when DST is still due on the subscribed share issued by the corporation, on or before the tenth day
of the month following publication of this Order.

xxx
 3. All existing corporations with authorization for increased capital stock shall file their Corporate Stock DST
Declaration, together with the DST Return, if applicable when DST is due on subscriptions made after the
authorization, on or before the tenth day of the month following the date of authorization. (Boldfacing
supplied)

RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also states that what is being taxed is
the privilege of issuing shares of stock, and, therefore, the taxes accrue at the time the shares are issued. RMC 47-97
also defines issuance as the point in which the stockholder acquires and may exercise attributes of ownership over the
stocks.

As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription agreement in order for a
taxpayer to be liable to pay the DST. A subscription contract is defined as any contract for the acquisition of unissued
stocks in an existing corporation or a corporation still to be formed.43 A stock subscription is a contract by which the
subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same or
expressly or impliedly promising to pay for the same.44

In this case, respondent’s Stockholders’ Equity section of its Balance Sheet as of 31 December 199845 shows:

Stockholders’ Equity 1998 1997

Authorized Capital Stock ₱ 2,000,000.00 ₱ 2,000,000.00
Paid-up Capital Stock 250,000.00 250,000.00
Deposit on Subscription 800,000.00
Retained Earnings 62,820.34 209,607.20
Net Income (858,498.38) (146,786.86)
Total ₱ 254,321.96 ₱ 312,820.34

The GIS submitted to the Securities and Exchange Commission on 31 March 1999 shows the following Capital
Structure:46

B. Financial Profile

1. Capital Structure :

AUTHORIZED - ₱2,000,000.00

SUBSCRIBED - 500,000.00

PAID-UP - 250,000.00

These entries were explained by Miguel Rosario, Jr. (Rosario), respondent’s external auditor, during the hearing before
the CTA on 11 June 2003. Rosario testified in this wise:

Atty. Napiza

Q. Mr. Rosario, I refer you to the balance sheet of First Express for the year 1998 particularly the entry of deposit
on subscription in the amount of ₱800 thousand, will you please tell us what is (sic) this entry represents?

Mr. Rosario Jr.

A. This amount of ₱800 thousand represents the case given by the stockholders to the company but does not
necessarily made (sic) payment to subscribed portion.

Atty. Napiza

Q. What is (sic) that payment stands for?

Mr. Rosario Jr.

A. This payment stands as (sic) for the deposit for future subscription.

Atty. Napiza

Q. Would you know if First Express issued corresponding shares pertinent to the amount being deposited?

Mr. Rosario Jr.

A. No.

Atty. Napiza

Q. What do you mean by no? Did they or they did not?

Mr. Rosario Jr.

A. They did not issue any shares because that is not the payment of subscription. That is just a mere deposit.

Atty. Napiza

Q. Would you know, Mr. Rosario, how much is the Subscribed Capital of First Express Pawnshop?

Mr. Rosario Jr.

A. The Subscribed Capital of First Express Pawnshop Company, Inc. for the year 1998 is ₱500 thousand.

Atty. Napiza

Q. How about the Paid Up Capital?

Mr. Rosario Jr.

A. The Paid Up Capital is ₱250 thousand.

Atty. Napiza

Q. Are (sic) all those figures appear in the balance sheet?

Mr. Rosario Jr.

A. The Paid Up Capital appeared here but the Subscribed Portion was not stated. (Boldfacing supplied)
Based on Rosario’s testimony and respondent’s financial statements as of 1998, there was no agreement to subscribe to
the unissued shares. Here, the deposit on stock subscription refers to an amount of money received by the corporation
as a deposit with the possibility of applying the same as payment for the future issuance of capital
stock.47 In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc.,48 we held:

We are firmly convinced that the Government stands to lose nothing in imposing the documentary stamp tax only on
those stock certificates duly issued, or wherein the stockholders can freely exercise the attributes of ownership and with
value at the time they are originally issued. As regards those certificates of stocks temporarily subject to suspensive
conditions they shall be liable for said tax only when released from said conditions, for then and only then shall they
truly acquire any practical value for their owners.lavvphil (Boldfacing supplied)

Clearly, the deposit on stock subscription as reflected in respondent’s Balance Sheet as of 1998 is not a subscription
agreement subject to the payment of DST. There is no ₱800,000 worth of subscribed capital stock that is reflected in
respondent’s GIS. The deposit on stock subscription is merely an amount of money received by a corporation with a
view of applying the same as payment for additional issuance of shares in the future, an event which may or may not
happen. The person making a deposit on stock subscription does not have the standing of a stockholder and he is not
entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence, respondent is not liable
for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights
and obligations between the subscriber and the corporation.

On the Finality of Assessment as Prescribed

under Section 228 of the Tax Code

Section 228 of the Tax Code provides:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment
notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by
the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on excisable articles has not been paid; or

(e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules
and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within
thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable. (Boldfacing supplied)

Section 228 of the Tax Code49 provides the remedy to dispute a tax assessment within a certain period of time. It states
that an assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from
receipt of the assessment by the taxpayer. Within 60 days from filing of the protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment shall become final.

In this case, respondent received the tax assessment on 3 January 2002 and it had until 2 February 2002 to submit its
protest. On 1 February 2002, respondent submitted its protest and attached the GIS and Balance Sheet as of 31
December 1998. Respondent explained that it received ₱800,000 as a deposit with the possibility of applying the same
as payment for the future issuance of capital stock.

Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant supporting documents.
Respondent, having submitted the supporting documents together with its protest, did not present additional
documents anymore.

In a letter dated 12 March 2002, petitioner requested respondent to present proof of payment of DST on subscription. In
a letter-reply, respondent stated that it could not produce any proof of DST payment because it was not required to pay
DST under the law considering that the deposit on subscription was an advance made by its stockholders for future
subscription, and no stock certificates were issued.

Since respondent has not allegedly submitted any relevant supporting documents, petitioner now claims that the
assessment has become final, executory and demandable, hence, unappealable.

We reject petitioner’s view that the assessment has become final and unappealable. It cannot be said that respondent
failed to submit relevant supporting documents that would render the assessment final because when respondent
submitted its protest, respondent attached the GIS and Balance Sheet. Further, petitioner cannot insist on the
submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to
pay, and has not paid, the DST on the deposit on subscription.

The term "relevant supporting documents" should be understood as those documents necessary to support the legal
basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot
submit.1awphi1

After respondent submitted its letter-reply stating that it could not comply with the presentation of the proof of DST
payment, no reply was received from petitioner.

Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer
adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180-day period.
Respondent, having submitted its supporting documents on the same day the protest was filed, had until 31 July 2002 to
wait for petitioner’s reply to its protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period
counted from the filing of the protest as the supporting documents were simultaneously filed, respondent filed a
petition before the CTA.
Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the Tax Code.
Hence, the tax assessment cannot be considered as final, executory and demandable. Further, respondent’s deposit on
subscription is not subject to the payment of DST. Consequently, respondent is not liable to pay the deficiency DST of
₱12,328.45.

Wherefore, we DENY the petition. We AFFIRM the Court of Tax Appeals’ Decision dated 24 March 2006 in the
consolidated cases of C.T.A. EB Nos. 60 and 62.

SO ORDERED.

H. COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
CITYTRUST BANKING CORPORATION, Respondent.

G.R. No. 150812 August 22, 2006

The Commissioner of Internal Revenue (CIR) assails the decision1 of the Court of Appeals (CA) and its
resolution2 upholding the decision of the Court of Tax Appeals (CTA) in CTA Case No. 4099 which ordered the refund
of P13,314,506.14 to respondent Citytrust Banking Corporation (Citytrust)3 as its alleged overpaid income taxes for the
years 1984 and 1985.

On May 28, 1991, the CTA ordered the CIR to grant Citytrust a refund in the amount of P13,314,506.14 representing
Citytrust’s overpaid income taxes for 1984 and 1985. The CIR filed a motion for reconsideration (MR) on the ground that
the Certificate of Tax Withheld was inconclusive evidence of payment and remittance of tax to the Bureau of Internal
Revenue. In its supplemental MR, the CIR alleged an additional ground: that Citytrust had outstanding deficiency income
and business tax liabilities of P4,509,293.714 for 1984, thus, the claim for refund was not in order. The tax court denied
both motions.

The case was elevated to the CA5 in CA-G.R. SP No. 26839 but the appellate court affirmed the CTA’s ruling. On petition
for review on certiorari to this Court, however, we ruled that there was an apparent contradiction between the claim for
refund and the deficiency assessments against Citytrust, and that the government could not be held in estoppel due to
the negligence of its officials or employees, specially in cases involving taxes. For that reason, the case was remanded to
the CTA for further reception of evidence.6

The tax court thereafter conducted the necessary proceedings. One of the exhibits presented and offered in the
hearings was a letter dated February 28, 1995, signed by the CIR, stating the withdrawal and cancellation of the
following assessments:7

Kind of Tax Year Involved Amount

1. [Deficiency] Fixed Tax 1984 P 44,132.88

2. [Deficiency] Withholding Tax 1984 22,363,791.31

on deposit substitutes (1-1-84
to 10-15-84) 1984 11,292,140.50

3. [Deficiency] Withholding Tax 1984 17,825,342.30

on deposit substitutes (10-15-
84 to 12-31-84)

4. [Deficiency] Documentary
Stamp Tax on deposit
substitutes
In the same letter, the CIR demanded the following sums from Citytrust for 1984: (1) as deficiency income tax
– P3,301,578.19; (2) as deficiency gross receipts tax – P1,193,090.52 and (3) as fixed tax as real estate dealer – P14,625.
Citytrust paid these deficiency tax liabilities.8

From the exhibits presented to it, the CTA determined that: (1) the deficiency and gross receipts taxes had been fully
paid and (2) the deficiency income tax was only partially settled.9

Except for a pending issue in another CTA proceeding,10 Citytrust considered all its deficiency tax liabilities for 1984 fully
settled, hence, it prayed that it be granted a refund. The CIR interposed his objection, however, alleging that Citytrust
still had unpaid deficiency income, business and withholding taxes for the year 1985.11 Due to these deficiency
assessments, the CIR insisted that Citytrust was not entitled to any tax refund.

On October 16, 1997, the CTA set aside the CIR’s objections and granted the refund.12

On May 21, 2001, the CA denied the CIR’s petition for review13 for lack of merit and affirmed the CTA decision.14

Before us in this petition for review on certiorari, the CIR contends that respondent is not entitled to the refund
of P13,314,506.14 as alleged overpaid income taxes for 1984 and 1985. The CIR claims that the CA erred in not holding
that payment by Citytrust of its deficiency income tax was an admission of its tax liability and, therefore, a bar to its
entitlement to a refund of income tax for the same taxable year.

In resolving this case, the CTA did not allow a set-off or legal compensation of the taxes involved.15 The CTA reasoned:

Again, the BIR interposed objection to the grant of such refund. It alleged that there are still deficiency income,
business and withholding taxes proposed against petitioner for 1985. These assessments are contained in
a Delinquency Verification Slip, dated June 5, 1990, which was marked as Exh. "5" for respondent. Due to these
deficiency assessments, respondent insisted that petitioner is not entitled to any tax refund.

[The CTA] sets aside respondent’s objection and grants to petitioner the refund of the amount of P13,314,506.14 on
several grounds.

First, [respondent’s position] violates the order of the Supreme Court in directing [the CTA] to conduct further
proceedings for the reception of petitioner’s evidence, and the disposition of the present case. Although the Supreme
Court did not specifically mention what kind of petitioner’s evidence should be entertained, [the CTA] is of the opinion
that the evidence should pertain only to the 1984 assessments which were the only assessments raised as a defense
on appeal to the Court of Appeals and the Supreme Court. The assessments embodied in Exhibit "5" of respondent
were never raised on appeal to the higher [c]ourts. Hence, evidence related to said assessments should not be allowed
as this will lead to endless litigation.

Second, [the CTA] has no jurisdiction to try an assessment case which was never appealed to it. With due respect to
the Supreme Court’s decision, it is [the CTA’s] firm stand that in hearing a refund case, the CTA cannot hear in the same
case an assessment dispute even if the parties involved are the same parties.16 xxx xxx xxx. (Citations omitted and
emphasis supplied)

We uphold the findings and conclusion of the CTA and the CA.

Records show that this Court made no previous direct ruling on Citytrust’s alleged failure to substantiate its claim for
refund. Instead, the order of this Court addressed the apparent failure of the Bureau of Internal Revenue, by reason of
the mistake or negligence of its officials and employees, to present the appropriate evidence to oppose respondent’s
claim.17 In the earlier case, we directed the joint resolution of the issues of tax deficiency assessment and refund due to
its particular circumstances.18
The CTA complied with the Court’s order to conduct further proceedings for the reception of the CIR’s evidence in CTA
Case No. 4099. In the course thereof, Citytrust paid the assessed deficiencies to remove all administrative impediments
to its claim for refund. But the CIR considered this payment as an admission of a tax liability which was inconsistent with
Citytrust’s claim for refund.

There is indeed a contradiction between a claim for refund and the assessment of deficiency tax. The CA pointed out
that the case was remanded to the CTA for the reception of additional evidence precisely to resolve the apparent
contradiction.

Because of the CTA’s recognized expertise in taxation, its findings are not ordinarily subject to review specially where
there is no showing of grave error or abuse on its part.19

This Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its
function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority.20

WHEREFORE, the petition is hereby DENIED. The May 21, 2001 decision of the Court of Appeals in CA-G.R. SP No. 46793
is AFFIRMED.

SO ORDERED.

I. RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

G.R. No. 168498 April 24, 2007

For resolution is petitioner’s Motion for Reconsideration of our Decision1 dated June 16, 2006 affirming the Decision of
the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the Resolutions of the Court of
Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s
Petition for Relief from Judgment and Motion for Reconsideration, respectively.

Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court of Tax Appeals
within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was excusable and raised the
following issues for resolution:

A.

THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE DENIAL OF SUBSTANTIVE
JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS OF THIS HONORABLE COURT BECAUSE THE
ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED – A FACT NOT DENIED BY THE RESPONDENT IN ITS
ANSWER.

B.

CONTRARY TO THIS HONORABLE COURT’S DECISION, AND FOLLOWING THE LASCONA DECISION, AS WELL AS THE 2005
REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR REVIEW BEFORE THE
COURT OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD JURISDICTION OVER THE CASE.

C.
CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A DEFICIENCY ASSESSMENT FOR
DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS AND GROSS ONSHORE TAX, PETITIONER IN THE INTEREST
OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE
THE COURT OF TAX APPEALS.2

Petitioner’s motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time, the issues presented are a mere rehash of
petitioner’s previous arguments, all of which have been considered and found without merit in our Decision dated June
16, 2006.

Petitioner maintains that its counsel’s neglect in not filing the petition for review within the reglementary period was
excusable. It alleges that the counsel’s secretary misplaced the Resolution hence the counsel was not aware of its
issuance and that it had become final and executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of petitioner’s counsel.
Otherwise, all that a losing party would do to salvage his case would be to invoke neglect or mistake of his counsel as a
ground for reversing or setting aside the adverse judgment, thereby putting no end to litigation.

Negligence to be "excusable" must be one which ordinary diligence and prudence could not have guarded against and
by reason of which the rights of an aggrieved party have probably been impaired. Petitioner’s former counsel’s omission
could hardly be characterized as excusable, much less unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive promptly judicial
notices and pleadings intended for them. Apparently, petitioner’s counsel was not only remiss in complying with this
admonition but he also failed to check periodically, as an act of prudence and diligence, the status of the pending case
before the CTA Second Division. The fact that counsel allegedly had not renewed the employment of his secretary,
thereby making the latter no longer attentive or focused on her work, did not relieve him of his responsibilities to his
client. It is a problem personal to him which should not in any manner interfere with his professional commitments.3

Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened considering that it
was allegedly not accorded its day in court when the Court of Tax Appeals dismissed its petition for review for late filing.
It claims that rules of procedure are intended to help secure, not override, substantial justice.

