NATIONAL POWER CORPORATION, petitioner, vs. THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R.

SALALIMA, and ALBAY PROVINCIAL TREASURER ABUNDIO M. NUEZ, respondents. The National Power Corporation (NAPOCOR) questions the power of the provincial government of Albay to collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11, 1984 up to March 10, 1987. It appears that on March 14 and 15, 1989, the respondents caused the publication of a notice of auction sale involving the properties of NAPOCOR and the Philippine Geothermal Inc. consisting of buildings, machines, and similar improvements standing on their offices at Tiwi, Albay. The amounts to be realized from this advertised auction sale are supposed to be applied to the tax delinquencies claimed, as and for, as we said, real property taxes. The back taxes NAPOCOR has supposedly accumulated were computed at P214,845,184.76. NAPOCOR opposed the sale, interposing in support of its non-liability Resolution No. 17-87, of the Fiscal Incentives Review Board (FIRB), which provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products, granted under the terms and conditions of Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers, objectives and functions, and for other purposes), as amended, are restored effective March 10, 1987, subject to the following conditions: 1

On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay provincial government "to CEASE AND DESIST from selling and disposing of the NAPOCOR properties subject matter of this petition. 3 It appears, however, that "the temporary restraining order failed to reach respondents before the scheduled bidding at 10:00 a.m. on March 30, 1989 ... [h]ence, the respondents proceeded with the bidding wherein the Province of Albay was the highest bidder. 4 The Court gathers from the records that: (1) Under Section 13, of Republic Act No. 6395, amending Commonwealth Act No. 120 (charter of NAPOCOR): Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion, To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. 5 (2) On August 24, 1975, Presidential Decree No. 776 was promulgated, creating the Fiscal Incentives Review Board (FIRB). Among other things, the Board was tasked as follows:
Section 2. A Fiscal Incentives Review Board is hereby created for the purpose of determining what subsidies and tax exemptions should be modified, withdrawn, revoked or suspended, which shall be composed of the following officials: Chairman - Secretary of Finance Members - Secretary of Industry - Director General of the National Economic and Development Authority

as well as the Memorandum of Executive Secretary Catalino Macaraig, which also states thus: Pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93, series of 1986, FIRB Resolution No. 17-87, series of 1987, restoring, subject to certain conditions prescribed therein, the tax and duty exemption privileges of NPC as provided under Commonwealth Act No. 120, as amended, effective March 10, 1987, is hereby confirmed and approved. 2

- Commissioner of Internal Revenue - Commissioner of Customs

and SECTION 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby authorized to: a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part; b) revise the scope and coverage of tax and/or duty exemption that may be restored; c) impose conditions for the restoration of tax and/or duty exemption; d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption; e) formulate and submit to the President for approval, a complete system for the grant of subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms and conditions for the grant thereof taking into consideration the international commitments of the Philippines and the necessary precautions such that the grant of subsidies does not become the basis for countervailing action. 10

The Board may recommend to the President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the abovestated statutory subsidies or tax exemption grants, except those granted by the Constitution. To attain its objectives, the Board may require the assistance of any appropriate government agency or entity. The Board shall meet once a month, or oftener at the call of the Secretary of Finance. 6 (3) On June 11, 1984, Presidential Decree No. 1931 was promulgated, prescribing, among other things, that: Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, impost and other charges heretofore granted in favor of governmentowned or controlled corporations including their subsidiaries are hereby withdrawn. 7 (4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring" NAPOCOR's tax exemption effective June 11, 1984 to June 30, 1985; (5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption privileges to NAPOCOR from July 1, 1985 and indefinitely thereafter; (6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR tax exemption privileges effective until March 10, 1987; 8 (7) On December 17, 1986, Executive Order No. 93 was promulgated by President Corazon Aquino, providing, among other things, as follows:
SECTION 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except. 9

(8) On October 5, 1987, the Office of the President issued the Memorandum, confirming NAPOCOR's tax exemption aforesaid. 11 The provincial government of Albay now defends the auction sale in question on the theory that the various FIRB issuances constitute an undue delegation of the taxing Power and hence, null and void, under the Constitution. It is also contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax exemptions, the same is of no force and effect under the constitutional provision allowing the legislature alone to accord tax exemption privileges. It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to "recommend to the President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the above-cited statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to impose taxes or revoke existing ones, which, after all, under the Constitution, only the