Petitioner’s arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:

If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose prudence in handling the
case fell short of that required under the circumstances. He was well aware of the motion filed by the respondent for
the Court to resolve first the issue of this Court’s jurisdiction on July 15, 2003, that a hearing was conducted thereon on
August 15, 2003 where both counsels were present and at said hearing the motion was submitted for resolution.
Petitioner’s counsel apparently did not show enthusiasm in the case he was handling as he should have been vigilant of
the outcome of said motion and be prepared for the necessary action to take whatever the outcome may have been.
Such kind of negligence cannot support petitioner’s claim for relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in
favor of the correctness of a tax assessment unless proven otherwise.4 Also, petitioner’s failure to file a petition for
review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and
prescription of the Government’s right to assess.5

The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters as are clearly
within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 1125, otherwise known as the Law
Creating the Court of Tax Appeals, provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial;

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals6 state:

RULE 4
Jurisdiction of the Court

xxxx

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code or other applicable law provides a specific period
for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal
Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue
Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and
does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax
case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of
Internal Revenue on the disputed assessments beyond the one hundred eighty day-period
abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of
these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or
illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of
the two-year period under Section 229 of the National Internal Revenue Code;

xxxx
 RULE 8
Procedure in Civil Cases

xxxx

SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a decision, ruling or the inaction
of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the
Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by
petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period
fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the
Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the
taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the
taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only
decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of
the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal,
provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the
180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which
to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely
directory but mandatory and it is beyond the power of the courts to extend the same.7

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and
appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However,
these options are mutually exclusive, and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission
of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the
petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period.
Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for
reconsideration or make an appeal; hence, the disputed assessment became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remained
unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal
the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first
option, i.e., filing a petition for review which was however filed out of time, petitioner can not successfully resort to the
second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals,
on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion for
reconsideration. Although the same was raised in the petition for review, it was dismissed for late filing. No motion for
reconsideration was filed hence the disputed assessment became final, demandable and executory. Thereafter,
petitioner filed with the Court of Tax Appeals a petition for relief from judgment. However, it failed to raise the issue of
prescription therein. After its petition for relief from judgment was denied by the Court of Tax Appeals for lack of merit,
petitioner filed a petition for review before this Court without raising the issue of prescription. It is only in the instant
motion for reconsideration that petitioner raised the issue of prescription which is not allowed. The rule is well-settled
that points of law, theories, issues and arguments not adequately brought to the attention of the lower court need not
be considered by the reviewing court as they cannot be raised for the first time on appeal,8 much more in a motion for
reconsideration as in this case, because this would be offensive to the basic rules of fair play, justice and due
process.9 This last ditch effort to shift to a new theory and raise a new matter in the hope of a favorable result is a
pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioner’s motion for reconsideration is DENIED.

SO ORDERED.

J. COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
HAMBRECHT & QUIST PHILIPPINES, INC., Respondent.

G.R. No. 169225 November 17, 2010

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision1 dated
August 12, 2005 of the Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. No. 73 (C.T.A. Case No. 6362), entitled
"Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc.," which affirmed the Decision2 dated
September 24, 2004 of the CTA Original Division in C.T.A. Case No. 6362 canceling the assessment issued against
respondent for deficiency income and expanded withholding tax for the year 1989 for failure of petitioner Commissioner
of Internal Revenue (CIR) to enforce collection within the period allowed by law.

The CTA summarized the pertinent facts of this case, as follows:

In a letter dated February 15, 1993, respondent informed the Bureau of Internal Revenue (BIR), through its West-Makati
District Office of its change of business address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the
22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati City. Said letter was duly received by
the BIR-West Makati on February 18, 1993.

On November 4, 1993, respondent received a tracer letter or follow-up letter dated October 11, 1993 issued by the
Accounts Receivable/Billing Division of the BIR’s National Office and signed by then Assistant Chief Mr. Manuel B. Mina,
demanding for payment of alleged deficiency income and expanded withholding taxes for the taxable year 1989
amounting to ₱2,936,560.87.

On December 3, 1993, respondent, through its external auditors, filed with the same Accounts Receivable/Billing
Division of the BIR’s National Office, its protest letter against the alleged deficiency tax assessments for 1989 as
indicated in the said tracer letter dated October 11, 1993.

The alleged deficiency income tax assessment apparently resulted from an adjustment made to respondent’s taxable
income for the year 1989, on account of the disallowance of certain items of expense, namely, professional fees paid,
donations, repairs and maintenance, salaries and wages, and management fees. The latter item of expense, the
management fees, made up the bulk of the disallowance, the examiner alleging, among others, that petitioner failed to
withhold the appropriate tax thereon. This is also the same basis for the imposition of the deficiency withholding tax
assessment on the management fees. Revenue Regulations No. 6-85 (EWT Regulations) does not impose or prescribe
EWT on management fees paid to a non-resident.

On November 7, 2001, nearly eight (8) years later, respondent’s external auditors received a letter from herein
petitioner Commissioner of Internal Revenue dated October 27, 2001. The letter advised the respondent that petitioner
had rendered a final decision denying its protest on the ground that the protest against the disputed tax assessment was
allegedly filed beyond the 30-day reglementary period prescribed in then Section 229 of the National Internal Revenue
Code.

On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case No. 6362 before the then Court of
Tax Appeals, pursuant to Section 7 of Republic Act No. 1125, otherwise known as an ‘Act Creating the Court of Tax
Appeals’ and Section 228 of the NIRC, to appeal the final decision of the Commissioner of Internal Revenue denying its
protest against the deficiency income and withholding tax assessments issued for taxable year 1989.3

In a Decision dated September 24, 2004, the CTA Original Division held that the subject assessment notice sent by
registered mail on January 8, 1993 to respondent’s former place of business was valid and binding since respondent only
gave formal notice of its change of address on February 18, 1993. Thus, the assessment had become final and
unappealable for failure of respondent to file a protest within the 30-day period provided by law. However, the CTA (a)
held that the CIR failed to collect the assessed taxes within the prescriptive period; and (b) directed the cancellation and
withdrawal of Assessment Notice No. 001543-89-5668. Petitioner’s Motion for Reconsideration and Supplemental
Motion for Reconsideration of said Decision filed on October 14, 2004 and November 22, 2004, respectively, were
denied for lack of merit.

Undaunted, the CIR filed a Petition for Review with the CTA En Banc but this was denied in a Decision dated August 12,
2005, the dispositive portion reads:

WHEREFORE, the Petition for Review is DENIED DUE COURSE and the case is accordingly DISMISSED for lack of merit.4

Hence, the instant Petition wherein the following issues are raised:

WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO RULE THAT THE GOVERNMENT’S RIGHT
TO COLLECT THE TAX HAS PRESCRIBED.

II

WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS PRESCRIBED.5

The petition is without merit.

Anent the first issue, petitioner argues that the CTA had no jurisdiction over the case since the CTA itself had ruled that
the assessment had become final and unappealable. Citing Protector’s Services, Inc. v. Court of Appeals,6 the CIR argued
that, after the lapse of the 30-day period to protest, respondent may no longer dispute the correctness of the
assessment and its appeal to the CTA should be dismissed. The CIR took issue with the CTA’s pronouncement that it had
jurisdiction to decide "other matters" related to the tax assessment such as the issue on the right to collect the same
since the CIR maintains that when the law says that the CTA has jurisdiction over "other matters," it presupposes that
the tax assessment has not become final and unappealable.

We cannot countenance the CIR’s assertion with regard to this point. The jurisdiction of the CTA is governed by Section 7
of Republic Act No. 1125, as amended, and the term "other matters" referred to by the CIR in its argument can be found
in number (1) of the aforementioned provision, to wit:

Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as
herein provided –

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National
Internal Revenue Code or other law as part of law administered by the Bureau of Internal Revenue. (Emphasis
supplied.)

Plainly, the assailed CTA En Banc Decision was correct in declaring that there was nothing in the foregoing provision
upon which petitioner’s theory with regard to the parameters of the term "other matters" can be supported or even
deduced. What is rather clearly apparent, however, is that the term "other matters" is limited only by the qualifying
phrase that follows it.

Thus, on the strength of such observation, we have previously ruled that the appellate jurisdiction of the CTA is not
limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the
provision covers other cases that arise out of the National Internal Revenue Code (NIRC) or related laws administered by
the Bureau of Internal Revenue (BIR).7

In the case at bar, the issue at hand is whether or not the BIR’s right to collect taxes had already prescribed and that is a
subject matter falling under Section 223(c) of the 1986 NIRC, the law applicable at the time the disputed assessment was
made. To quote Section 223(c):

Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three years following the assessment of the tax. (Emphases
supplied.)

In connection therewith, Section 3 of the 1986 NIRC states that the collection of taxes is one of the duties of the BIR, to
wit:

Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of Internal Revenue shall comprehend the
assessment and collection of all national internal revenue taxes, fees, and charges and the enforcement of all
forfeitures, penalties, and fines connected therewith including the execution of judgments in all cases decided in its
favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the
supervisory and police power conferred to it by this Code or other laws. (Emphasis supplied.)

Thus, from the foregoing, the issue of prescription of the BIR’s right to collect taxes may be considered as covered by the
term "other matters" over which the CTA has appellate jurisdiction.

Furthermore, the phraseology of Section 7, number (1), denotes an intent to view the CTA’s jurisdiction over disputed
assessments and over "other matters" arising under the NIRC or other laws administered by the BIR as separate and
independent of each other. This runs counter to petitioner’s theory that the latter is qualified by the status of the
former, i.e., an "other matter" must not be a final and unappealable tax assessment or, alternatively, must be a disputed
assessment.

Likewise, the first paragraph of Section 11 of Republic Act No. 1125,

as amended by Republic Act No. 9282,8 belies petitioner’s assertion as the provision is explicit that, for as long as a party
is adversely affected by any decision, ruling or inaction of petitioner, said party may file an appeal with the CTA within 30
days from receipt of such decision or ruling. The wording of the provision does not take into account the CIR’s restrictive
interpretation as it clearly provides that the mere existence of an adverse decision, ruling or inaction along with the
timely filing of an appeal operates to validate the exercise of jurisdiction by the CTA.

To be sure, the fact that an assessment has become final for failure of the taxpayer to file a protest within the time
allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. However,
the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to
collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided for by the NIRC, is well
within the jurisdiction of the CTA to decide.

With respect to the second issue, the CIR insists that its right to collect the tax deficiency it assessed on respondent is
not barred by prescription since the prescriptive period thereof was allegedly suspended by respondent’s request for
reinvestigation.
Based on the facts of this case, we find that the CIR’s contention is without basis.1avvphi1 The pertinent provision of the
1986 NIRC is Section 224, to wit:

Section 224. Suspension of running of statute. – The running of the statute of limitations provided in Sections 203 and
223 on the making of assessment and the beginning of distraint or levy or 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 days thereafter; when the taxpayer
requests for a re-investigation 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 statute will not be suspended; when the warrant of distraint
and 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.)

The plain and unambiguous wording of the said provision dictates that two requisites must concur before the period to
enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants
such request.

On this point, we have previously held that:

The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and
collection, the request for reinvestigation must be granted by the CIR.9 (Emphasis supplied.)

Consequently, the mere filing of a protest letter which is not granted does not operate to suspend the running of the
period to collect taxes. In the case at bar, the records show that respondent filed a request for reinvestigation on
December 3, 1993, however, there is no indication that petitioner acted upon respondent’s protest. As the CTA Original
Division in C.T.A. Case No. 6362 succinctly pointed out in its Decision, to wit:

It is evident that the respondent did not conduct a reinvestigation, the protest having been dismissed on the ground that
the assessment has become final and executory. There is nothing in the record that would show what action was taken
in connection with the protest of the petitioner. In fact, petitioner did not hear anything from the respondent nor
received any communication from the respondent relative to its protest, not until eight years later when the final
decision of the Commissioner was issued (TSN, March 7, 2002, p. 24). In other words, the request for reinvestigation
was not granted. x x x.10 (Emphasis supplied.)

Since the CIR failed to disprove the aforementioned findings of fact of the CTA which are borne by substantial evidence
on record, this Court is constrained to uphold them as binding and true. This is in consonance with our oft-cited ruling
that instructs this Court to not lightly set aside the conclusions reached by the CTA, which, by the very nature of its
functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the
subject unless there has been an abuse or improvident exercise of authority.11

Indeed, it is contradictory for the CIR to argue that respondent’s December 3, 1993 protest which contained a request
for reinvestigation was filed beyond the reglementary period but still claim that the same request for reinvestigation
was implicitly granted by virtue of its October 27, 2001 letter. We find no cogent reason to reverse the CTA when it ruled
that the prescriptive period for the CIR’s right to collect was not suspended under the circumstances of this case.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Tax Appeals (CTA) En Banc dated August 12,
2005 is AFFIRMED. No costs.

SO ORDERED.

K. PHILIPPINE JOURNALISTS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
 G.R. No. 162852 December 16, 2004

This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the Decision1 of the Court of
Appeals dated August 5, 2003,2 which ordered petitioner to pay the assessed tax liability of P111,291,214.46 and the
Resolution3 dated March 31, 2004 which denied the Motion for Reconsideration.

The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31, 1994
which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for the
year, petitioner paid the amount of P10,247,384.00.

On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of Authority
No. 871204 for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine petitioner’s
books of account and other accounting records for internal revenue taxes for the period January 1, 1994 to December
31, 1994.

From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and
compromise penalty in the following amounts:

Value Added Tax P 229,527.90

Income Tax 125,002,892.95

Withholding Tax 2,748,012.35

Total P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to send a representative
to an informal conference on September 15, 1997 for an opportunity to object and present documentary evidence
relative to the proposed assessment. On September 22, 1997, petitioner’s Comptroller, Lorenza Tolentino, executed a
"Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC)".5 The document "waive[d] the
running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and
consent[ed] to the assessment and collection of taxes which may be found due after the examination at any time after
the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until
the completion of the investigation".6

On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and
finding that petitioner had deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the Assessment
Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the investigation. Thus, BIR
Revenue Region No. 6, Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-000757-947 on
December 9, 1998 stating the following deficiency taxes, inclusive of interest and compromise penalty:

Income Tax P108,743,694.88

Value Added Tax 184,299.20

Expanded Withholding 2,363,220.38

Tax

Total P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S. Panganiban to the
petitioner to pay the assessment within ten (10) days from receipt of the letter. On November 10, 1999, a Final Notice
Before Seizure8 was issued by the same deputy commissioner giving the petitioner ten (10) days from receipt to pay.
Petitioner received a copy of the final notice on November 24, 1999. By letters dated November 26, 1999, petitioner
asked to be clarified how the tax liability of P111,291,214.46 was reached and requested an extension of thirty (30) days
from receipt of the clarification within which to reply.9

The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show receipt of Tax
Assessment/Demand No. 33-1-000757-94.10 Petitioner also contested that the assessment had no factual and legal basis.
On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-04611 signed by Deputy Commissioner Romeo
Panganiban for the BIR was received by the petitioner.

Petitioner filed a Petition for Review12 with the Court of Tax Appeals (CTA) which was amended on May 12, 2000.
Petitioner complains: (a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint
and/or levy was without factual and legal bases as its issuance was premature; (c) that the assessment, having been
made beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the warrant without being given
the opportunity to dispute the same violates its right to due process; and (e) that the grave prejudice that will be
sustained if the warrant is enforced is enough basis for the issuance of the writ of preliminary injunction.

On May 14, 2002, the CTA rendered its decision,13 to wit:

As to whether or not the assessment notices were received by the petitioner, this Court rules in the affirmative.

To disprove petitioner’s allegation of non-receipt of the aforesaid assessment notices, respondent presented a
certification issued by the Post Master of the Central Post Office, Manila to the effect that Registered Letter No.
76134 sent by the BIR, Region No. 6, Manila on December 15, 1998 addressed to Phil. Journalists, Inc. at Journal
Bldg., Railroad St., Manila was duly delivered to and received by a certain Alfonso Sanchez, Jr. (Authorized
Representative) on January 8, 1999. Respondent also showed proof that in claiming Registered Letter No. 76134,
Mr. Sanchez presented three identification cards, one of which is his company ID with herein petitioner.

However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on the petitioner is
another question. Since the subject assessments were issued beyond the three-year prescriptive period, it
becomes imperative on our part to rule first on the validity of the waiver allegedly executed on September 22,
1997, for if this court finds the same to be ineffective, then the assessments must necessarily fail.

After carefully examining the questioned Waiver of the Statute of Limitations, this Court considers the same to
be without any binding effect on the petitioner for the following reasons:

The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO No. 20-90, the
phrase indicating the expiry date of the period agreed upon to assess/collect the tax after the regular three-year
period of prescription should be filled up…

Secondly, the waiver failed to state the date of acceptance by the Bureau which under the aforequoted RMO
should likewise be indicated…

Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO No. 20-90, the waiver
must be executed in three (3) copies, the second copy of which is for the taxpayer. It is likewise required that
 the fact of receipt by the taxpayer of his/her file copy be indicated in the original copy. Again, respondent failed
to comply.

It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers. The said RMO even
provides that the procedures found therein should be strictly followed, under pain of being administratively
dealt with should non-compliance result to prescription of the right to assess/collect…

Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering from legal infirmities,
rendering the same invalid and ineffective, the Court finds Assessment/Demand No. 33-1-000757-94 issued on
December 5, 1998 to be time-barred. Consequently, the Warrant of Distraint and/or Levy issued pursuant
thereto is considered null and void.

WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, the
deficiency income, value-added and expanded withholding tax assessments issued by the respondent against
the petitioner on December 9, 1998, in the total amount of P111,291,214.46 for the year 1994 are hereby
declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise, Warrant of Distraint and/or
Levy No. 33-06-046 is hereby declared NULL and VOID.

SO ORDERED.14

After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the CTA in a Resolution
dated August 2, 2002, an appeal was filed with the Court of Appeals on August 12, 2002.

In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA, to wit:

… The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the proper remedy. Only
decisions of the BIR, denying the request for reconsideration or reinvestigation may be appealed to the CTA.
Mere assessment notices which have become final after the lapse of the thirty (30)-day reglementary period are
not appealable. Thus, the CTA should not have entertained the petition at all.

… [T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following reasons: (1) it does not
indicate a definite expiration date; (2) it does not state the date of acceptance by the BIR; and (3) Phil. Journalist,
the taxpayer, was not furnished a copy of the waiver. These grounds are merely formal in nature. The date of
acceptance by the BIR does not categorically appear in the document but it states at the bottom page that the
BIR "accepted and agreed to:"…, followed by the signature of the BIR’s authorized representative. Although the
date of acceptance was not stated, the document was dated 22 September 1997. This date could reasonably be
understood as the same date of acceptance by the BIR since a different date was not otherwise indicated. As to
the allegation that Phil. Journalists was not furnished a copy of the waiver, this requirement appears ridiculous.
Phil. Journalists, through its comptroller, Lorenza Tolentino, signed the waiver. Why would it need a copy of the
document it knowingly executed when the reason why copies are furnished to a party is to notify it of the
existence of a document, event or proceeding? …

As regards the need for a definite expiration date, this is the biggest flaw of the decision. The period of
prescription for the assessment of taxes may be extended provided that the extension be made in writing and
that it be made prior to the expiration of the period of prescription. These are the requirements for a valid
extension of the prescriptive period. To these requirements provided by law, the memorandum order adds that
the length of the extension be specified by indicating its expiration date. This requirement could be reasonably
construed from the rule on extension of the prescriptive period. But this requirement does not apply in the
instant case because what we have here is not an extension of the prescriptive period but a waiver thereof.
These are two (2) very different things. What Phil. Journalists executed was a renunciation of its right to invoke
the defense of prescription. This is a valid waiver. When one waives the prescriptive period, it is no longer
 necessary to indicate the length of the extension of the prescriptive period since the person waiving may no
longer use this defense.

WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are hereby SET ASIDE.
Respondent Phil. Journalists is ordered [to] pay its assessed tax liability of P111,291,214.46.

SO ORDERED.15

Petitioner’s Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence, this appeal on the
following assignment of errors:

I.

The Honorable Court of Appeals committed grave error in ruling that it is outside the jurisdiction of the Court of
Tax Appeals to entertain the Petition for Review filed by the herein Petitioner at the CTA despite the fact that
such case inevitably rests upon the validity of the issuance by the BIR of warrants of distraint and levy contrary
to the provisions of Section 7(1) of Republic Act No. 1125.

II.

The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the provisions of
Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of
the statute of limitations without stating the legal justification for such conclusion. Such ruling totally
disregarded the mandatory requirements of Section 222(b) of the Tax Code and its implementing regulation,
RMO No. 20-90 which are substantive in nature. The RMO provides that violation thereof subjects the erring
officer to administrative sanction. This directive shows that the RMO is not merely cover forms.

III.

The Honorable Court of Appeals gravely erred when it ruled that the assessment notices became final and
unappealable. The assessment issued is void and legally non-existent because the BIR has no power to issue an
assessment beyond the three-year prescriptive period where there is no valid and binding waiver of the statute
of limitation.

IV.

The Honorable Court of Appeals gravely erred when it held that the assessment in question has became final
and executory due to the failure of the Petitioner to protest the same. Respondent had no power to issue an
assessment beyond the three year period under the mandatory provisions of Section 203 of the NIRC. Such
assessment should be held void and non-existent, otherwise, Section 203, an expression of a public policy,
would be rendered useless and nugatory. Besides, such right to assess cannot be validly granted after three
years since it would arise from a violation of the mandatory provisions of Section 203 and would go against the
vested right of the Petitioner to claim prescription of assessment.

V.

The Honorable Court of Appeals committed grave error when it HELD valid a defective waiver by considering the
latter a waiver of the right to invoke the defense of prescription rather than an extension of the three year
period of prescription (to make an assessment) as provided under Section 222 in relation to Section 203 of the
Tax Code, an interpretation that is contrary to law, existing jurisprudence and outside of the purpose and intent
for which they were enacted.16

We find merit in the appeal.

The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court of Appeals ruled that
only decisions of the BIR denying a request for reconsideration or reinvestigation may be appealed to the CTA. Since the
petitioner did not file a request for reinvestigation or reconsideration within thirty (30) days, the assessment notices
became final and unappealable. The petitioner now argue that the case was brought to the CTA because the warrant of
distraint or levy was illegally issued and that no assessment was issued because it was based on an invalid waiver of the
statutes of limitations.

We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides for
the jurisdiction of that special court:

SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal,
as herein provided –

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal
Revenue; (Emphasis supplied).

The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal
Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise
out of the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is clear
and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and
to rule if the Waiver of Statute of Limitations was validly effected.

This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed assessment or a
claim for refund. In Pantoja v. David,17 we upheld the jurisdiction of the CTA to act on a petition to invalidate and annul
the distraint orders of the Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court of
Appeals,18 the decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus invalidating
the assessments issued by the BIR, was upheld by this Court.

The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on the
requisites of a valid waiver of the statute of limitations. The Court of Appeals held that the requirements and procedures
laid down in the RMO are only formal in nature and did not invalidate the waiver that was signed even if the
requirements were not strictly observed.

The NIRC, under Sections 203 and 222,19 provides for a statute of limitations on the assessment and collection of internal
revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.20 Unreasonable
investigation contemplates cases where the period for assessment extends indefinitely because this deprives the
taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time. As was held in Republic of the Phils. v. Ablaza:21

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the
making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of
taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment by unscrupulous tax
agents. The law on prescription being a remedial measure should be interpreted in a way conducive to
bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of
the Commission which recommend the approval of the law. (Emphasis supplied)
RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and
collection of taxes. A cursory reading of the Order supports petitioner’s argument that the RMO must be strictly
followed, thus:

In the execution of said waiver, the following procedures should be followed:

1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned but
there should be no deviation from such form. The phrase "but not after __________ 19___" should be filled
up…

2. …

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official
authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and
agreed to the waiver. The date of such acceptance by the Bureau should be indicated…

3. The following revenue officials are authorized to sign the waiver.

A. In the National Office

3. Commissioner For tax cases involving

more than P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still pending investigation and the
period to assess is about to prescribe regardless of amount.

5. The foregoing procedures shall be strictly followed. Any revenue official found not to have
complied with this Order resulting in prescription of the right to assess/collect shall be
administratively dealt with. (Emphasis supplied)22

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to
security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed.23 The
waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held
by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment
and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the
right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose
of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a
statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.24 RMO No. 20-90 explains the rationale of a waiver:

... The phrase "but not after _________ 19___" should be filled up. This indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular three-year period of prescription. The period agreed
upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the
ordinary prescriptive period. (Emphasis supplied)
As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on September 22, 1997 is
not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite
agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus,
petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC.

The waiver is also defective from the government side because it was signed only by a revenue district officer, not the
Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the
BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR
must be made by either the Commissioner or the Revenue District Officer. This case involves taxes amounting to more
than One Million Pesos (P1,000,000.00) and executed almost seven months before the expiration of the three-year
prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR.

The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers that were not signed by the
Commissioner but were argued to have been given implied consent by the BIR. We invalidated the subject waivers and
ruled:

Petitioner’s submission is inaccurate…

The Court of Appeals itself also passed upon the validity of the waivers executed by Carnation, observing thus:

We cannot go along with the petitioner’s theory. Section 319 of the Tax Code earlier quoted is clear and
explicit that the waiver of the five-year26 prescriptive period must be in writing and signed by both the
BIR Commissioner and the taxpayer.

Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner as
required by law.

We agree with the CTA in holding "these ‘waivers’ to be invalid and without any binding effect on
petitioner (Carnation) for the reason that there was no consent by the respondent (Commissioner of
Internal Revenue)."

For sure, no such written agreement concerning the said three waivers exists between the petitioner
and private respondent Carnation.

What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates
for its binding effect the concurrence of the Commissioner of Internal Revenue…. On this basis neither implied
consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is
one which is unilateral nor can it be said that concurrence to such an agreement is a mere formality because it
is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such
a valid agreement.27 (Emphasis supplied)

The other defect noted in this case is the date of acceptance which makes it difficult to fix with certainty if the waiver
was actually agreed before the expiration of the three-year prescriptive period. The Court of Appeals held that the date
of the execution of the waiver on September 22, 1997 could reasonably be understood as the same date of acceptance
by the BIR. Petitioner points out however that Revenue District Officer Sarmiento could not have accepted the waiver
yet because she was not the Revenue District Officer of RDO No. 33 on such date. Ms. Sarmiento’s transfer and
assignment to RDO No. 33 was only signed by the BIR Commissioner on January 16, 1998 as shown by the Revenue
Travel Assignment Order No. 14-98.28 The Court of Tax Appeals noted in its decision that it is unlikely as well that Ms.
Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials normally have to conduct first an
inventory of their pending papers and property responsibilities."29

Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver must
be executed in three copies with the second copy for the taxpayer. The Court of Appeals did not think this was
important because the petitioner need not have a copy of the document it knowingly executed. It stated that the reason
copies are furnished is for a party to be notified of the existence of a document, event or proceeding.

The flaw in the appellate court’s reasoning stems from its assumption that the waiver is a unilateral act of the taxpayer
when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner’s comptroller signed
the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is
compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the waiver accepted by the
BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of the agreement.

The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or
extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued
on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same manner, Warrant
of Distraint and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null and void for having been
issued pursuant to an invalid assessment.

WHEREFORE, premises considered, the instant petition for review is GRANTED. The Decision of the Court of Appeals
dated August 5, 2003 and its Resolution dated March 31, 2004 are REVERSED and SET ASIDE. The Decision of the Court
of Tax Appeals in CTA Case No. 6108 dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046 null
and void, is REINSTATED.

SO ORDERED.

L. THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS. LIBERTY M. TOLEDO, in her
capacity as the City Treasurer of Manila, Petitioners,
vs.
HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of the Regional Trial Court, Branch 112,
Pasay City; SM MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.; ACE
HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS., INC.; JOLLIMART PHILS., CORP.;
SURPLUS MARKETING CORPORATION and SIGNATURE LINES, Respondents.

G.R. No. 175723 February 4, 2014

Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court seeking to reverse and set aside
the Resolutions1 dated April 6, 2006 and November 29, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 87948.

The antecedents of the case, as summarized by the CA, are as follows:

The record shows that petitioner City of Manila, through its treasurer, petitioner Liberty Toledo, assessed taxes for the
taxable period from January to December 2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star
Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons Personal Care Stores Phils., Inc., Jollimart
Philippines Corp., Surplus Marketing Corp. and Signature Lines. In addition to the taxes purportedly due from private
respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of Manila (RRCM), said assessment covered
the local business taxes petitioners were authorized to collect under Section 21 of the same Code. Because payment of
the taxes assessed was a precondition for the issuance of their business permits, private respondents were constrained
to pay the ₱19,316,458.77 assessment under protest.
On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay City] the complaint denominated
as one for "Refund or Recovery of Illegally and/or Erroneously-Collected Local Business Tax, Prohibition with Prayer to
Issue TRO and Writ of Preliminary Injunction"

which was docketed as Civil Case No. 04-0019-CFM before public respondent's sala [at Branch 112]. In the amended
complaint they filed on February 16, 2004, private respondents alleged that, in relation to Section 21 thereof, Sections
14, 15, 16, 17, 18, 19 and 20 of the RRCM were violative of the limitations and guidelines under Section 143 (h) of
Republic Act. No. 7160 [Local Government Code] on double taxation. They further averred that petitioner city's
Ordinance No. 8011 which amended pertinent portions of the RRCM had already been declared to be illegal and
unconstitutional by the Department of Justice.2

In its Order3 dated July 9, 2004, the RTC granted private respondents' application for a writ of preliminary injunction.

Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its Order5 dated October 15, 2004.

Petitioners then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and October 15, 2004
Orders of the RTC.6

In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners' petition for certiorari holding that it has no
jurisdiction over the said petition. The CA ruled that since appellate jurisdiction over private respondents' complaint for
tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its expanded
jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the CTA.

Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its Resolution dated November 29, 2006.

Hence, the present petition raising the following issues:

I- Whether or not the Honorable Court of Appeals gravely erred in dismissing the case for lack of jurisdiction.

II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess
of jurisdiction in enjoining by issuing a Writ of Injunction the petitioners, their agents and/or authorized
representatives from implementing Section 21 of the Revised Revenue Code of Manila, as amended, against
private respondents.

III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or
excess of jurisdiction in issuing the Writ of Injunction despite failure of private respondents to make a written
claim for tax credit or refund with the City Treasurer of Manila.

IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or
excess of jurisdiction considering that under Section 21 of the Manila Revenue Code, as amended, they are mere
collecting agents of the City Government.

V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion amounting to lack or excess
of jurisdiction in issuing the Writ of Injunction because petitioner City of Manila and its constituents would result
to greater damage and prejudice thereof. (sic)8

Without first resolving the above issues, this Court finds that the instant petition should be denied for being moot and
academic.

Upon perusal of the original records of the instant case, this Court discovered that a Decision9 in the main case had
already been rendered by the RTC on August 13, 2007, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor of the plaintiff and against the
defendant to grant a tax refund or credit for taxes paid pursuant to Section 21 of the Revenue Code of the City of Manila
as amended for the year 2002 in the following amounts:

To plaintiff SM Mart, Inc. - P 11,462,525.02

To plaintiff SM Prime Holdings, Inc. - 3,118,104.63

To plaintiff Star Appliances Center - 2,152,316.54

To plaintiff Supervalue, Inc. - 1,362,750.34

To plaintiff Ace Hardware Phils., Inc. - 419,689.04

To plaintiff Watsons Personal Care Health - 231,453.62

Stores Phils., Inc.

To plaintiff Jollimart Phils., Corp. - 140,908.54

To plaintiff Surplus Marketing Corp. - 220,204.70

To plaintiff Signature Mktg. Corp. - 94,906.34

TOTAL: - P 19,316,458.77

Defendants are further enjoined from collecting taxes under Section 21, Revenue Code of Manila from herein plaintiff.

SO ORDERED.10

The parties did not inform the Court but based on the records, the above Decision had already become final and
executory per the Certificate of Finality11 issued by the same trial court on October 20, 2008. In fact, a Writ of
Execution12 was issued by the RTC on November 25, 2009. In view of the foregoing, it clearly appears that the issues
raised in the present petition, which merely involve the incident on the preliminary injunction issued by the RTC, have
already become moot and academic considering that the trial court, in its decision on the merits in the main case, has
already ruled in favor of respondents and that the same decision is now final and executory. Well entrenched is the rule
that where the issues have become moot and academic, there is no justiciable controversy, thereby rendering the
resolution of the same of no practical use or value.13

In any case, the Court finds it necessary to resolve the issue on jurisdiction raised by petitioners owing to its significance
and for future guidance of both bench and bar. It is a settled principle that courts will decide a question otherwise moot
and academic if it is capable of repetition, yet evading review.14

However, before proceeding, to resolve the question on jurisdiction, the Court deems it proper to likewise address a
procedural error which petitioners committed.

Petitioners availed of the wrong remedy when they filed the instant special civil action for certiorari under Rule 65 of the
Rules of Court in assailing the Resolutions of the CA which dismissed their petition filed with the said court and their
motion for reconsideration of such dismissal. There is no dispute that the assailed Resolutions of the CA are in the
nature of a final order as they disposed of the petition completely. It is settled that in cases where an assailed judgment
or order is considered final, the remedy of the aggrieved party is appeal. Hence, in the instant case, petitioner should
have filed a petition for review on certiorari under Rule 45, which is a continuation of the appellate process over the
original case.15
Petitioners should be reminded of the equally-settled rule that a special civil action for certiorari under Rule 65 is an
original or independent action based on grave abuse of discretion amounting to lack or excess of jurisdiction and it will
lie only if there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law.16 As such, it
cannot be a substitute for a lost appeal.17

Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and in the interest of substantial justice,
this Court has, before, treated a petition for certiorari as a petition for review on certiorari, particularly (1) if the petition
for certiorari was filed within the reglementary period within which to file a petition for review on certiorari; (2) when
errors of judgment are averred; and (3) when there is sufficient reason to justify the relaxation of the
rules.18 Considering that the present petition was filed within the 15-day reglementary period for filing a petition for
review on certiorari under Rule 45, that an error of judgment is averred, and because of the significance of the issue on
jurisdiction, the Court deems it proper and justified to relax the rules and, thus, treat the instant petition for certiorari as
a petition for review on certiorari.

Having disposed of the procedural aspect, we now turn to the central issue in this case. The basic question posed before
this Court is whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory
order issued by the RTC in a local tax case.

This Court rules in the affirmative.

On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA and giving to the said court
jurisdiction over the following:

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in
relation thereto; or other matters arising under the Customs Law or other law or part of law administered by the
Bureau of Customs; and

(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving the assessment and taxation
of real property or other matters arising under the Assessment Law, including rules and regulations relative
thereto.

On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125 by expanding
the jurisdiction of the CTA, enlarging its membership and elevating its rank to the level of a collegiate court with special
jurisdiction. Pertinent portions of the amendatory act provides thus:

Sec. 7. Jurisdiction. - The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial;
 3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the
Bureau of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals;

6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal
the decision to impose or not to impose said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is
less than One million pesos (₱1,000,000.00) or where there is no specified amount claimed shall be tried
by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules
of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action
separately from the criminal action will be recognized.