legislature may accomplish. 12 The question therefore is whether or not the various tax exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and constitutional. We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos. 10- 85 and 1-86, we sustain the provincial government of Albay. As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to "recommend" tax exemptions. By itself, it could not have validly prescribed exemptions or restore taxability. Hence, as of June 11, 1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had ceased to enjoy tax exemption privileges. The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax and/or duty exemptions withdrawn hereunder in whole or in part," 13 and "impose conditions for ... tax and/or duty exemption" 14 is of no moment. These provisions are prospective in character and can not affect the Board's past acts. The Court is aware that in its preamble, Executive Order No. 93 states: WHEREAS, a number of affected entities, government and private were able to get back their tax and duty exemption privileges through the review mechanism implemented by the Fiscal Incentives Review Board (FIRB); 15 but by no means can we say that it has "ratified" the acts of FIRB. It is to misinterpret the scope of FIRB's powers under Presidential Decree No. 776 to say that it has. Apart from that, Section 2 of the Executive Order was clearly intended to amend Presidential Decree No. 776, which means, mutatis mutandis, that FIRB did not have the right, in the first place, to grant tax exemptions or withdraw existing ones. Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be stressed that the provincial government of Albay admits that as of March 10, 1987 (the date Resolution No. 17-87 was affirmed by the Memorandum of the Office of the President, dated October 5, 1987), NAPOCOR's exemption had been validly restored. What it questions is NAPOCOR's liability in the interregnum between June 11, 1984, the date its tax privileges were withdrawn, and March 10, 1987, the date they were purportedly

restored. To be sure, it objects to Executive Order No. 93 as alledgedly a delegation of legislative power, but only insofar as its (NAPOCOR's) June 11, 1984 to March 10, 1987 tax accumulation is concerned. We therefore leave the issue of "delegation" to the future and its constitutionality when the proper case arises. For the nonce, we leave Executive Order No. 93 alone, and so also, its validity as far as it grants tax exemptions (through the FIRB) beginning December 17, 1986, the date of its promulgation. NAPOCOR must then be held liable for the intervening years aforesaid. So it has been held: xxx xxx xxx The last issue to be resolved is whether or not the private-respondent is liable for the fixed and deficiency percentage taxes in the amount of P3,025.96 (i.e. for the period from January 1, 1946 to February 29, 1948) before the approval of its municipal franchises. As aforestated, the franchises were approved by the President only on February 24,1948. Therefore, before the said date, the private respondent was liable for the payment of percentage and fixed taxes as seller of light, heat, and power which, as the petitioner claims, amounted to P3,025.96. The legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover the period before the franchise was granted, i.e. before February 24, 1948. ... 16 Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level, Thus: SEC. 86. Distribution of proceeds. (a) The proceeds of the real property tax, except as otherwise provided in this Code, shall accrue to the province, city or municipality where the property subject to the tax is situated and shall be applied by

the respective local government unit for its own use and benefit. (b) Barrio shares in real property tax collections. The annual shares of the barrios in real property tax collections shall be as follows: (1) Five per cent of the real property tax collections of the province and another five percent of the collections of the municipality shall accrue to the barrio where the property subject to the tax is situated. (2) In the case of the city, ten per cent of the collections of the tax shag likewise accrue to the barrio where the property is situated. Thirty per cent of the barrio shares herein referred to may be spent for salaries or per diems of the barrio officials and other administrative expenses, while the remaining seventy per cent shall be utilized for development projects approved by the Secretary of Local Government and Community Development or by such committee created, or representatives designated, by him. SEC. 87. Application of proceeds. (a) The proceeds of the real property tax pertaining to the city and to the municipality shall accrue entirely to their respective general funds. In the case of the province, one-fourth thereof shall accrue to its road and bridge fund and the remaining three-fourths, to its general fund. (b) The entire proceeds of the additional one per cent real property tax levied for the Special Education Fund created under R.A. No. 5447 collected in the province or city on real property situated in their respective territorial jurisdictions shall be distributed as follows: (1) Collections in the provinces: Fifty per cent shall accrue to the municipality where the property subject to the tax is situated; twenty per cent shall accrue to the province; and thirty per cent shall be remitted to the Treasurer of the Philippines to be expended

exclusively for stabilizing the Special Education Fund in municipalities, cities and provinces in accordance with the provisions of Section seven of R.A. No. 5447. (2) Collections in the cities: Sixty per cent shall be retained by the city; and forty per cent shall be remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the special education fund in municipalities, cities and provinces as provided under Section 7 of R.A. No. 5447. However, any increase in the shares of provinces, cities and municipalities from said additional tax accruing to their respective local school boards commencing with fiscal year 1973-74 over what has been actually realized during the fiscal year 1971-72 which, for purposes of this Code, shall remain as the based year, shall be divided equally between the general fund and the special education fund of the local government units concerned. The Secretary of Finance may, however, at his discretion, increase to not more than seventyfive per cent the amount that shall accrue annually to the local general fund. (c) The proceeds of all delinquent taxes and penalties, as well as the income realized from the use, lease or other disposition of real property acquired by the province or city at a public auction in accordance with the provisions of this Code, and the proceeds of the sale of the delinquent real property or, of the redemption thereof shall accrue to the province, city or municipality in the same manner and proportion as if the tax or taxes had been paid in regular course.