2. Exclusive appellate jurisdiction in criminal offenses:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by
them, in their respected territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in their respective jurisdiction.

c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for
taxes, fees, charges and penalties: Provides, however, that collection cases where the principal amount
of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos
(₱1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional
Trial Court.
 2. Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally
decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their
appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts, in their respective jurisdiction.19

A perusal of the above provisions would show that, while it is clearly stated that the CTA has exclusive appellate
jurisdiction over decisions, orders or resolutions of the RTCs in local tax cases originally decided or resolved by them in
the exercise of their original or appellate jurisdiction, there is no categorical statement under RA 1125 as well as the
amendatory RA 9282, which provides that th e CTA has jurisdiction over petitions for certiorari assailing interlocutory
orders issued by the RTC in local tax cases filed before it.

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction which
must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of appellate
jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v. De Jesus,22 Veloria v. COMELEC,23 Department of
Agrarian Reform Adjudication Board v. Lubrica,24 and Garcia v. Sandiganbayan,25 this Court has ruled against the
jurisdiction of courts or tribunals over petitions for certiorari on the ground that there is no law which expressly gives
these tribunals such power.26 It must be observed, however, that with the exception of Garcia v. Sandiganbayan,27 these
rulings pertain not to regular courts but to tribunals exercising quasi-judicial powers. With respect to the Sandiganbayan,
Republic Act No. 824928 now provides that the special criminal court has exclusive original jurisdiction over petitions for
the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus, injunctions, and other ancillary writs and
processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the
exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original
jurisdiction, the power to issue, among others, a writ of certiorari,whether or not in aid of its appellate jurisdiction. As to
Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original jurisdiction, is provided
under Section 21 of BP 129.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1, Article
VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes
that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the
tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari
in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to
issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not indispensable,
in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be considered as partial,
not total.
Consistent with the above pronouncement, this Court has held as early as the case of J.M. Tuason & Co., Inc. v. Jaramillo,
et al.29 that "if a case may be appealed to a particular court or judicial tribunal or body, then said court or judicial
tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate jurisdiction."30 This
principle was affirmed in De Jesus v. Court of Appeals,31 where the Court stated that "a court may issue a writ of
certiorari in aid of its appellate jurisdiction if said court has jurisdiction to review, by appeal or writ of error, the final
orders or decisions of the lower court."32 The rulings in J.M. Tuason and De Jesus were reiterated in the more recent
cases of Galang, Jr. v. Geronimo33 and Bulilis v. Nuez.34

Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when by law, jurisdiction is conferred on a
court or judicial officer, all auxiliary writs, processes and other means necessary to carry it into effect may be employed
by such court or officer.

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with the CA, this
Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically the
same subject matter – precisely the split-jurisdiction situation which is anathema to the orderly administration of
justice.35 The Court cannot accept that such was the legislative motive, especially considering that the law expressly
confers on the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial review
over local tax cases without mention of any other court that may exercise such power. Thus, the Court agrees with the
ruling of the CA that since appellate jurisdiction over private respondents' complaint for tax refund is vested in the CTA,
it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case should,
likewise, be filed with the same court. To rule otherwise would lead to an absurd situation where one court decides an
appeal in the main case while another court rules on an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split jurisdiction to
conclude that the intention of the law is to divide the authority over a local tax case filed with the RTC by giving to the
CA or this Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to the CTA the
jurisdiction over the appeal from the decision of the trial court in the same case. It is more in consonance with logic and
legal soundness to conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by the
RTC carries with it the power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction. The
supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate jurisdiction should co-exist
with, and be a complement to, its appellate jurisdiction to review, by appeal, the final orders and decisions of the RTC, in
order to have complete supervision over the acts of the latter.36

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to make
all orders that will preserve the subject of the action, and to give effect to the final determination of the appeal. It
carries with it the power to protect that jurisdiction and to make the decisions of the court thereunder effective. The
court, in aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the
efficient and proper exercise of that jurisdiction.1âwphi1 For this purpose, it may, when necessary, prohibit or restrain
the performance of any act which might interfere with the proper exercise of its rightful jurisdiction in cases pending
before it.37

Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should have powers
which are necessary to enable it to act effectively within such jurisdiction. These should be regarded as powers which
are inherent in its jurisdiction and the court must possess them in order to enforce its rules of practice and to suppress
any abuses of its process and to defeat any attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all the
inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction, in
addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the ordinary
and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as to
the due administration of justice; or are directly appropriate, convenient and suitable to the execution of their granted
powers; and include the power to maintain the court's jurisdiction and render it effective in behalf of the litigants.38

Thus, this Court has held that "while a court may be expressly granted the incidental powers necessary to effectuate its
jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual incidental
powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every regularly constituted
court has power to do all things that are reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates."39 Hence, demands, matters or questions ancillary
or incidental to, or growing out of, the main action, and coming within the above principles, may be taken cognizance of
by the court and determined, since such jurisdiction is in aid of its authority over the principal matter, even though the
court may thus be called on to consider and decide matters which, as original causes of action, would not be within its
cognizance.40

Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the CTA to take cognizance of
petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in the powers
granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction.

Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasi-judicial tribunals are
concerned, the authority to issue writs of certiorari must still be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of their appellate jurisdiction. This doctrine remains as it applies only to
quasi-judicial bodies.

WHEREFORE, the petition is DENIED.

SO ORDERED.

M. COMMISSION OF INTERNAL REVENUE, Petitioner,

vs.
COURT OF TAX APPEALS (SECOND DIVISION) and PETRON CORPORATION,* Respondents.

G.R. No. 207843 July 15, 2015

Assailed in this petition for certiorari1 are the Resolutions dated February 13, 20132 and May 8, 20133 of the Court of Tax
Appeals, Second Division (CTA) in CTA Case No. 8544 reversing and setting aside the earlier dismissal of the petition for
review filed by private respondent Petron Corporation (Petron) in the said case on the bases of prematurity and lack of
jurisdiction.

The Facts

Petron, which is engaged in the manufacture and marketing of petroleum products, imports alkylate as a raw material or
blending component for the manufacture of ethanol-blended motor gasoline.4 For the period January 2009 to August
2011, as well as for the month of April 2012, Petron transacted an aggregate of 22 separate importations for which
petitioner the Commissioner of Internal Revenue (CIR) issued Authorities to Release Imported Goods (ATRIGs),
categorically stating that Petron's importation of alkylate is exempt from the payment of the excise tax because it was
not among those articles enumerated as subject to excise tax under Title VI of Republic Act No. (RA) 8424,5 as amended,
or the 1997 National Internal Revenue Code (NIRC). With respect, however, to Petron's alkylate importations covering
the period September 2011 to June 2012 (excluding April 2012), the CIR inserted, without prior notice, a reservation for
all ATRIGs issued,6 stating that:

This is without prejudice to the collection of the corresponding excise taxes, penalties and interest depending on the
final resolution of the Office of the Commissioner on the issue of whether this item is subject to the excise taxes under
the National Internal Revenue Code of 1997, as amended.7
In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added tax (VAT) in the total amount of
?41,657,533.00 as evidenced by Import Entry and Internal Revenue Declaration (IEIRD) No. SN 122406532. Based on the
Final Computation, said importation was subjected by the Collector of Customs of Port Limay, Bataan, upon instructions
of the Commissioner of Customs (COC), to excise taxes of ₱4.35 per liter, or in the aggregate amount of ₱55,691,571.00,
and consequently, to an additional VAT of 12% on the imposed excise tax in the amount of ₱6,682,989.00.8 The
imposition of the excise tax was supposedly premised on Customs Memorandum Circular (CMC) No. 164-2012 dated July
18, 2012, implementing the Letter dated June 29, 2012 issued by the CIR, which states that:

[A]lkylate which is a product of distillation similar to that of naphta, is subject to excise tax under Section 148( e) of the
National Internal Revenue Code (NIRC) of 1997. 9

In view of the CIR's assessment, Petron filed before the CTA a petition for review,10 docketed as CTA Case No. 8544,
raising the issue of whether its importation of alkylate as a blending component is subject to excise tax as contemplated
under Section 148 (e) of the NIRC.

On October 5, 2012, the CIR filed a motion to dismiss on the grounds of lack of jurisdiction and prematurity.11

Initially, in a Resolution12 dated November 15, 2012, the CTA granted the CIR's motion and dismissed the case. However,
on Petron's motion for reconsideration,13 it reversed its earlier disposition in a Resolution14 dated February 13, 2013,
and eventually denied the CIR's motion for reconsideration15 therefrom in a Resolution16 dated May 8, 2013. In effect,
the CTA gave due course to Petron's petition, finding that: (a) the controversy was not essentially for the determination
of the constitutionality, legality or validity of a law, rule or regulation but a question on the propriety or soundness of
the CIR's interpretation of Section 148 (e) of the NIRC which falls within the exclusive jurisdiction of the CTA under
Section 4 thereof, particularly under the phrase "other matters arising under [the NIRC]";17 and (b) there are attending
circumstances that exempt the case from the rule on non-exhaustion of administrative remedies, such as the great
irreparable damage that may be suffered by Petron from the CIR's final assessment of excise tax on its importation.18

Aggrieved, the CIR sought immediate recourse to the Court, through the instant petition, alleging that the CTA
committed grave abuse of discretion when it assumed authority to take cognizance of the case despite its lack of
jurisdiction to do so.19

The Issue Before the Court

The core issue to be resolved is whether or not the CTA properly assumed jurisdiction over the petition assailing the
imposition of excise tax on Petron's importation of alkylate based on Section 148 (e) of the NIRC.

The Court's Ruling

The petition is meritorious.

The CIR asserts that the interpretation of the subject tax provision, i.e., Section 148 (e) of the NIRC, embodied in CMC
No. 164-2012, is an exercise of her quasi-legislative function which is reviewable by the Secretary of Finance, whose
decision, in turn, is appealable to the Office of

the President and, ultimately, to the regular courts, and that only her quasi-judicial functions or the authority to decide
disputed assessments, refunds, penalties and the like are subject to the exclusive appellate jurisdiction of the CTA.20 She
likewise contends that the petition suffers from prematurity due to Petron 's failure to exhaust all available remedies
within the administrative level in accordance with the Tariff and Customs Code (TCC).21

The CIR's position is well-grounded.

Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax laws in the exercise of her quasi-
legislative function; and (b) the power to decide tax cases in the exercise of her quasi-judicial function. It also delineates
the jurisdictional authority to review the validity of the CIR's exercise of the said powers, thus:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals. (Emphases and underscoring supplied)

The CTA is a court of special jurisdiction, with power to review by appeal decisions involving tax disputes rendered by
either the CIR or the COC.1âwphi1 Conversely, it has no jurisdiction to determine the validity of a ruling issued by the
CIR or the COC in the exercise of their quasi-legislative powers to interpret tax laws. These observations may be deduced
from a reading of Section 7 of RA 1125,22 as amended by RA 9282,23 entitled "An Act Creating the Court of Tax Appeals,"
enumerating the cases over which the CT A may exercise its jurisdiction:

Sec. 7. Jurisdiction. -The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial;

3. Decisions, orders or resolutions of the Regional Trial Comis in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the
Bureau of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals;

6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and
 Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal
the decision to impose or not to impose said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is
less than One million pesos (₱1,000,000.00) or where there is no specified amount claimed shall be tried
by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules
of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CT A, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action
separately from the criminal action will be recognized.

2. Exclusive appellate jurisdiction in criminal offenses:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
cases originally decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts
in the exercise of their appellate jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their
respective jurisdiction.

c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees,
charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than One million pesos (₱1,000,000.00) shall be tried by the
proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.

2. Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection
cases originally decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.
(Emphasis supplied)

In this case, Petron's tax liability was premised on the COC's issuance of CMC No. 164-2012, which gave effect to the
CIR's June 29, 2012 Letter interpreting Section 148 (e) of the NIRC as to include alkyl ate among the articles subject to
customs duties, hence, Petron's petition before the CTA ultimately challenging the legality and constitutionality of the
CIR's aforesaid interpretation of a tax provision. In line with the foregoing discussion, however, the CIR correctly argues
that the CT A had no jurisdiction to take cognizance of the petition as its resolution would necessarily involve a
declaration of the validity or constitutionality of the CIR's interpretation of Section 148 (e) of the NIRC, which is subject
to the exclusive review by the Secretary of Finance and ultimately by the regular courts. In British American Tobacco v.
Camacho,24 the Court ruled that the CTA's jurisdiction to resolve tax disputes excludes the power to rule on the
constitutionality or validity of a law, rule or regulation, to wit:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases
where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a
law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the same. x x x.25

In asserting its jurisdiction over the present case, the CTA explained that Petron's petition filed before it "simply puts in
question" the propriety or soundness of the CIR's interpretation and application of Section 148 (e) of the NIRC (as
embodied in CMC No. 164-2012) "in relation to" the imposition of excise tax on Petron's importation of alkylate; thus,
the CTA posits that the case should be regarded as "other matters arising under [the NIRC]" under the second paragraph
of Section 4 of the NIRC, therefore falling within the CTA's jurisdiction:26

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals. (Emphases and underscoring supplied)

The Court disagrees.

As the CIR aptly pointed out, the phrase "other matters arising under this Code," as stated in the second paragraph of
Section 4 of the NIRC, should be understood as pertaining to those matters directly related to the preceding phrase
"disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto"
and must therefore not be taken in isolation to invoke the jurisdiction of the CTA.27 In other words, the subject phrase
should be used only in reference to cases that are, to begin with, subject to the exclusive appellate jurisdiction of the
CTA, i.e., those controversies over which the CIR had exercised her quasi-judicial functions or her power to decide
disputed assessments, refunds or internal revenue taxes, fees or other charges, penalties imposed in relation thereto,
not to those that involved the CIR's exercise of quasi-legislative powers.

In Enrile v. Court of Appeals,28 the Court, applying the statutory construction principle of ejusdem generis,29 explained
the import of using the general clause "other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs" in the enumeration of cases subject to the exclusive appellate jurisdiction of
the CTA, saying that: [T]he 'other matters' that may come under the general clause should be of the same nature as
those that have preceded them applying the rule of construction known as ejusdem generis.30 (Emphasis and
underscoring supplied)

Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-legislative functions, the proper
recourse against the subject tax ruling expressed in CMC No. 164-2012 is a review by the Secretary of Finance and
ultimately the regular courts. In Commissioner of Customs v. Hypermix Feeds Corporation,31 the Court has held that:

The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or
the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial
review or the power to declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial
power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the
political departments. x x x.32

Besides, Petron prematurely invoked the jurisdiction of the CT A. Under Section 7 of RA 1125, as amended by RA 9282,
what is appealable to the CT A is the decision of the COC over a customs collector's adverse ruling on a taxpayer's
protest:
SEC. 7. Jurisdiction. -The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue;

xxxx

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges,
seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other
matters arising under the Customs Law or other laws administered by the Bureau of Customs;

xxxx

Section 11 of the same law is no less categorical in stating that what may be the subject of an appeal to the CT A is a
decision, ruling or inaction of the CIR or the COC, among others:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary
of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

xxxx

In this case, there was even no tax assessment to speak of. While customs collector Federico Bulanhagui himself
admitted during the CTA's November 8, 2012 hearing that the computation he had written at the back page of the IEIRD
served as the final assessment imposing excise tax on Petron's importation of alkylate,33 the Court concurs with the CIR's
stance that the subject IEIRD was not yet the customs collector's final assessment that could be the proper subject of
review. And even if it were, the same should have been brought first for review before the COC and not directly to the
CTA. It should be stressed that the CTA has no jurisdiction to review by appeal, decisions of the customs collector.34 The
TCC prescribes that a party adversely affected by a ruling or decision of the customs collector may protest such ruling or
decision upon payment of the amount due35 and, if aggrieved by the action of the customs collector on the matter under
protest, may have the same reviewed by the COC.36 It is only after the COC shall have made an adverse ruling on the
matter may the aggrieved party file an

appeal to the CT A.37

Notably, Petron admitted to not having filed a protest of the assessment before the customs collector and elevating a
possible adverse ruling therein to the COC, reasoning that such a procedure would be costly and impractical, and would
unjustly delay the resolution of the issues which, being purely legal in nature anyway, were also beyond the authority of
the customs collector to resolve with finality.38 This admission is at once decisive of the issue of the CTA's jurisdiction
over the petition. There being no protest ruling by the customs collector that was appealed to the COC, the filing of the
petition before the CTA was premature as there was nothing yet to review.39

Verily, the fact that there is no decision by the COC to appeal from highlights Petron's failure to exhaust administrative
remedies prescribed by law. Before a party is allowed to seek the intervention of the courts, it is a pre-condition that he
avail of all administrative processes afforded him, such that if a remedy within the administrative machinery can be
resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his
jurisdiction, then such remedy must be exhausted first before the court's power of judicial review can be sought,
otherwise, the premature resort to the court is fatal to one's cause of action.40 While there are exceptions to the
principle of exhaustion of administrative remedies, it has not been sufficiently shown that the present case falls under
any of the exceptions.