(d) The proceeds of the additional real property tax on Idle private lands shall accrue to the respective general funds of the province, city and municipality where the land subject to the tax is situated. 17 To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the Government be said to have lost anything. As a rule finally, claims of tax exemption are construed strongly against the claimant. 18 They must also be shown to exist clearly and categorically, and supported by clear legal provisions. 19 Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's properties to answer for real estate taxes accumulated between June 11, 1984 through March 10, 1987 is hereby declared valid. SO ORDERED. PASEO REALTY & DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. DECISION TINGA, J.: The changes in the reportorial requirements and payment schedules of corporate income taxes from annual to quarterly have created problems, especially on the matter of tax refunds.[1] In this case, the Court is called to resolve the question of whether alleged excess taxes paid by a corporation during a taxable year should be refunded or credited against its tax liabilities for the succeeding year. Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two (2) parcels of land at Paseo de Roxas in Makati City, seeks a review of the Decision[2] of the Court of Appeals

dismissing its petition for review of the resolution[3] of the Court of Tax Appeals (CTA) which, in turn, denied its claim for refund. The factual antecedents[4] are as follows: On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989 declaring a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, an income tax due thereon in the amount of P27,653.00, prior years excess credit of P146,026.00, and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00. On November 14, 1991, petitioner filed with respondent a claim for the refund of excess creditable withholding and income taxes for the years 1989 and 1990 in the aggregate amount of P147,036.15. On December 27, 1991 alleging that the prescriptive period for refunds for 1989 would expire on December 30, 1991 and that it was necessary to interrupt the prescriptive period, petitioner filed with the respondent Court of Tax Appeals a petition for review praying for the refund of P54,104.00 representing creditable taxes withheld from income payments of petitioner for the calendar year ending December 31, 1989. On February 25, 1992, respondent Commissioner filed an Answer and by way of special and/or affirmative defenses averred the following: a) the petition states no cause of action for failure to allege the dates when the taxes sought to be refunded were paid; b) petitioners claim for refund is still under investigation by respondent Commissioner; c) the taxes claimed are deemed to have been paid and collected in accordance with law and existing pertinent rules and regulations; d) petitioner failed to allege that it is entitled to the refund or deductions claimed; e) petitioners contention that it has available tax credit for the current and prior year is gratuitous and does not ipso facto warrant the refund; f) petitioner failed to show that it has complied with the provision of Section 230 in relation to Section 204 of the Tax Code. After trial, the respondent Court rendered a decision ordering respondent Commissioner to refund in favor of petitioner the

amount of P54,104.00, representing excess creditable withholding taxes paid for January to July1989. Respondent Commissioner moved for reconsideration of the decision, alleging that the P54,104.00 ordered to be refunded has already been included and is part and parcel of the P172,477.00 which petitioner automatically applied as tax credit for the succeeding taxable year 1990. In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29, 1993 and dismissed the petition for review, stating that it has overlooked the fact that the petitioners 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P54,104.00 subject of petitioners claim for refund has already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding taxable year 1990. Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10, 1994.[5] Petitioner filed a Petition for Review[6] dated April 3, 1994 with the Court of Appeals. Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representing creditable taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990 income tax liability, the appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed, against its income tax liability for 1990. The appellate court elucidated on the reason for its dismissal of petitioners claim for refund, thus: In the instant case, it appears that when petitioner filed its income tax return for the year 1989, it filled up the box stating that the total amount of P172,477.00 shall be applied against its income tax liabilities for the succeeding taxable year. Petitioner did not specify in its return the amount to be refunded and the amount to be applied as tax credit to the succeeding taxable year, but merely marked an x to the box indicating to be applied as tax credit to the succeeding taxable year. Unlike what petitioner had done when it filed its income tax return for the year 1988, it specifically stated that out of the P146,026.00 the entire refundable

amount, only P64,623.00 will be made available as tax credit, while the amount of P81,403.00 will be refunded. In its 1989 income tax return, petitioner filled up the box to be applied as tax credit to succeeding taxable year, which signified that instead of refund, petitioner will apply the total amount of P172,447.00, which includes the amount of P54,104.00 sought to be refunded, as tax credit for its tax liabilities in 1990. Thus, there is really nothing left to be refunded to petitioner for the year 1989. To grant petitioners claim for refund is tantamount to granting twice the refund herein sought to be refunded, to the prejudice of the Government. The Court of Appeals denied petitioners Motion for Reconsideration[7] dated November 8, 1994 in its Resolution[8] dated February 21, 1995 because the motion merely restated the grounds which have already been considered and passed upon in its Decision.[9] Petitioner thus filed the instant Petition for Review[10] dated April 14, 1995 arguing that the evidence presented before the lower courts conclusively shows that it did not apply the P54,104.00 to its 1990 income tax liability; that the Decision subject of the instant petition is inconsistent with a final decision[11] of the Sixteenth Division of the appellate court in C.A.-G.R. Sp. No. 32890 involving the same parties and subject matter; and that the affirmation of the questioned Decision would lead to absurd results in the manner of claiming refunds or in the application of prior years excess tax credits. The Office of the Solicitor General (OSG) filed a Comment[12] dated May 16, 1996 on behalf of respondents asserting that the claimed refund of P54,104.00 was, by petitioners election in its Corporate Annual Income Tax Return for 1989, to be applied against its tax liability for 1990. Not having submitted its tax return for 1990 to show whether the said amount was indeed applied against its tax liability for 1990, petitioners election in its tax return stands. The OSG also contends that petitioners election to apply its overpaid income tax as tax credit against its tax liabilities for the succeeding taxable year is mandatory and irrevocable. On September 2, 1997, petitioner filed a Reply[13] dated August 31, 1996 insisting that the issue in this case is not whether the

amount of P54,104.00 was included as tax credit to be applied against its 1990 income tax liability but whether the same amount was actually applied as tax credit for 1990. Petitioner claims that there is no need to show that the amount of P54,104.00 had not been automatically applied against its 1990 income tax liability because the appellate courts decision in C.A.-G.R. Sp. No. 32890 clearly held that petitioner charged its 1990 income tax liability against its tax credit for 1988 and not 1989. Petitioner also disputes the OSGs assertion that the taxpayers election as to the application of excess taxes is irrevocable averring that there is nothing in the law that prohibits a taxpayer from changing its mind especially if subsequent events leave the latter no choice but to change its election. The OSG filed a Rejoinder[14] dated March 5, 1997 stating that petitioners 1988 tax return shows a prior years excess credit of P81,403.00, creditable tax withheld of P92,750.00 and tax due of P27,127.00. Petitioner indicated that the prior years excess credit of P81,403.00 was to be refunded, while the remaining amount of P64,623.00 (P92,750.00 - P27,127.00) shall be considered as tax credit for 1989. However, in its 1989 tax return, petitioner included the P81,403.00 which had already been segregated for refund in the computation of its excess credit, and specified that the full amount of P172,479.00* (P81,403.00 + P64,623.00 + P54,104.00** P27,653.00***) be considered as its tax credit for 1990. Considering that it had obtained a favorable ruling for the refund of its excess credit for 1988 in CA-G.R. SP. No. 32890, its remaining tax credit for 1989 should be the excess credit to be applied against its 1990 tax liability. In fine, the OSG argues that by its own election, petitioner can no longer ask for a refund of its creditable taxes withheld in 1989 as the same had been applied against its 1990 tax due. In its Resolution[15] dated July 16, 1997, the Court gave due course to the petition and required the parties to simultaneously file their respective memoranda within 30 days from notice. In compliance with this directive, petitioner submitted its Memorandum[16] dated September 18, 1997 in due time, while the OSG filed its Memorandum[17] dated April 27, 1998 only on April 29, 1998 after several extensions. The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside the conclusion reached by an agency such as the CTA which is, by

the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority.[18] This interdiction finds particular application in this case since the CTA, after careful consideration of the merits of the Commissioner of Internal Revenues motion for reconsideration, reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based, as it is, on the pertinent laws as applied to the facts. Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excess credit of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the succeeding taxable year.[19] According to petitioner, it successively utilized this amount when it obtained refunds in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300) and CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890), and applied its 1990 tax liability, leaving a balance of P54,104.00, the amount subject of the instant claim for refund.[20] Represented mathematically, petitioner accounts for its claim in this wise: P172,477.00 Amount indicated in petitioners 1989 tax return to be applied as tax credit for the succeeding taxable year - 25,623.00 Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300) P146,854.00 Balance as of April 16, 1990 - 59,510.00 Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890) P87,344.00 Balance as of January 2, 1991 - 33,240.00 Income tax liability for calendar year 1990 applied as of April 15, 1991 P54,104.00 Balance as of April 15, 1991 now subject of the instant claim for refund[21]