WHEREFORE, the petition is GRANTED. The Resolutions dated February 13, 2013 and May 8, 2013 of the Court of Tax
Appeals (CTA), Second Division in CTA Case No. 8544 are hereby REVERSED and SET ASIDE. The petition for review filed
by private respondent Petron Corporation before the CTA is DISMISSED for lack of jurisdiction and prematurity.

SO ORDERED.

N. BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING CORPORATION, METROPOLITAN BANK & TRUST
COMPANY, PHILIPPINE BANK OF COMMUNICATIONS, PHILIPPINE NATIONAL BANK, PHILIPPINE VETERANS
BANK, AND PLANTERS DEVELOPMENT BANK, Petitioners,

RIZAL COMMERCIAL BANKING CORPORATION AND RCBC CAPITAL CORPORATION, Petitioners-Intervenors,

CAUCUS OF DEVELOPMENT NGO NETWORKS, Petitioner-Intervenor, v. REPUBLIC OF THE PHILIPPINES,

COMMISSIONER OF INTERNAL REVENUE, BUREAU OF INTERNAL REVENUE, SECRETARY OF FINANCE,
DEPARTMENT OF FINANCE, THE NATIONAL TREASURER, AND BUREAU OF TREASURY, Respondents.

G.R. No. 198756, August 16, 2016

This resolves separate motions for reconsideration and clarification filed by the Office of the Solicitor General1 and
petitioners-intervenors Rizal Commercial Banking Corporation and RCBC Capital Corporation2 of our Decision dated
January 13, 2015, which: (1) granted the Petition and Petitions-in-Intervention and nullified Bureau of Internal Revenue
(BIR) Ruling Nos. 370-2011 and DA 378-2011; and (2) reprimanded the Bureau of Treasury for its continued retention of
the amount corresponding to the 20% final withholding tax that it withheld on October 18, 2011, and ordered it to release
the withheld amount to the bondholders.

In the notice to all Government Securities Eligible Dealers (GSEDs) entitled Public Offering of Treasury Bonds3 (Public
Offering) dated October 9, 2001, the Bureau of Treasury announced that "P30.0 [billion] worth of 10-year Zero[-]Coupon
Bonds [would] be auctioned on October 16, 2001[.]"4 It stated that "the issue being limited to 19 lenders and while taxable
shall not be subject to the 20% final withholding [tax]."5chanrobleslaw

On October 12, 2001, the Bureau of Treasury released a memo on the Formula for the Zero-Coupon Bond.6 The memo
stated in part that the formula, in determining the purchase price and settlement amount, "is only applicable to the zeroes
that are not subject to the 20% final withholding due to the 19 buyer/lender limit." 7chanrobleslaw

On October 15, 2001, one (1) day before the auction date, the Bureau of Treasury issued the Auction Guidelines for the
10-year Zero-Coupon Treasury Bond to be Issued on October 16, 2001 (Auction Guidelines).8 The Auction Guidelines
reiterated that the Bonds to be auctioned are "[n]ot subject to 20% withholding tax as the issue will be limited to a
maximum of 19 lenders in the primary market (pursuant to BIR Revenue Regulation No. 020 2001)."9chanrobleslaw

At the auction held on October 16, 2001, Rizal Commercial Banking Corporation (RCBC) participated on behalf of Caucus
of Development NGO Networks (CODE-NGO) and won the bid.10 Accordingly, on October 18, 2001, the Bureau of Treasury
issued P35 billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for approximately P10.17 billion,11 resulting in a
discount of approximately P24.83 billion.

Likewise, on October 16, 2001, RCBC Capital entered into an underwriting agreement12 with CODE-NGO, where RCBC
Capital was appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe Bonds. 13 RCBC Capital
agreed to underwrite14 on a firm basis the offering, distribution, and sale of the P35 billion Bonds at the price of
P11,995,513,716.51.15 In Section 7(r) of the underwriting agreement, CODE-NGO represented that "[a]ll income derived
from the Bonds, inclusive of premium on redemption and gains on the trading of the same, are exempt from all forms of
taxation as confirmed by [the] Bureau of Internal Revenue . . . letter rulings dated 31 May 2001 and 16 August 2001,
respectively."16chanrobleslaw

RCBC Capital sold and distributed the Government Bonds for an issue price of P11,995,513,716.51.17 Banco de Oro, et al.
purchased the PEACe Bonds on different dates.18chanrobleslaw

On October 7, 2011, barely 11 days before maturity of the PEACe Bonds, the Commissioner of Internal Revenue issued BIR
Ruling No. 370-201119 declaring that the PEACe Bonds, being deposit substitutes, were subject to 20% final withholding
tax.20 Under this ruling, the Secretary of Finance directed the Bureau of Treasury to withhold a 20% final tax from the face
value of the PEACe Bonds upon their payment at maturity on October 18, 2011.21chanrobleslaw

On October 17, 2011, replying to an urgent query from the Bureau of Treasury, the Bureau of Internal Revenue issued BIR
Ruling No. DA 378-201122 clarifying that the final withholding tax due on the discount or interest earned on the PEACe
Bonds should "be imposed and withheld not only on RCBC/CODE NGO but also [on] 'all subsequent holders of the
Bonds.'"23chanrobleslaw

On October 17, 2011, petitioners filed before this Court a Petition for Certiorari, Prohibition, and/or Mandamus (with
urgent application for a temporary restraining order and/or writ of preliminary injunction).24chanrobleslaw

On October 18, 2011, this Court issued a temporary restraining order25cralawred "enjoining the implementation of BIR
Ruling No. 370-2011 against the [PEACe Bonds,] . . . subject to the condition that the 20% final withholding tax on interest
income therefrom shall be withheld by the petitioner banks and placed in escrow pending resolution of [the]
petition."26chanrobleslaw

RCBC and RCBC Capital, as well as CODE-NGO separately moved for leave of court to intervene and to admit the Petition-
in-Intervention. The Motions were granted by this Court.27chanrobleslaw

Meanwhile, on November 9, 2011, petitioners filed their Manifestation with Urgent Ex Parte Motion to Direct Respondents
to Comply with the TRO.28chanrobleslaw

On November 15, 2011, this Court directed respondents to: "(1) show cause why they failed to comply with the October
18, 2011 resolution; and (2) comply with the Court's resolution in order that petitioners may place the corresponding
funds in escrow pending resolution of the petition."29chanrobleslaw

On December 6, 2011, this Court noted respondents' compliance.30chanrobleslaw

On November 27, 2012, petitioners filed their Manifestation with Urgent Reiterative Motion [To Direct Respondents to
Comply with the Temporary Restraining Order].31chanrobleslaw

On December 4, 2012, this Court noted petitioners' Manifestation with Urgent Reiterative Motion and required
respondents to comment.32chanrobleslaw

Respondents filed their Comment,33 to which petitioners filed the Reply.34chanrobleslaw

On January 13, 2015, this Court promulgated the Decision35 granting the Petition and the Petitions-in-Intervention.
Applying Section 22(Y) of the National Internal Revenue Code, we held that the number of lenders/investors at every
transaction is determinative of whether a debt instrument is a deposit substitute subject to 20% final withholding tax.
When at any transaction, funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be a
public borrowing and the bonds at that point in time are deemed deposit substitutes. Consequently, the seller is required
to withhold the 20% final withholding tax on the imputed interest income from the bonds. We further declared void BIR
Rulings Nos. 370-2011 and DA 378-2011 for having disregarded the 20-lender rule provided in Section 22(Y). The Decision
disposed as follows:ChanRoblesVirtualawlibrary
WHEREFORE, the petition for review and petitions-in-intervention are GRANTED. BIR Ruling Nos. 370-2011 and DA 378-
2011 are NULLIFIED.

Furthermore, respondent Bureau of Treasury is REPRIMANDED for its continued retention of the amount corresponding
to the 20% final withholding tax despite this court's directive in the temporary restraining order and in the resolution
dated November 15, 2011 to deliver the amounts to the banks to be placed in escrow pending resolution of this case.

Respondent Bureau of Treasury is hereby ORDERED to immediately release and pay to the bondholders the amount
corresponding to the 20% final withholding tax that it withheld on October 18, 2011.36chanroblesvirtuallawlibrary
On March 13, 2015, respondents filed by registered mail their Motion for Reconsideration and
Clarification.37chanrobleslaw

On March 16, 2015, petitioners-intervenors RCBC and RCBC Capital moved for clarification and/or partial
reconsideration.38chanrobleslaw

On July 6, 2015, petitioners Banco de Oro, et al. filed their Consolidated Comment39 on respondents' Motion for
Reconsideration and Clarification and petitioners-intervenors RCBC and RCBC Capital Corporation's Motion for
Clarification and/or Partial Reconsideration.

On October 29, 2015, petitioners Banco de Oro, et al. filed their Urgent Reiterative Motion [to Direct Respondents to
Comply with the Temporary Restraining Order].40chanrobleslaw

The issues raised in the motions revolve around the following:

chanRoblesvirtualLawlibraryFirst, the proper interpretation and application of the 20-lender rule under Section 22(Y) of
the National Internal Revenue Code, particularly in relation to issuances of government debt instruments;

Second, whether the seller in the secondary market can be the proper withholding agent of the final withholding tax due
on the yield or interest income derived from government debt instruments considered as deposit substitutes;

Third, assuming the PEACe Bonds are considered "deposit substitutes," whether government or the Bureau of Internal
Revenue is estopped from imposing and/or collecting the 20% final withholding tax from the face value of these Bonds.
Further:

chanRoblesvirtualLawlibrary
(a) Will the imposition of the 20% final withholding tax violate the non-impairment clause of the Constitution?

(b) Will it constitute a deprivation of property without due process of law?

Lastly, whether the respondent Bureau of Treasury is liable to pay 6% legal interest.

Before going into the substance of the motions for reconsideration, we find it necessary to clarify on the procedural
aspects of this case. This is with special emphasis on the jurisdiction of the Court of Tax Appeals in view of the previous
conflicting rulings of this Court.

Earlier, respondents questioned the propriety of petitioners' direct resort to this Court. They argued that petitioners
should have challenged first the 2011 Bureau of Internal Revenue rulings before the Secretary of Finance, consistent
with the doctrine on exhaustion of administrative remedies.

In the assailed Decision, we agreed that interpretative rulings of the Bureau of Internal Revenue are reviewable by the
Secretary of Finance under Section 441 of the National Internal Revenue Code. However, we held that because of the
special circumstances availing in this case—namely: the question involved is purely legal; the urgency of judicial
intervention given the impending maturity of the PEACe Bonds; and the futility of an appeal to the Secretary of Finance
as the latter appeared to have adopted the challenged Bureau of Internal Revenue rulings—there was no need for
petitioners to exhaust all administrative remedies before seeking judicial relief.

We also stated that:ChanRoblesVirtualawlibrary

[T]he jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals. The
questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection with the implementation of the 1997
National Internal Revenue Code on the taxability of the interest income from zero-coupon bonds issued by the
government.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No. 9282, such
rulings of the Commissioner of Internal Revenue are appealable to that court, thus:

chanRoblesvirtualLawlibrarySEC. 7. Jurisdiction. - The CTA shall exercise:ChanRoblesVirtualawlibrary

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,

refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or
other matters arising under the National Internal Revenue or other laws administered by the
Bureau of Internal Revenue;

. . . .

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction
of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade
and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may
file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the
period fixed by law for action as referred to in Section 7(a)(2) herein.

. . . .

SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matters arising under the National
Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein
provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the
provisions of this Act.
In Commissioner of Internal Revenue v. Leal, citing Rodriguez v. Blaquera, this court emphasized the jurisdiction of the
Court of Tax Appeals over rulings of the Bureau of Internal Revenue, thus:ChanRoblesVirtualawlibrary
While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be stressed that the
jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to the
RTC.

The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the
Tax Code on the taxability of pawnshops.
. . .

. . . .
Such revenue orders were issued pursuant to petitioner's powers under Section 245 of the Tax Code, which
states:ChanRoblesVirtualawlibrary
"SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. — The Secretary of Finance, upon
recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement
of the provisions of this Code.

The authority of the Secretary of Finance to determine articles similar or analogous to those subject to a rate of sales tax
under certain category enumerated in Section 163 and 165 of this Code shall be without prejudice to the power of the
Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws, including ruling on the classification of articles of sales and similar purposes."

....
The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled:ChanRoblesVirtualawlibrary
"Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal Revenue, but merely an attempt to
nullify General Circular No. V-148, which does not adjudicate or settle any controversy, and that, accordingly, this case is
not within the jurisdiction of the Court of Tax Appeals.

We find no merit in this pretense. General Circular No. V-148 directs the officers charged with the collection of taxes and
license fees to adhere strictly to the interpretation given by the defendant to the statutory provisions abovementioned,
as set forth in the Circular. The same incorporates, therefore, a decision of the Collector of Internal Revenue (now
Commissioner of Internal Revenue) on the manner of enforcement of the said statute, the administration of which is
entrusted by law to the Bureau of Internal Revenue. As such, it comes within the purview of Republic Act No. 1125, Section
7 of which provides that the Court of Tax Appeals 'shall exercise exclusive appellate jurisdiction to review by appeal . . .
decisions of the Collector of Internal Revenue in . . . matters arising under the National Internal Revenue Code or other
law or part of the law administered by the Bureau of Internal Revenue.'"42chanroblesvirtuallawlibrary
In Commissioner of Internal Revenue v. Leal,43 the Commissioner issued Revenue Memorandum Order (RMO) No. 15-91
imposing 5% lending investors tax on pawnshops, and Revenue Memorandum Circular (RMC) No. 43-91 subjecting the
pawn ticket to documentary stamp tax.44 Leal, a pawnshop owner and operator, asked for reconsideration of the
revenue orders, but it was denied by the Commissioner in BIR Ruling No. 221-91.45 Thus, Leal filed before the Regional
Trial Court a petition for prohibition seeking to prohibit the Commissioner from implementing the revenue orders.46 This
Court held that Leal should have filed her petition for prohibition before the Court of Tax Appeals, not the Regional Trial
Court, because "the questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner
implementing the Tax Code on the taxability of pawnshops."47 This Court held that such rulings in connection with the
implementation of internal revenue laws are appealable to the Court of Tax Appeals under Republic Act No. 1125, as
amended.48chanrobleslaw

Likewise, in Asia International Auctioneers, Inc. v. Hon. Parayno, Jr.,49 this Court upheld the jurisdiction of the Court of
Tax Appeals over the Regional Trial Courts, on the issue of the validity of revenue memorandum circulars.50 It explained
that "the assailed revenue regulations and revenue memorandum circulars [were] actually rulings or opinions of the
[Commissioner of Internal Revenue] on the tax treatment of motor vehicles sold at public auction within the [Subic
Special Economic Zone] to implement Section 12 of [Republic Act] No. 7227." This Court further held that the taxpayers'
invocation of this Court's intervention was premature for its failure to first ask the Commissioner of Internal Revenue for
reconsideration of the assailed revenue regulations and revenue memorandum circulars.

However, a few months after the promulgation of Asia International Auctioneers, British American Tobacco v.
Camacho51 pointed out that although Section 7 of Republic Act No. 1125, as amended, confers on the Court of Tax
Appeals jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or
rule is challenged. Thus:ChanRoblesVirtualawlibrary

The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282.
Section 7 thereof states, in pertinent part:
chanRoblesvirtualLawlibrary. . . .

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases
where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a
law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued
by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed,
the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial
courts. This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

In Drilon v. Lim, it was held:ChanRoblesVirtualawlibrary

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority
being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the
criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over
all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal
action has the right to question in his defense the constitutionality of a law he is charged with violating and of the
proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the
Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases
in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.
The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of
the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC limited the resolution of
the subject case to the issue of the constitutionality of the assailed provisions. The determination of whether the assailed
law and its implementing rules and regulations contravene the Constitution is within the jurisdiction of regular courts. The
Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. Petitioner,
therefore, properly filed the subject case before the RTC.52 (Citations omitted)
British American Tobacco involved the validity of: (1) Section 145 of Republic Act No. 8424; (2) Republic Act No. 9334,
which further amended Section 145 of the National Internal Revenue Code on January 1, 2005; (3) Revenue Regulations
Nos. 1-97, 9-2003, and 22-2003; and (4) RMO No. 6-2003.53chanrobleslaw

A similar ruling was made in Commissioner of Customs v. Hypermix Feeds Corporation.54 Central to the case was Customs
Memorandum Order (CMO) No. 27-2003 issued by the Commissioner of Customs. This issuance provided for the
classification of wheat for tariff purposes. In anticipation of the implementation of the CMO, Hypermix filed a Petition
for Declaratory Relief before the Regional Trial Court. Hypermix claimed that said CMO was issued without observing the
provisions of the Revised Administrative Code; was confiscatory; and violated the equal protection clause of the 1987
Constitution.55 The Commissioner of Customs moved to dismiss on the ground of lack of jurisdiction.56 On the issue
regarding declaratory relief, this Court ruled that the petition filed by Hypermix had complied with all the requisites for
an action of declaratory relief to prosper. Moreover:ChanRoblesVirtualawlibrary

Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial
courts. This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments.57chanroblesvirtuallawlibrary
We revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc. The Court of Tax Appeals has
exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other
administrative issuances of the Commissioner of Internal Revenue.