Other than its own bare allegations, however, petitioner offers no proof to the effect that its creditable tax of P172,477.00 was applied as claimed above. Instead, it anchors its assertion of entitlement to refund on an alleged finding in C.A.-G.R. Sp. No. 32890[22] involving the same parties to the effect that petitioner charged its 1990 income tax liability to its tax credit for 1988 and not its 1989 tax credit. Hence, its excess creditable taxes withheld of P54,104.00 for 1989 was left untouched and may be refunded. Note should be taken, however, that nowhere in the case referred to by petitioner did the Court of Appeals make a categorical determination that petitioners tax liability for 1990 was applied against its 1988 tax credit. The statement adverted to by petitioner was actually presented in the appellate courts decision in CA-G.R. Sp No. 32890 as part of petitioners own narration of facts. The pertinent portion of the decision reads: It would appear from petitioners submission as follows: xxx since it has already applied to its prior years excess credit of P81,403.00 (which petitioner wanted refunded when it filed its 1988 Income Tax Return on April 14, 1989) the income tax liability for 1988 of P28,127.00 and the income tax liability for 1989 of P27,653.00, leaving a balance refundable of P25,623.00 subject of C.T.A. Case No. 4439, the P92,750.00 (P64,623.00 plus P28,127.00, since this second amount was already applied to the amount refundable of P81,403.00) should be the refundable amount. But since the taxpayer again used part of it to satisfy its income tax liability of P33,240.00 for 1990, the amount refundable was P59,510.00, which is the amount prayed for in the claim for refund and also in the petitioner (sic) for review. That the present claim for refund already consolidates its claims for refund for 1988, 1989, and 1990, when it filed a claim for refund of P59,510.00 in this case (CTA Case No. 4528). Hence, the present claim should be resolved together with the previous claims.[23] The confusion as to petitioners entitlement to a refund could altogether have been avoided had it presented its tax return for 1990. Such return would have shown whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes the P54,104.00 creditable taxes withheld for 1989 subject of the instant claim for refund, against its 1990 tax liability as it had elected in its

1989 return, or at least, whether petitioners tax credit of P172,477.00 was applied to its approved refunds as it claims. The return would also have shown whether there remained an excess credit refundable to petitioner after deducting its tax liability for 1990. As it is, we only have petitioners allegation that its tax due for 1990 was P33,240.00 and that this was applied against its remaining tax credits using its own first in, first out method of computation. It would have been different had petitioner not included the P54,104.00 creditable taxes for 1989 in the total amount it elected to apply against its 1990 tax liabilities. Then, all that would have been required of petitioner are: proof that it filed a claim for refund within the two (2)-year prescriptive period provided under Section 230 of the NIRC; evidence that the income upon which the taxes were withheld was included in its return; and to establish the fact of withholding by a copy of the statement (BIR Form No. 1743.1) issued by the payor[24] to the payee showing the amount paid and the amount of tax withheld therefrom. However, since petitioner opted to apply its aggregate excess credits as tax credit for 1990, it was incumbent upon it to present its tax return for 1990 to show that the claimed refund had not been automatically credited and applied to its 1990 tax liabilities. The grant of a refund is founded on the assumption that the tax return is valid, i.e., that the facts stated therein are true and correct.[25] Without the tax return, it is error to grant a refund since it would be virtually impossible to determine whether the proper taxes have been assessed and paid. Why petitioner failed to present such a vital piece of evidence confounds the Court. Petitioner could very well have attached a copy of its final adjustment return for 1990 when it filed its claim for refund on November 13, 1991. Annex B of its Petition for Review[26] dated December 26, 1991 filed with the CTA, in fact, states that its annual tax return for 1990 was submitted in support of its claim. Yet, petitioners tax return for 1990 is nowhere to be found in the records of this case. Had petitioner presented its 1990 tax return in refutation of respondent Commissioners allegation that it did not present evidence to prove that its claimed refund had already been automatically credited against its 1990 tax liability, the CTA would

not have reconsidered its earlier Decision. As it is, the absence of petitioners 1990 tax return was the principal basis of the CTAs Resolution reconsidering its earlier Decision to grant petitioners claim for refund. Petitioner could even still have attached a copy of its 1990 tax return to its petition for review before the Court of Appeals. The appellate court, being a trier of facts, is authorized to receive it in evidence and would likely have taken it into account in its disposition of the petition. In BPI-Family Savings Bank v. Court of Appeals,[27] although petitioner failed to present its 1990 tax return, it presented other evidence to prove its claim that it did not apply and could not have applied the amount in dispute as tax credit. Importantly, petitioner therein attached a copy of its final adjustment return for 1990 to its motion for reconsideration before the CTA buttressing its claim that it incurred a net loss and is thus entitled to refund. Considering this fact, the Court held that there is no reason for the BIR to withhold the tax refund. In this case, petitioners failure to present sufficient evidence to prove its claim for refund is fatal to its cause. After all, it is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against the taxpayer.[28] Section 69, Chapter IX, Title II of the National Internal Revenue Code of the Philippines (NIRC) provides: Sec. 69. Final Adjustment Return.Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable

amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. [Emphasis supplied] Revenue Regulation No. 10-77 of the Bureau of Internal Revenue clarifies: SEC. 7. Filing of final or adjustment return and final payment of income tax. A final or an adjustment return on B.I.R. Form No. 1702 covering the total taxable income of the corporation for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. The return shall include all the items of gross income and deductions for the taxable year. The amount of income tax to be paid shall be the balance of the total income tax shown on the final or adjustment return after deducting therefrom the total quarterly income taxes paid during the preceding first three quarters of the same calendar or fiscal year. Any excess of the total quarterly payments over the actual income tax computed and shown in the adjustment or final corporate income tax return shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return its intention whether to request for refund of the overpaid income tax or claim for automatic credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year by filling up the appropriate box on the corporate tax return (B.I.R. Form No. 1702). [Emphasis supplied] As clearly shown from the above-quoted provisions, in case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year. The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. In the recent case of AB Leasing and Finance Corporation v. Commissioner of Internal Revenue,[29] where the Court declared

that [T]he carrying forward of any excess or overpaid income tax for a given taxable year then is limited to the succeeding taxable year only, we ruled that since the case involved a claim for refund of overpaid taxes for 1993, petitioner could only have applied the 1993 excess tax credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of Section 69 of the NIRC. In this case, petitioner included its 1988 excess credit of P146,026.00 in the computation of its total excess credit for 1989. It indicated this amount, plus the 1989 creditable taxes withheld of P54,104.00 or a total of P172,477.00, as its total excess credit to be applied as tax credit for 1990. By its own disclosure, petitioner effectively combined its 1988 and 1989 tax credits and applied its 1990 tax due of P33,240.00 against the total, and not against its creditable taxes for 1989 only as allowed by Section 69. This is a clear admission that petitioners 1988 tax credit was incorrectly and illegally applied against its 1990 tax liabilities. Parenthetically, while a taxpayer is given the choice whether to claim for refund or have its excess taxes applied as tax credit for the succeeding taxable year, such election is not final. Prior verification and approval by the Commissioner of Internal Revenue is required. The availment of the remedy of tax credit is not absolute and mandatory. It does not confer an absolute right on the taxpayer to avail of the tax credit scheme if it so chooses. Neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer.[30] Contrary to petitioners assertion however, the taxpayers election, signified by the ticking of boxes in Item 10 of BIR Form No. 1702, is not a mere technical exercise. It aids in the proper management of claims for refund or tax credit by leading tax authorities to the direction they should take in addressing the claim. The amendment of Section 69 by what is now Section 76 of Republic Act No. 8424[31] emphasizes that it is imperative to indicate in the tax return or the final adjustment return whether a tax credit or refund is sought by making the taxpayers choice irrevocable. Section 76 provides: SEC. 76. Final Adjustment Return.Every corporation liable to tax under Section 27 shall file a final adjustment return covering the

total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of the tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore. [Emphasis supplied] As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments made during the taxable year is not equal to the total tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the excess credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or refund as shown in its final adjustment return which may be carried over and applied against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. However, once the taxpayer has exercised the option to carry-over and to apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed. Had this provision been in effect when the present claim for refund was filed, petitioners excess credits for 1988 could have

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been properly applied to its 1990 tax liabilities. Unfortunately for petitioner, this is not the case. Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception.[32] WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of Appeals is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant, vs. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees. Sabido, Sabido & Associates for appellant. Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of 1962. Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. 3 On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. 5 The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.' On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring

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

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Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs." From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended. There are three capital questions raised in this appeal: 1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive? 2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes? 3. Are Ordinances Nos. 23 and 27 unjust and unfair? 1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people. 6 It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. 9 Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 12 There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for

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the same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or municipality. 17 2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of onesixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the former." That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of the general rule, pursuant to the

rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. 21 Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified. 3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in line with the constutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. 28

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Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a municipality. ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant. SO ORDERED. MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners, vs. HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.

1% monthly interest and compromise penalties, and the second, dated October 7, 1969, denying the Motion for reconsideration of the Order of dismissal. The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3, 1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp. 2324, Rollo). Finding the opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated October 7, 1969. Hence, this appeal on certiorari, petitioner assigning the following errors: 1. The lower court erred in holding that the claim for taxes by the government against the estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule 86 of the Rules of Court. 2. The lower court erred in holding that the claim for taxes of the government was already barred under Section 5, Rule 86 of the Rules of Court. which raise the sole issue of whether or not the statute of nonclaims Section 5, Rule 86 of the New Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation prescribed in Section 331 and 332 of the National Internal Revenue Code.

DE CASTRO, J.: Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969 dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of P3,254.80, inclusive 5% surcharge,