Article VIII, Section 1 of the 1987 Constitution provides the general definition of judicial
power:ChanRoblesVirtualawlibrary

ARTICLE VIII
JUDICIAL DEPARTMENT

Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)
Based on this constitutional provision, this Court recognized, for the first time, in The City of Manila v. Hon. Grecia-
Cuerdo,58 the Court of Tax Appeals' jurisdiction over petitions for certiorari assailing interlocutory orders issued by the
Regional Trial Court in a local tax case. Thus:ChanRoblesVirtualawlibrary

[W]hile there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987 Constitution
provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such lower courts as may be
established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes that
of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court.
It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these
cases.59 (Emphasis in the original)
This Court further explained that the Court of Tax Appeals' authority to issue writs of certiorari is inherent in the exercise
of its appellate jurisdiction:ChanRoblesVirtualawlibrary

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to make
all orders that will preserve the subject of the action, and to give effect to the final determination of the appeal. It carries
with it the power to protect that jurisdiction and to make the decisions of the court thereunder effective. The court, in aid
of its appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the efficient and
proper exercise of that jurisdiction. For this purpose, it may, when necessary, prohibit or restrain the performance of any
act which might interfere with the proper exercise of its rightful jurisdiction in cases pending before it.

Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should have powers
which are necessary to enable it to act effectively within such jurisdiction. These should be regarded as powers which are
inherent in its jurisdiction and the court must possess them in order to enforce its rules of practice and to suppress any
abuses of its process and to defeat any attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all the inherent
powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction, in
addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the ordinary
and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as to the
due administration of justice; or are directly appropriate, convenient and suitable to the execution of their granted
powers; and include the power to maintain the court's jurisdiction and render it effective in behalf of the litigants.
Thus, this Court has held that "while a court may be expressly granted the incidental powers necessary to effectuate its
jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual incidental
powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every regularly constituted
court has power to do all things that are reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates." Hence, demands, matters or questions ancillary or
incidental to, or growing out of, the main action, and coming within the above principles, may be taken cognizance of by
the court and determined, since such jurisdiction is in aid of its authority over the principal matter, even though the court
may thus be called on to consider and decide matters which, as original causes of action, would not be within its
cognizance.60 (Citations omitted)
Judicial power likewise authorizes lower courts to determine the constitutionality or validity of a law or regulation in the
first instance.61 This is contemplated in the Constitution when it speaks of appellate review of final judgments of inferior
courts in cases where such constitutionality is in issue.62chanrobleslaw

On, June 16, 1954, Republic Act No. 1125 created the Court, of Tax Appeals not as another superior administrative
agency as was its predecessor—the former Board of Tax Appeals—but as a part of the judicial system63 with exclusive
jurisdiction to act on appeals from:ChanRoblesVirtualawlibrary

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in
relation thereto; or other matters arising under the Customs Law or other law or part of law administered by
the Bureau of Customs; and

(3) Decisions of provincial or city Boards of Assessment Appeals in cases involving the assessment and taxation of
real property or other matters arising under the Assessment Law, including rules and regulations relative
thereto.
Republic Act No. 1125 transferred to the Court of Tax Appeals jurisdiction over all matters involving assessments that
were previously cognizable by the Regional Trial Courts (then courts of first instance).64chanrobleslaw

In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of Tax Appeals and elevated its
rank to the level of a collegiate court with special jurisdiction. Section 1 specifically provides that the Court of Tax
Appeals is of the same level as the Court of Appeals and possesses "all the inherent powers of a Court of
Justice."65chanrobleslaw

Section 7, as amended, grants the Court of Tax Appeals the exclusive jurisdiction to resolve all tax-related
issues:ChanRoblesVirtualawlibrary

Section 7. Jurisdiction - The CTA shall exercise:ChanRoblesVirtualawlibrary

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

 1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;

3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved
by them in the exercise of their original or appellate jurisdiction;

4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau
of Customs;

5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals;

6) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the
Tariff and Customs Code;

7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs
Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to
impose or not to impose said duties.
The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or
regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund. It is
only in the lawful exercise of its power to pass upon all maters brought before it, as sanctioned by Section 7 of Republic
Act No. 1125, as amended.

This Court, however, declares that the Court of Tax Appeals may likewise take cognizance of cases directly challenging
the constitutionality or validity of a tax law or regulation or administrative issuance (revenue orders, revenue
memorandum circulars, rulings).

Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes, appeals from the decisions of
quasi-judicial agencies66 (Commissioner of Internal Revenue, Commissioner of Customs, Secretary of Finance, Central
Board of Assessment Appeals, Secretary of Trade and Industry) on tax-related problems must be brought exclusively to
the Court of Tax Appeals.

In other words, within the judicial system, the law intends the Court of Tax Appeals to have exclusive jurisdiction to
resolve all tax problems. Petitions for writs of certiorari against the acts and omissions of the said quasi-judicial agencies
should, thus, be filed before the Court of Tax Appeals.67chanrobleslaw

Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 12968 provides an exception to the original
jurisdiction of the Regional Trial Courts over actions questioning the constitutionality or validity of tax laws or
regulations. Except for local tax cases, actions directly challenging the constitutionality or validity of a tax law or
regulation or administrative issuance may be filed directly before the Court of Tax Appeals.

Furthermore, with respect to administrative issuances (revenue orders, revenue memorandum circulars, or rulings),
these are issued by the Commissioner under its power to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws. Tax rulings, on the other hand, are official positions of the
Bureau on inquiries of taxpayers who request clarification on certain provisions of the National Internal Revenue Code,
other tax laws, or their implementing regulations.69 Hence, the determination of the validity of these issuances clearly
falls within the exclusive appellate jurisdiction of the Court of Tax Appeals under Section 7(1) of Republic Act No. 1125,
as amended, subject to prior review by the Secretary of Finance, as required under Republic Act No.
8424.70chanrobleslaw

We now proceed to the substantive aspects.

II

Respondents contend that the 20-lender rule should not strictly apply to issuances of government debt instruments,
which by nature, are borrowings from the public.71 Applying the rule otherwise leads to an absurd result.72 They point
out that in BIR Ruling No. 007-0473 dated July 16, 2004 (the precursor of BIR Ruling Nos. 370-2011 and DA 378-2011), the
Bureau of Treasury's admitted intent to make the government securities freely tradable to an unlimited number of
lenders/investors in the secondary market was considered in place of an actual head count of lenders/investors due to
the limitations brought about by the absolute confidentiality of investments in government bonds under Section 2 of
Republic Act No. 1405, otherwise known as the Bank Secrecy Law.74chanrobleslaw

Considering that the PEACe Bonds were intended to be freely tradable in the secondary market to 20 or more
lenders/investors, respondents contend- that they, like other similarly situated government securities—awarded to 19
or less GSEDs in the primary market but freely tradable to 20 or more lenders/investors in the secondary market—
should be treated as deposit substitutes subject to the 20% final withholding tax.75chanrobleslaw

Petitioners and petitioners-intervenors RCBC and RCBC Capital counter that Section 22(Y) of the National Internal
Revenue Code applies to all types of securities, including those issued by government. They add that under this
provision, it is the actual number of lenders at any one time that is material in determining whether an issuance is to be
considered a deposit substitute and not the intended distribution plan of the issuer.

Moreover, petitioners and petitioners-intervenors RCBC and RCBC Capital argue that the real intent behind the issuance
of the PEACe Bonds, as reflected by the representations and assurances of government in various issuances and rulings,
was to limit the issuance to 19 lenders and below. Hence, they contend that government cannot now take an
inconsistent position.

We find respondents' proposition to consider the intended public distribution of government securities—in this case,
the PEACe Bonds—in place of an actual head count to be untenable.

The general rule of requiring adherence to the. letter in construing statutes applies with peculiar strictness to tax laws
and the provisions o taxing act are not to be extended by implication.76chanrobleslaw

The definition of deposit substitutes in Section 22(Y) specifically defined "public" to mean "twenty (20) or more
individual or corporate lenders at any one time."77 The qualifying phrase for public introduced78 by the National Internal
Revenue Code shows that a change in the meaning of the provision was intended, and this Court should construe the
provision as to give effect to the amendment.79 Hence, in light of Section 22(Y), the reckoning of whether there are 20 or
more individuals or corporate lenders is crucial in determining the tax treatment of the yield from the debt instrument.
In other words, if there are 20 or more lenders, the debt instrument is considered a deposit substitute and subject to
20% final withholding tax.

II.A

The definition of deposit substitutes under the National Internal Revenue Code was lifted from Section 95 of Republic
Act No. 7653, otherwise known as the New Central Bank Act:ChanRoblesVirtualawlibrary

SEC. 95. Definition of Deposit Substitutes. The term "deposit substitutes" is defined as an alternative form of obtaining
funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the
borrower's own account, for the purpose of relending or purchasing of receivables and other obligations. These
instruments may include, but need not be limited to, bankers' acceptances, promissory notes, participations, certificates
of assignment and similar instruments with recourse, and repurchase agreements. The Monetary Board shall determine
what specific instruments shall be considered as deposit substitutes for the purposes of Section 94 of this Act: Provided,
however, That deposit substitutes of commercial, industrial and other nonfinancial companies issued for the limited
purpose of financing their own needs or the needs of their agents or dealers shall not be covered by the provisions of
Section 94 of this Act. (Emphasis supplied)
Banks are entities engaged in the lending of funds obtained from the public in the form of deposits.80 Deposits of money
in banks and similar institutions are considered simple loans.81 Hence, the relationship between a depositor and a bank
is that of creditor and debtor. The ownership of the amount deposited is transmitted to the bank upon the perfection of
the contract and it can make use of the amount deposited for its own transactions and other banking operations.
Although the bank has the obligation to return the amount deposited, it has no obligation to return or deliver the same
money that was deposited.82chanrobleslaw

The definition of deposit substitutes in the banking laws was brought about by an observation that banks and non-bank
financial intermediaries have increasingly resorted to issuing a variety of debt instruments, other than bank deposits, to
obtain funds from the public. The definition also laid down the groundwork for the supervision by the Central Bank of
quasi-banking functions.83chanrobleslaw

As defined in the banking sector, the term "public" refers to 20 or more lenders.84 "What controls is the actual number
of persons or entities to whom the products or instruments are issued. If there are at least twenty (20) lenders or
creditors, then the funds are considered obtained from the public."85chanrobleslaw

If a bank or non-bank financial intermediary sells debt instruments to 20 or more lenders/placers at any one time,
irrespective of outstanding amounts, for the purpose of relending or purchasing of receivables or obligations, it is
considered to be performing a quasi-banking function and consequently subject to the appropriate regulations of the
Bangko Sentral Pilipinas (BSP).

II.B

Under the National Internal Revenue Code, however, deposit substitutes include not only the issuances and sales of
banks and quasi-banks for relending or purchasing receivables and other similar obligations, but also debt instruments
issued by commercial, industrial, and other non-financial companies to finance their own needs or the needs of their
agents or dealers. This can be deduced from a reading together of Section 22(X) and(Y):ChanRoblesVirtualawlibrary

Section 22. Definitions - When used in this Title:

chanRoblesvirtualLawlibrary. . . .

(X) The term 'quasi-banking activities' means borrowing funds from twenty (20) or more personal or corporate lenders at
any one time, through the issuance, endorsement, or acceptance of debt instruments of any kind other than deposits for
the borrower's own account, or through the issuance of certificates of assignment or similar instruments, with recourse,
or of repurchase agreements for purposes of relending or purchasing receivables and other similar obligations: Provided,
however, That commercial industrial and other non-financial companies, which borrow funds through any of these means
for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as
performing quasi-banking functions.

(Y) The term 'deposit substitutes' shall mean an alternative form of obtaining funds from the public (the term 'public'
means borrowing from twenty (20) or more individual or corporate lenders at any one time), other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose
of re-lending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent
or dealer. (Emphasis supplied)
For internal revenue tax purposes, therefore, even debt instruments issued and sold to 20 or more lenders/investors by
commercial or industrial companies to finance their own needs are considered deposit substitutes, taxable as such.

II.C

The interest income on bank deposits was subjected for the first time to the withholding tax system under Presidential
Decree No. 1156,86 which was promulgated in 1977. The whereas clauses spell the reasons for the
law:ChanRoblesVirtualawlibrary

[I]nterest on bank deposit is one of the items includible in gross income. . . . [M]any bank depositors fail to declare interest
income in their income tax returns. . . . [I]n order to maximize the collection of the income tax on interest on bank deposits,
it is necessary to apply the withholdings system on this type of fixed or determinable income.
In the same year, Presidential Decree No. 115487 was also promulgated. It imposed a 35% transaction tax (final tax) on
interest income from every commercial paper issued in the primary market, regardless of whether they are issued to the
public or not.88 Commercial paper was defined as "an instrument evidencing indebtedness of any person of entity,
including banks and non-banks performing quasi-banking functions, which is issued, endorsed, sold, transferred or in any
manner conveyed to another person or entity, either with or without recourse and irrespective of maturity." The
imposition of a final tax on commercial papers was "aimed primarily to improve the administrative provisions of the
National Internal Revenue Code to ensure the collection on the tax on interest on commercial papers used as principal
instruments issued in the primary market."89 It was reported that "the [Bureau of Internal Revenue had] no means of
enforcing strictly the taxation on interest income earned in the money market transactions."90chanrobleslaw

These presidential decrees, as well as other new internal revenue laws and various laws and decrees that have so far
amended the provisions of the 1939 National Internal Revenue Code were consolidated and codified into the 1977
National Internal Revenue Code.91chanrobleslaw

In 1980, Presidential Decree No. 173992 was promulgated, which further amended certain provisions of the 1977
National Internal Revenue Code and repealed Section 210 (the provision embodying the percentage tax on commercial
paper transactions). The Decree imposed a final tax of 20% on interests from yields on deposit substitutes issued to the
public.93 The tax was required to be withheld by banks and non-bank financial intermediaries and paid to the Bureau of
Internal Revenue in accordance with Section 54 of the 1977 National Internal Revenue Code. Presidential Decree No.
31739, as amended by Presidential Decree No. 1959 in 1984 (which added the definition of deposit substitutes) was
subsequently incorporated in the National Internal Revenue Code.

These developments in the National Internal Revenue Code reflect the rationale for the application of the withholding
system to yield from deposit substitutes, which is essentially to maximize and expedite the collection of income taxes by
requiring its payment at the source,94 as with the case of the interest on bank deposits. When banks sell deposit
substitutes to the public, the final withholding tax is imposed on the interest income because it would be difficult to
collect from the public. Thus, the incipient scheme in the final withholding tax is to achieve an effective administration in
capturing the interest-income windfall from deposit substitutes as a source of revenue.

It must be emphasized, however, that withholding tax is merely a method of collecting income tax in advance. The
perceived tax is collected at the source of income payment to ensure collection. Consequently, those subjected to the
final withholding tax are no longer subject to the regular income tax.

III

Respondents maintain that the phrase "at any one time" must be given its ordinary meaning, i.e. "at any given time" or
"during any particular point or moment in the day."95 They submit that the correct interpretation of Section 22(Y) does
not look at any specific transaction concerning the security; instead, it considers the existing number of
lenders/investors of such security at any moment in time, whether in the primary or secondary market.96 Hence, when
during the lifetime of the security, there was any one instance where twenty or more individual or corporate lenders
held the security, the borrowing becomes "public" in character and is ipso facto subject to 20% final withholding
tax.97chanrobleslaw

Respondents further submit that Section 10.1(k) of the Securities Regulation Code and its Implementing Rules and
Regulations may be applied by analogy, such that if at any time, (a) the lenders/investors number 20 or more; or (b)
should the issuer merely offer the securities publicly or to 20 or more lenders/investors, these securities should be
deemed deposit substitutes.98chanrobleslaw

On the other hand, petitioners-intervenors RCBC and RCBC Capital insist that the phrase "at any one time" only refers to
transactions made in the primary market. According to them, the PEACe Bonds are not deposit substitutes since CODE-
NGO, through petitioner-intervenor RCBC, is the sole lender in the primary market, and all subsequent transactions in
the secondary market merely pertain to a sale and/or assignment of credit and not borrowings from the
public.99chanrobleslaw

Similarly, petitioners contend that for a government security, such as the PEACe Bonds, to be considered as deposit
substitutes, it is an indispensable requirement that there is "borrowing" between the issuer and the lender/investor in
the primary market and between the transferee and the transferor in the secondary market. Petitioners submit that in
the secondary market, the transferee/buyer must have recourse to the selling investor as required by Section 22(Y) of
the National Internal Revenue Code so that a borrowing "for the borrower's (transferor's) own account" is created
between the buyer and the seller. Should the transferees in the secondary market who have recourse to the transferor
reach 20 or more, the transaction will be subjected to a final withholding tax.100chanrobleslaw

Petitioners and petitioners-intervenors RCBC and RCBC Capital contend that respondents' proposed application of
Section 10.1(kl) of the Securities Regulation Code and its Implementing Rules is misplaced because: (1) the National
Internal Revenue Code clearly provides the conditions when a security issuance should qualify as a deposit substitute
subject to the 20% final withholding tax; and (2) the two laws govern different matters.