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Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for Allowance of Claim, etc. of the petitioners reads as follows: All claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in they notice; otherwise they are barred forever, except that they may be set forth as counter claims in any action that the executor or administrator may bring against the claimants. Where the executor or administrator commence an action, or prosecutes an action already commenced by the deceased in his lifetime, the debtor may set forth may answer the claims he has against the decedents, instead of presenting them independently to the court has herein provided, and mutual claims may be set off against each other in such action; and in final judgment is rendered in favored of the decedent, the amount to determined shall be considered the true balance against the estate, as though the claim has been presented directly before the court in the administration proceedings. Claims not yet due, or contingent may be approved at their present value. A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary obligation of the decedent created by law, such as taxes which is entirely of different character from the claims expressly enumerated therein, such as: "all claims for money against the decedent arising from contract, express or implied, whether the same be due, not due or contingent, all claim for funeral expenses and expenses for the last sickness of the decedent and judgment for money against the decedent." Under the familiar rule of statutory construction of expressio unius est exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a statute enumerates the things upon which it is to operate, everything else must necessarily, and by implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the matter of prescription thereof are governed by the provisions of the National Internal revenue Code, particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind of the Court as not affecting the aforecited Section of the National Internal Revenue Code. In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes assessed against the estate of a deceased person ... need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been assessed against the estate." The abolition of the Committee on Claims does not alter the basic ruling laid down giving exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after the distribution of the decedent's estate among his heirs who shall be liable therefor in proportion of their share in the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13). The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. (Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own

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personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even after the distribution of the estate of the decedent among his heirs (Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of Internal Revenue, G. R. No. L-16661, January 31, 1962). Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the Philippines from the time the assessment was made by the Commissioner of Internal Revenue until paid with interests, penalties, etc. By virtue of such lien, this court held that the property of the estate already in the hands of an heir or transferee may be subject to the payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent may be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the property of the estate of the decedent has vested in the heirs, the decedent, represented by his estate, continues as if he were still alive, subject to the payment of such taxes as would be collectible from the estate even after his death. Thus in the case above cited, the income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and 1948 following his death in May, 1945. Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which reads:

Section 2. Time within which claims shall be filed. In the notice provided in the preceding section, the court shall state the time for the filing of claims against the estate, which shall not be more than twelve (12) nor less than six (6) months after the date of the first publication of the notice. However, at any time before an order of distribution is entered, on application of a creditor who has failed to file his claim within the time previously limited the court may, for cause shown and on such terms as are equitable, allow such claim to be flied within a time not exceeding one (1) month. (Emphasis supplied) In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of Payment of Taxes) which, though filed after the expiration of the time previously limited but before an order of the distribution is entered, should have been granted by the respondent court, in the absence of any valid ground, as none was shown, justifying denial of the motion, specially considering that it was for allowance Of claim for taxes due from the estate, which in effect represents a claim of the people at large, the only reason given for the denial that the claim was filed out of the previously limited period, sustaining thereby private respondents' contention, erroneously as has been demonstrated. WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final one and the respondent estate's sole defense of prescription has been herein overruled, the Motion for Allowance of Claim is herein granted and respondent estate is ordered to pay and discharge the same, subject only to the limitation of the interest collectible thereon as provided by the Tax Code. No pronouncement as to costs. SO ORDERED. ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of JOSE ROXAS, petitioners, vs.

16

COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Leido, Andrada, Perez and Associates for petitioners. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the following properties: (1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province; (2) A residential house and lot located at Wright St., Malate, Manila; and (3) Shares of stocks in different corporations. To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. AGRICULTURAL LANDS At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the

arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations paid by the farmers. In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Section 34 of the Tax Code. RESIDENTIAL HOUSE During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year. ASSESSMENTS On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax. The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years 1953 and 1955, as follows: 17

Antonio Roxas Eduardo Roxas Jose Roxas

1953 P7,010.00 7,281.00 6,323.00

1955 P5,813.00 5,828.00 5,588.00

Contributions to Pasay City Firemen Christmas Fund Pasay City Police Dept. X'mas fund 25.00 50.00

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed. The following deductions were disallowed: ROXAS Y CIA.: 195 3

195 5

Contributions to Baguio City Police Christmas fund Pasay City Firemen Christmas fund Pasay City Police Christmas fund EDUARDO ROXAS: 25.00 25.00 50.00

195 3

Contributions to Hijas de Jesus' Retiro de Manresa Philippines Herald's fund for Manila's neediest families 450.0 0 100.0 0

Tickets for Banquet in honor of S. Osmea Gifts of San Miguel beer Contributions to Philippine Air Force Chapel Manila Police Trust Fund Philippines Herald's fund for Manila's neediest families

P 40.00 28.00

195 5

Contributions to Philippines Herald's fund for Manila's neediest families JOSE ROXAS:

120.0 0

100.0 0 150.0 0 100.0 0

195 5

Contributions to Philippines Herald's fund for Manila's neediest families

120.0 0

195 5

Contributions to Contribution to Our Lady of Fatima Chapel, FEU ANTONIO ROXAS:

50.00

195

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining the assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads:

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WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5% surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and modified with respect to the partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate dealer's tax. With costs against petitioners. Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue did not appeal. The issues: (1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable? (2) Are the deductions for business expenses and contributions deductible? (3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers? The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because it engaged in the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles of partnership, quoted below: 4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus gerentes no deben conservarse; The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite

of the fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the ten-year amortization period. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude. The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%. DISALLOWED DEDUCTIONS Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation expenses.