III.A

Generally, a corporation may obtain funds for capital expenditures by floating either shares of stock (equity) or bonds
(debt) in the capital market. Shares of stock or equity securities represent ownership, interest, or participation in the
issuer-corporation. On the other hand, bonds or debt securities are evidences of indebtedness of the issuer-corporation.

New securities are issued and sold to the investing public for the first time in the primary market. Transactions in the
primary market involve an actual transfer of funds from the investor to the issuer of the new security. The transfer of
funds is evidenced by a security, which becomes a financial asset in the hands of the buyer/investor.

New issues are usually sold through a registered underwriter, which may be an investment house or a bank registered as
an underwriter of securities.101 An underwriter helps the issuer find buyers for its securities. In some cases, the
underwriter buys the whole issue from the issuer and resells this to other security dealers and the public.102 When a
group of underwriters pool together their resources to underwrite an issue, they are called the "underwriting
syndicate."103chanrobleslaw

On the other hand, secondary markets refer to the trading of outstanding or already-issued securities. In any secondary
market trade, the cash proceeds normally go to the selling investor rather than to the issuer.

To illustrate: A decides to issue bonds to raise capital funds. X buys and is issued A bonds. The proceeds of the sale go
to A, the issuer. The sale between A and X is a primary market transaction.

Before maturity, X trades its A bonds to Y. The A bonds sold by X are not X's indebtedness. The cash paid for the bonds
no longer go to A, but remains with X, the selling investor/holder. The transfer of A bonds from X to Y is considered a
secondary market transaction. Any difference between the purchase price of the assets (A bonds) and the sale price is a
trading gain subject to a different tax treatment, as will be explained later.

When Y trades its A bonds to Z, the sale is still considered a secondary market transaction. In other words, the trades
from X to Y, Y to Z, and Z to subsequent holders/investors are considered secondary market transactions. If Z holds on to
the bonds and the bonds mature, Z will receive from A the face value of the bonds.

A bond is similar to a bank deposit in the sense that the investor lends money to the issuer and the issuer pays interest
on the invested amount. However, unlike bank deposits, bonds are marketable securities. The market mechanism
provides quick mobility of money and securities.104 Thus, bondholders can sell their bonds before they mature to other
investors, in turn converting their financial assets to cash. In contrast, deposits, in the form of savings accounts for
instance, can only be redeemed by the issuing bank.

III.B

An investor in bonds may derive two (2) types of income:

chanRoblesvirtualLawlibraryFirst, the interest or the amount paid by the borrower to the lender/investor for the use of
the lender's money.105 For interest-bearing bonds, interest is normally earned at the coupon date. In zero-coupon bonds,
the discount is an interest amortized up to maturity.

Second, the gain, if any, that is earned when the bonds are traded before maturity date or when redeemed at maturity.

The 20% final withholding tax imposed on interest income or yield from deposit substitute does not apply to the gains
derived from trading, retirement, or redemption of the instrument.

It must be stressed that interest income, derived by individuals from long-term deposits or placements made with banks
in the form of deposit substitutes, is exempt from income tax. Consequently, it is likewise exempt from the final
withholding tax under Sections 24(B)(1) and 25(A)(2) of the National Internal Revenue Code. However, when it is
preterminated by the individual investor, graduated rates of 5%, 12%, or 20%, depending on the remaining maturity of
the instrument, will apply on the entire income, to be deducted and withheld by the depository bank.
With respect to gains derived from long-term debt instruments, Section 32(B)(7)(g) of the National Internal Revenue
Code provides:ChanRoblesVirtualawlibrary

Sec. 32. Gross Income. -

....

(B) Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt from
taxation under this title:

chanRoblesvirtualLawlibrary. . . .

(7) Miscellaneous Items. -

....

(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized from the sale or
exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5)
years.
Thus, trading gains, or gains realized from the sale or transfer of bonds (i.e., those with a maturity of more than five
years) in the secondary market, are exempt from income tax. These "gains" refer to the difference between the selling
price of the bonds in the secondary market and the price at which the bonds were purchased by the seller. For
discounted instruments such as the zero-coupon bonds, the trading gain is the excess of the selling price over the book
value or accreted value (original issue price plus accumulated discount from the time of purchase up to the time of sale)
of the instruments.106chanrobleslaw

Section 32(B)(7)(g) also includes gains realized by the last holder of the bonds when the bonds are redeemed at
maturity, which is the difference between the proceeds from the retirement of the bonds and the price at which the last
holder acquired the bonds.

On the other hand, gains realized from the trading of short-term bonds (i.e., those with a maturity of less than five
years) in the secondary market are subject to regular income tax rates (ranging from 5% to 32% for individuals, and 30%
for corporations) under Section 32107 of the National Internal Revenue Code.

III.C

The Secretary of Finance, through the Bureau of Treasury,108 is authorized under Section 1 of Republic Act No. 245, as
amended, to issue evidences of indebtedness such as treasury bills and bonds to meet public expenditures or to provide
for the purchase, redemption, or refunding of any obligations.

These treasury bills and bonds are issued and sold by the Bureau of Treasury to lenders/investors through a network of
licensed dealers (called Government Securities Eligible Dealers or GSEDs).109 GSEDs are classified into primary and
ordinary dealers.110 A primary dealer enjoys certain privileges such as eligibility to participate in the competitive bidding
of regular issues, eligibility to participate in the issuance of special issues such as zero-coupon treasury bonds, and
access to tap facility window.111 On the other hand, ordinary dealers are only allowed to participate in the non-
competitive bidding.112 Moreover, primary dealers are required to meet the following
obligations:ChanRoblesVirtualawlibrary

a. Must submit at least one competitive bid in each scheduled auction.

b. Must have total awards of at least 2% of the total amount of bills or bonds awarded within a particular
quarter. This requirement does not cover special issues.
 c. Must be active in the trading of GS [government securities] in the secondary market.113

A primary dealer who fails to comply with its obligations will be dropped from the roster of primary dealers and
classified as an ordinary dealer.

The auction method is the main channel used for originating government securities.114 Under this method, the Bureau of
Treasury issues a public notice offering treasury bills and bonds for sale and inviting tenders.115 The GSEDs tender their
bids electronically;116 after the cut-off time, the Auction Committee deliberates on the bids and decide on the
award.117chanrobleslaw

The Auction Committee then downloads the awarded securities to the winning bidders' Principal Securities Account in
the Registry of Scripless Securities (RoSS). The RoSS, an electronic book-entry system established by the Bureau of
Treasury, is the official Registry of ownership of or interest in government securities.118 All government securities
floated/originated by the National Government under its scripless policy, as well as subsequent transfers of the same in
the secondary market, are recorded in the RoSS in the principal Securities Account of the GSED.119chanrobleslaw

A GSED is required to open and maintain Client Securities Accounts in the name of its respective clients for segregating
government securities acquired by such clients from the GSED's own securities holdings. A GSED may also lump all
government securities sold to clients in one account, provided that the GSED maintains complete records of
ownership/other titles of its clients in the GSED's own books.120chanrobleslaw

Thus, primary issues of treasury bills and bonds are supposed to be issued only to GSEDs. By participating in auctions,
the GSED acts as a channel between the Bureau of Treasury and investors in the primary market. The winning GSED
bidder acquires the privilege to on-sell government securities to other financial institutions or final investors who need
not be GSEDs.121 Further, nothing in the law or the rules of the Bureau of Treasury prevents the GSED from entering into
contract with another entity to further distribute government securities.

In effecting a sale or distribution of government securities, a GSED acts in a certain sense as the "agent" of the Bureau of
Treasury. In Doles v. Angeles,122 the basis of an agency is representation.123 The question of whether an agency has been
created may be established by direct or circumstantial evidence.124 For an agency to arise, it is not necessary that the
principal personally encounter the third person with whom the agent interacts.125 The law contemplates impersonal
dealings where the principal need not personally know or meet the third person with whom the agent transacts:
precisely, the purpose of agency is to extend the personality of the principal through the facility of the agent.126 It was
also stressed that the manner in which the parties designate the relationship is not controlling.127 If an act done by one
person on behalf of another is in its essential nature one of agency, the former is the agent of the latter,
notwithstanding he or she is not so called.128chanrobleslaw

Through the use of GSEDs, particularly primary dealers, government is able to ensure the absorption of newly issued
securities and promote activity in the government securities market. The primary dealer system allows government to
access potential investors in the market by taking advantage of the GSEDs' distribution capacity. The sale transactions
executed by the GSED are indirectly for the benefit of the issuer. An investor who purchases bonds from the GSED
becomes an indirect lender to government. The financial asset in the hand of the investor represents a claim to future
cash, which the borrower-government must pay at maturity date.129chanrobleslaw

Accordingly, the existence of 20 or more lenders should be reckoned at the time when the successful GSED-bidder
distributes (either by itself or through an underwriter) the government securities to final holders. When the GSED sells
the government securities to 20 or more investors, the government securities are deemed to be in the nature of a
deposit substitute, taxable as such.

On the other hand, trading of bonds between two (2) investors in the secondary market involves a purchase or sale
transaction. The transferee of the bonds becomes the new owner, who is entitled to recover the face value of the bonds
from the issuer at maturity date. Any profit realized from the purchase or sale transaction is in the nature of a trading
gain subject to a different tax treatment, as explained above.
Respondents contend that the literal application of the "20 or more lenders at any one time" to government securities
would lead to: (1) impossibility of tax enforcement due to limitations imposed by the Bank Secrecy Law; (2) possible
uncertainties130; and (3) loopholes.131chanrobleslaw

These concerns, however, are not sufficient justification for us to deviate from the text of the law.132 Determining the
wisdom, policy or expediency of a statute is outside the realm of judicial power.133 These are matters that should be
addressed to the legislature. Any other interpretation looking into the purported effects of the law would be
tantamount to judicial legislation.

IV

Section 57 prescribes the withholding tax on interest or yield on deposit substitutes, among others, and the person
obligated to withhold the same. Section 57 reads:ChanRoblesVirtualawlibrary

Section 57. Withholding of Tax at Source. —

(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and regulations, the Secretary
of Finance may promulgate, upon the recommendation of the Commissioner, requiring the
filing of income tax return by certain income payees, the tax imposed or prescribed by Sections
24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1),
27(D)(2), 27(D)(3), 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(2), 28(B)(3),
28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c), 33 and 282 of the Code on specified items of
income shall be withheld by payor-corporation and/or person and paid in the same manner
and subject to the same conditions as provided in Section 58 of this Code.
Likewise, Section 2.57 of Revenue Regulations No. 2-98 (implementing the National Internal Revenue Code relative to
the Withholding on Income subject to the Expanded Withholding Tax and Final Withholding Tax) states that the liability
for payment of the tax rests primarily on the payor as a withholding agent. Section 2.57
reads:ChanRoblesVirtualawlibrary

Sec. 2.57. WITHHOLDING OF TAX AT SOURCE. —

(A) Final Withholding Tax — Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as a full and final payment of the income tax due from the payee of said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the
payor/withholding agent[.] (Emphasis supplied)
From these provisions, it is the payor-borrower who primarily has the duty to withhold and remit the 20% final tax on
interest income or yield from deposit substitutes.

This does not mean, however, that only the payor-borrower can be constituted as withholding agent. Under Section 59
of the National Internal Revenue Code, any person who has control, receipt, custody, or disposal of the income may be
constituted as withholding agent:ChanRoblesVirtualawlibrary

SEC. 59. Tax on Profits Collectible from Owner or Other Persons. - The tax imposed under this Title upon gains, profits,
and income not falling under the foregoing and not returned and paid by virtue of the foregoing or as otherwise provided
by law shall be assessed by personal return under rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner. The intent and purpose of the Title is that all gains, profits and income of a taxable
class, as defined in this Title, shall be charged and assessed with the corresponding tax prescribed by this Title, and said
tax shall be paid by the owners of such gains, profits and income, or the proper person having the receipt, custody, control
or disposal of the same. For purposes of this Title, ownership of such gains, profits and income or liability to pay the tax
shall be determined as of the year for which a return is required to be rendered. (Emphasis supplied)
The intent and purpose of the National Internal Revenue Code provisions on withholding taxes is also explicitly
stated, i.e., that all gains, profits, and income "are charged and assessed with the corresponding tax"134 and said tax paid
by "the owners of such gains, profits and income, or the proper person having the receipt, custody, control or disposal of
the same."135chanrobleslaw

The obligation to deduct and withhold tax at source arises at the time an income subject to withholding is paid or
payable, whichever comes first.136 In interest-bearing bonds, the interest is taxed at every instance that interest is paid
(and income is earned) on the bond. However, in a zero-coupon bond, it is expected that no periodic interest payments
will be made. Rather, the investor will be paid the principal and interest (discount) together when the bond reaches
maturity.

As explained by respondents, "the discount is the imputed interest earned on the security, and since payment is made at
maturity, there is an accreted interest that causes the price of a zero coupon instrument to accordingly increase with
time, all things being constant."137chanrobleslaw

In a 10-year zero-coupon bond, for instance, the discount (or inter is not earned in the first period, i.e., the value of the
instrument does not equal par at the end of the first period. The total discount is earned over the life of the instrument.
Nonetheless, the total discount is considered earned on the year of sale based on current value.138chanrobleslaw

In view of this, the successful GSED-bidder, as agent of the Bureau of Treasury, has the primary responsibility to
withhold the 20% final withholding tax on the interest valued at present value, when its sale and distribution of the
government securities constitutes a deposit substitute transaction. The 20% final tax is deducted by the buyer from the
discount of the bonds and included in the remittance of the purchase price.

The final tax withheld by the withholding agent is considered as a "full and final payment of the income tax due from the
payee on the said income [and the] payee is not required to file an income tax return for the particular
income."139 Section 10 of Department of Finance Department Order No. 020-10140 in relation to the National Internal
Revenue Code also provides that no other tax shall be collected on subsequent trading of the securities that have been
subjected to the final tax.

In this case, the PEACe Bonds were awarded to petitioners-intervenors RCBC/CODE-NGO as the winning bidder in the
primary auction. At the same time, CODE-NGO got RCBC Capital as underwriter, to distribute and sell the bonds to the
public.

The Underwriting Agreement141 and RCBC Term Sheet142 for the sale of the PEACe bonds show that the settlement dates
for the issuance by the Bureau of Treasury of the Bonds to petitioners-intervenors RCBC/CODE-NGO and the distribution
by petitioner-intervenor RCBC Capital of the PEACe Bonds to various investors fall on the same day, October 18, 2001.
This implies that petitioner-intervenor RCBC Capital was authorized to perform a book-building process,143 a customary
method of initial distribution of securities by underwriters, where it could collate orders for the securities ahead of the
auction or before the securities were actually issued. Through this activity, the underwriter obtains information about
market conditions and preferences ahead of the auction of the government securities.

The reckoning of the phrase "20 or more lenders" should be at the time when petitioner-intervenor RCBC Capital sold
the PEACe bonds to investors. Should the number of investors to whom petitioner-intervenor RCBC Capital distributed
the PEACe bonds, therefore, be found to be 20 or more, the PEACe Bonds are considered deposit substitutes subject to
the 20% final withholding tax. Petitioner-intervenors RCBC/CODE-NGO and RCBC Capital, as well as the final
bondholders who have recourse to government upon maturity, are liable to pay the 20% final withholding tax.
We note that although the originally intended negotiated sale of the bonds by government to CODE-NGO did not
materialize, CODE-NGO, a private entity—still through the participation of petitioners-intervenors RCBC and RCBC
Capital—ended up as the winning bidder for the government securities and was able to use for its projects the profit
earned from the sale of the government securities to final investors.

Giving unwarranted benefits, advantage, or preference to a party and causing undue injury to government expose the
perpetrators or responsible parties to liability under Section 3(e) of Republic Act No. 3019. Nonetheless, this is not the
proper venue to determine and settle any such liability.

VI

Petitioners-intervenors RCBC and RCBC Capital contend that they cannot be held liable for the 20% final withholding tax
for two (2) reasons. First, at the time the required withholding should have been made, their obligation was not clear
since BIR Ruling Nos. 370-2011 and DA 378-2011 stated that the 20% final withholding tax does not apply to PEACe
Bonds.144 Second, to punish them under the circumstances (i.e., when they secured the PEACe Bonds from the Bureau of
Treasury and sold the Bonds to the lenders/investors, they had no obligation to remit the 20% final withholding tax)
would violate due process of law and the constitutional proscription on ex post facto law.145chanrobleslaw

Petitioner-intervenor RCBC Capital further posits that it cannot be held liable for the 20% final withholding tax even as a
taxpayer because it never earned interest income from the PEACe Bonds, and any income earned is deemed in the
nature of an underwriting fee.146 Petitioners-intervenors RCBC and RCBC Capital instead argue that the liability falls on
the Bureau of Treasury and CODE-NGO, as withholding agent and taxpayer, respectively, considering their explicit
representation that the PEACe Bonds are exempt from the final withholding tax.147chanrobleslaw

Petitioners-intervenors RCBC and RCBC Capital add that the Bureau of Internal Revenue is barred from assessing and
collecting the 20% final withholding tax, assuming it was due, on the ground of prescription.148 They contend that the
three (3)-year prescriptive period under Section 203, rather than the 10-year assessment period under Section 222, is
applicable because they were compliant with the requirement of filing monthly returns that reflect the final withholding
taxes due or remitted for the relevant; period. No false or fraudulent return was made because they relied on the 2001
BIR Rulings and on the representations made by the Bureau of Treasury and CODE-NGO that the PEACe Bonds were not
subject to the 20% final withholding tax.149chanrobleslaw

Finally, petitioners-intervenors RCBC and RCBC Capital argue that this Court's interpretation of the phrase "at any one
time" cannot be applied to the PEACe Bonds and should be given prospective application only because it would cause
prejudice to them, among others. They cite Section 246 of the National Internal Revenue Code on non-retroactivity of
rulings, as well as Commissioner of Internal Revenue v. San Roque Power Corporation,150 which held that taxpayers may
rely upon a rule or ruling issued by the Commissioner from the time it was issued up to its reversal by the Commissioner
or the court. According to them, the retroactive application of the court's decision would impair their vested rights,
violate the constitutional prohibition on non-impairment of contracts, and constitute a substantial breach of obligation
on the part of government.151 In addition, the imposition of the 20% final withholding tax on the PEACe Bonds would
allegedly have pernicious effects on the integrity of existing securities that is contrary to the state policies of stabilizing
the financial system and of developing the capital markets.152chanrobleslaw

CODE-NGO likewise contends that it merely relied in good faith on the 2001 BIR Rulings confirming that the PEACe
Bonds were not subject to the 20% final withholding tax.153 Therefore, it should not be prejudiced if the BIR Rulings are
found to be erroneous and reversed by the Commissioner or this court.154 CODE-NGO argues that this Court's Decision
construing the phrase "at any one time" to determine the phrase "20 or more lenders" to include both the primary and
secondary market should be applied prospectively.155chanrobleslaw

Assuming it is liable for the 20% final withholding tax, CODE-NGO argiles that the collection of the final tax was barred by
prescription.156 CODE-NGO points out that under Section 203 of the National Internal Revenue Code, internal revenue
taxes such as the final tax, should be assessed within three (3) years after the last day prescribed by law for the filing of
the return.157 It farther argues that Section 222(a) on exceptions to the prescribed period, for tax assessment and
collection does not apply.158 It claims that there is no fraud or intent to evade taxes as it relied in good faith on the
assurances of the Bureau of Internal Revenue and Bureau of Treasury the PEACe Bonds are not subject to the 20% final
withholding tax.159chanrobleslaw

We find merit on the claim of petitioners-intervenors RCBC, RCBC Capital, and CODE-NGO for prospective application of
our Decision.

The phrase "at any one time" is ambiguous in the context of the financial market. Hence, petitioner-intervenor RCBC and
the rest of the investors relied on the opinions of the Bureau of Internal Revenue in BIR Ruling Nos. 020-2001, 035-
2001160 dated August 16, 2001, and DA-175-01161 dated September 29, 2001 to vested their rights in the exemption from
the final withholding tax. In sum, these rulings pronounced that to determine whether the financial assets, i.e., debt
instruments and securities, are deposit substitutes, the "20 or more individual or corporate lenders" rule must apply.
Moreover, the determination of the phrase "at any one time" to determine the "20 or more lenders" is to be
determined at the time of the original issuance. This being the case, the PEACe Bonds were not to be treated as deposit
substitutes.

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals,162 the Commissioner demanded from petitioner deficiency
withholding income tax on film rentals remitted to foreign corporations for the years 1965 to 1968. The assessment was
made under Revised Memo Circular No. 4-71 issued in 1971, which used gross income as tax basis for the required
withholding tax, instead of one-half of the film rentals as provided under General Circular No. V-334. In setting aside the
assessment, this Court ruled that in the interest of justice and fair play, rulings or circulars promulgated by the
Commissioner of Internal Revenue have no retroactive application where applying them would prove prejudicial to
taxpayers who relied in good faith on previous issuances of the Commissioner. This Court further held that Section 24(b)
of then National Internal Revenue Code sought to be implemented by General Circular No. V-334 was neither too plain
nor simple to understand and was capable of different interpretations. Thus:ChanRoblesVirtualawlibrary

The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha[d] been determined that the
tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the basic principle of
income taxation . . . and that a mere return of capital or investment is not income. . . ." "A part of the receipts of a non-
resident foreign film distributor derived from said film represents, therefore, a return of investment." The circular thus
fixed the return of capital at 50% to simplify the administrative chore of determining the portion of the rentals covering
the return of capital.

Were the "gross income" base clear from Sec. 24(b), perhaps, the ratiocination of the Tax Court could be upheld. It
should be noted, however, that said Section was not too plain and simple to understand. The fact that the issuance of
the General Circular in question was rendered necessary leads to no other conclusion than that it was not easy of
comprehension and could be subjected to different interpretations.

In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General Circular No. V-334, was just one
in a series of enactments regarding Sec. 24(b) of the Tax Code. Republic Act No. 3825 came next on June 22, 1963 without
changing the basis but merely adding a proviso (in bold letters).
(b) Tax on foreign corporation. — (1) Non-resident corporations. — There shall be levied, collected, and paid for each
taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign
corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest,
dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits and income, a tax equal to thirty per centum of such amount: PROVIDED,
HOWEVER, THAT PREMIUMS SHALL NOT INCLUDE REINSURANCE PREMIUMS. (double emphasis ours)
Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and inserting some words
(also in bold letters).
"(b) Tax on foreign corporations. — (1) Nonresident corporations. — There shall be levied, collected and paid for each
taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign
corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest,
dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical OR CASUAL gains, profits and income, AND CAPITAL GAINS, a tax equal to thirty per
centum of such amount."
The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It
provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress
of a prior executive construction." Note should be taken of the fact that this case involves not a mere opinion of the
Commissioner or ruling rendered on a mere query, but a Circular formally issued to "all internal revenue officials" by the
then Commissioner of Internal Revenue.

It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of Revenue Memorandum
Circular No. 4-71, that Sec. 24(b) was amended to refer specifically to 35% of the "gross income."163 (Emphasis supplied)
San Roque has held that the 120-day and the 30-day periods under Section 112 of the National Internal Revenue Code
are mandatory and jurisdictional. Nevertheless, San Roque provided an exception to the rule, such that judicial claims
filed by taxpayers who relied on BIR Ruling No. DA-489-03—from its issuance on December 10, 2003 until its reversal by
this Court in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.164 on October 6, 2010—are
shielded from the vice of prematurity. The BIR Ruling declared that the "taxpayer-claimant need not wait for the lapse of
the 120-day period before it could seek judicial relief with the C[ourt] [of] T[ax] A[ppeals] by way of Petition for Review."
The Court reasoned that:ChanRoblesVirtualawlibrary

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question
of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods
for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine did not result in
Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they received or could have
received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad
faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the
reversal of a specific BIR ruling under Section 246, should also apply prospectively. . . .

. . . .

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular
taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-
Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or
the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not
wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03
from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this
Court held that the 120+30 day periods are mandatory and jurisdictional.165 (Emphasis supplied)
The previous interpretations given to an ambiguous law by the Commissioner of Internal Revenue, who is charged to
carry out its provisions, are entitled to great weight, and taxpayers who relied on the same should not be prejudiced in
their rights.166 Hence, this Court's construction should be prospective; otherwise, there will be a violation of due process
for failure to accord persons, especially the parties affected by it, fair notice of the special burdens imposed on them.

VII
Urgent Reiterative Motion [to Direct Respondents to Comply with the Temporary Restraining Order]
Petitioners Banco de Oro, et al. allege that the temporary restraining order issued by this Court on October 18, 2011
continues to be effective under Rule 58, Section 5 of the Rules of Court and the Decision dated January 13, 2015. Thus,
considering respondents' refusal to comply with their obligation under the temporary restraining order, petitioners ask
this Court to issue a resolution directing respondents, particularly the Bureau of Treasury, "to comply with its order by
immediately releasing to the petitioners during the pendency of the case the 20% final withholding tax" so that the
monies may be placed in escrow pending resolution of the case.167chanrobleslaw

We recall that in its previous pleadings, respondents remain firm in its stance that the October 18, 2011 temporary
restraining order could no longer be implemented because the acts sought to be enjoined were already fait
accompli.168 They allege that the amount withheld was already remitted by the Bureau of Treasury to the Bureau of
Internal Revenue. Hence, it became part of the General Fund, which required legislative appropriation before it could
validly be disbursed.169 Moreover, they argue that since the amount in question pertains to taxes alleged to be
erroneously withheld and collected by government, the proper recourse was for the taxpayers to file an application for
tax refund before the Commissioner of Internal Revenue under Section 204 of the National Internal Revenue
Code.170chanrobleslaw

In our January 13, 2015 Decision, we rejected respondents' defense of fait accompli. We held that the amount withheld
were yet to be remitted to the Bureau of Internal Revenue, and the evidence (journal entry voucher) submitted by
respondents was insufficient to prove the fact of remittance. Thus:ChanRoblesVirtualawlibrary

The temporary restraining order enjoins the entire implementation of the 2011 BIR Ruling that constitutes both
the withholding and remittance of the 20% final withholding tax to the Bureau of Internal Revenue. Even though the
Bureau of Treasury had already withheld the 20% final withholding tax when they received the temporary restraining
order, it had yet to remit the monies it withheld to the Bureau of Internal Revenue, a remittance which was due only on
November 10, 2011. The act enjoined by the temporary restraining order had not yet been fully satisfied and was still
continuing.

Under DOF-DBM Joint Circular No. 1-2000A dated July 31, 2001 which prescribes to national government agencies such
as the Bureau of Treasury the procedure for the remittance of all taxes they withheld to the Bureau of Internal Revenue,
a national agency shall file before the Bureau of Internal Revenue a Tax Remittance Advice (TRA) supported by withholding
tax returns on or before the 10th day of the following month after the said taxes had been withheld. The Bureau of Internal
Revenue shall transmit an original copy of the TRA to the Bureau of Treasury, which shall be the basis in recording the
remittance of the tax collection. The Bureau of Internal Revenue will then record the amount of taxes reflected in the TRA
as tax collection in the Journal of Tax Remittance by government agencies based on its copies of the TRA. Respondents
did not submit any withholding tax return or TRA to prove that the 20% final withholding tax was indeed remitted by the
Bureau of Treasury to the Bureau of Internal Revenue on October 18, 2011.
Respondent Bureau of Treasury's Journal Entry Voucher No. 11-10-10395 dated October 18, 2011 submitted to this
court shows:ChanRoblesVirtualawlibrary

Account Credit
Debit Amount
Code Amount

442-
Bonds Payable-L/T, Dom-Zero 35,000,000,000.00
360

Coupon T/Bonds

(Peace Bonds) - 10 yr

Sinking Fund-Cash (BSF) 198-001 30,033,792,203.59

 412-
Due to BIR 4,966,207,796.41
002

To record redemption of 10 yr Zero coupon (Peace Bond) net

of the 20% final withholding tax pursuant to BIR Ruling No.
378-2011, value date, October 18, 2011 per BTr letter
authority and BSP Bank Statements.

The foregoing journal entry, however, does not prove that the amount of P4,966,207,796.41, representing the 20% final
withholding tax on the PEACe Bonds, was disbursed by it and remitted to the Bureau of Internal Revenue on October 18,
2011. The entries merely show that the monies corresponding to 20% final withholding tax was set aside for remittance
to the Bureau of Internal Revenue.171
Respondents did not submit any withholding tax return or tax remittance advice to prove that the 20% final withholding
tax was, indeed, remitted by the Bureau of Treasury to the Bureau of Internal Revenue on October 18, 2011, and
consequently became part of the general fund of the government. The corresponding journal entry in the books of both
the Bureau of Treasury and Bureau of Internal Revenue showing the transfer of the withheld funds to the Bureau of
Internal Revenue was likewise not submitted to this Court. The burden of proof lies on them to show their claim of
remittance. Until now, respondents have failed to submit sufficient supporting evidence to prove their claim.

In Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation,172 this Court upheld the
right of a withholding agent to file a claim for refund of the withheld taxes of its foreign parent company. This Court,
citing Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue,173 ruled that inasmuch as it is an agent of
government for the withholding of the proper amount of tax, it is also an agent of its foreign parent company with
respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the
government. Thus:ChanRoblesVirtualawlibrary

The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on
Income]." It thus becomes important to note that under Section 53 (c) of the NIRC, the withholding agent who is "required
to deduct and withhold any tax" is made "personally liable for such tax" and indeed is indemnified against any claims and
demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding
agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable
for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is,
moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax
withheld be finally found to be less than the amount that should have been withheld under law.

A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The terms
"liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually
impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard,
such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for
refund of taxes he believes were illegally collected from him.

In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a withholding agent
is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary
government agent:ChanRoblesVirtualawlibrary
The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as
well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the
withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the collection and/or
withholding of the tax, he is the Government's agent. In regard to the filing of the necessary income tax return and the
payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary
government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to
withhold; whereas the Commissioner and his deputies are not made liable by law.
If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends
with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the
government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action
for recovery of such claim. This implied authority is especially warranted where, as in the instant case, the withholding
agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of
such parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of
P&G-Phil. to claim a refund and to commence an action for such refund.

. . . .

We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer" within
the meaning of Section 309, NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such
claim.174 (Emphasis supplied, citations omitted)
In Commissioner of Internal Revenue v. Smart Communication, Inc.:175

[W]hile the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the
obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has
recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from whom the
taxes were withheld, and from whom he derives his legal right to file a claim for refund.176chanroblesvirtuallawlibrary
Since respondents have not sufficiently shown the actual remittance of the 20% final withholding taxes withheld from
the proceeds of the PEACe bonds to the Bureau of Internal Revenue, there was no legal impediment for the Bureau of
Treasury (as agent of petitioners) to release the monies to petitioners to be placed in escrow, pending resolution of the
motions for reconsideration filed in this case by respondents and petitioners-inervenors RCBC and RCBC Capital.

Moreover, Sections 204 and 229 of the National Internal Revenue Code are not applicable since the Bureau of Treasury's
act of withholding the 20% final withholding tax was done after the Petition was filed.

Petitioners also urge177 us to hold respondents liable for 6% legal interest reckoned from October 19, 2011 until they
fully pay the amount corresponding to the 20% final withholding tax.

This Court has previously granted interest in cases where patent arbitrariness on the part of the revenue authorities has
been shown, or where the collection of tax was illegal.178chanrobleslaw

In Philex Mining Corp. v. Commissioner of Internal Revenue:179

[T]he rule is that no interest on refund of tax can be awarded unless authorized by law or the collection of the tax was
attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due consideration where there is
room for two opinions, however much it may be believed that an erroneous conclusion was reached. Arbitrariness
presupposes inexcusable or obstinate disregard of legal provisions.180 (Emphasis supplied, citations omitted)

Here, the Bureau of Treasury made no effort to release the amount of P4,966,207,796.41, corresponding to the 20%
final withholding tax, when it could have done so.

In the Court's temporary restraining order dated October 18, 2011,181 which respondent received on October 19, 2011,
we "enjoin[ed] the implementation of BIR Ruling No. 370-2011 against the [PEACe Bonds,] . . . subject to the condition
that the 20% final withholding tax on interest income therefrom shall be withheld by the petitioner banks and placed in
escrow pending resolution of [the] petition."182chanrobleslaw
Subsequently, in our November 15, 2011 Resolution, we directed respondents to "show cause why they failed to comply
with the [temporary restraining order]; and [to] comply with the [temporary restraining order] in order that petitioners
may place the corresponding funds in escrow pending resolution of the petition."183chanrobleslaw

Respondent did not heed our orders.

In our Decision dated January 13, 2015, we reprimanded the Bureau of Treasury for its continued retention of the
amount corresponding to the 20% final withholding tax, in wanton disregard of the orders of this Court.

We further ordered the Bureau of Treasury to immediately release and pay the bondholders the amount corresponding
to the 20% final withholding tax that it withheld on October 18, 2011.

However, respondent remained obstinate in its refusal to release the monies and exhibited utter disregard and defiance
of this Court.

As early as October 19, 2011, petitioners could have deposited the amount of P4,966,207,796.41 in escrow and earned
interest, had respondent Bureau of Treasury complied with the temporary restraining order and released the funds. It
was inequitable for the Bureau of Treasury to have withheld the potential earnings of the funds in escrow from
petitioners.

Due to the Bureau of Treasury's unjustified refusal to release the funds to be deposited in escrow, in utter disregard of
the orders of the Court, it is held liable to pay legal interest of 6% per annum184 on the amount of P4,966,207,796.41
representing the 20% final withholding tax on the PEACe Bonds.

WHEREFORE, respondents' Motion for Reconsideration and Clarification is DENIED, and petitioners-intervenors RCBC
and RCBC Capital Corporation's Motion for Clarification and/or Partial Reconsideration is PARTLY GRANTED.

Respondent Bureau of Treasury is hereby ORDERED to immediately release and pay the bondholders the amount of
P4,966,207,796.41, representing the 20% final withholding tax on the PEACe Bonds, with legal interest of 6% per annum
from October 19, 2011 until full payment.

SO ORDERED.chanroblesvirtuallawlibrary