19

Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and incurred in connection with his business. In the case at bar, the evidence does not show such link between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be sustained. The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of Fatima chapel at Far Eastern University. The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said entities. Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes. For this reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund is an allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions. The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be noted however that the contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code. Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far Eastern University on the ground that the said university gives dividends to its stockholders. Located within the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious organization. On the other hand, the lower

court found that it belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of its stockholders. The disallowance should be sustained. Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the partners. Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals. The law, which states: 1wph1.t . . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year: . . . (Emphasis supplied) . is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is sustained.1wph1.t To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: * ANTONIO ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount declared Amount understated Contributions disallowed P 153,249.15 146,135.46 P 7,113.69 115.00 P315,476. 59

20

P 7,228.69 Less 1/3 share of contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax due Tax paid Deficiency EDUARDO ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia Less profits declared Amount understated Less 1/3 share in contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax Due P147,250.0 P 153,249.15 146,052.58 P 7,196.57 P 304,166.9 2 Net income per review Less: Exemption Net income subject to tax Tax due Tax paid Deficiency 7,042.02 155.55 P304,322. 47 4,800.00 P299,592. 47 154,169.00 154,060.00 P 109.00 ====== ==== Tax paid 7,042.02 186.67 P315,663. 26 4,200.00 P311,463. 26 Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount reported Amount understated Less 1/3 share of contributions disallowed from partnership but allowed as deductions to partners Deficiency JOSE ROXAS

0 147,159.00 P91.00 ====== =====

P222,681. 76 P153,429.1 5 146,135.46 7,113.69

7,042.02

71.67 P222,753. 43 1,800.00 P220,953. 43

P102,763.0 0 102,714.00 P 49.00 ====== =====

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. No costs. So ordered.

21

ERNESTO M. MACEDA, petitioner, vs. HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET AL., respondents. Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation. Siguion Reyna, Montecillo & Ongsiako for Caltex.

. . . issued under the authority of this Act shall be exempt from the payment of all taxes by the Commonwealth of the Philippines, or by any authority, branch, division or political subdivision thereof and subject to the provisions of the Act of Congress, approved March 24, 1934, otherwise known as the Tydings McDuffle Law, which facts shall be stated upon the face of said bonds. . . . . 5 On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the initial operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first construction of any hydraulic power project was to be decided by the NPC Board. 6 The provision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted. On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the bond's principal and interest in "gold coins" but adding that payment could be made in United States dollars. 7 The provision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted. On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. 8 He was also authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate objectives 9 and for the reconstruction and development of the economy of the country. 10 It was expressly stated that: Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. 11 On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the pertinent tax exemption provision, the law stated as follows:

NOCON, J.: Just like lightning which does strike the same place twice in some instances, this matter of indirect tax exemption of the private respondent National Power Corporation (NPC) is brought to this Court a second time. Unfazed by the Decision We promulgated on May 31, 1991 1 petitioner Ernesto Maceda asks this Court to reconsider said Decision. Lest We be criticized for denying due process to the petitioner. We have decided to take a second look at the issues. In the process, a hearing was held on July 9, 1992 where all parties presented their respective arguments. Etched in this Court's mind are the paradoxical claims by both petitioner and private respondents that their respective positions are for the benefit of the Filipino people. I A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions, at the risk of being repetitious is, therefore, in order. On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power Corporation, a public corporation, mainly to develop hydraulic power from all water sources in the Philippines. 2 The sum of P250,000.00 was appropriated out of the funds in the Philippine Treasury for the purpose of organizing the NPC and conducting its preliminary work. 3 The main source of funds for the NPC was the flotation of bonds in the capital markets 4 and these bonds

22

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. 13 On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, the President of the Philippines was authorized to negotiate, contract and guarantee loans with the Export-Import Bank of of Washigton, D.C., U.S.A., or any other international financial institution. 14 The tax provision for repayment of these loans, as stated in R.A. No. 357, was not amended. On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes. As enacted, the law states as follows: To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities, and municipalities. 15 On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by the increased indebtedness 16 should bear the National Economic Council's stamp of approval. The tax exemption provision related to the payment of this total indebtedness was not amended nor deleted. On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax provision related to the repayment of these loans was not amended nor deleted. On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31, 2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly repealed. 19 On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a stock corporation with an authorized

capital stock of P100,000,000.00 divided into 1,000.000 shares having a par value of P100.00 each, with said capital stock wholly subscribed to by the Government. 20 No tax exemption was incorporated in said Act. On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital stock to P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax provision was incorporated in said Act. On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to P300,000,000.00, the increase to be wholly subscribed by the Government. No tax provision was incorporated in said Act. 22 On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended. Declared as primary objectives of the nation were: Declaration of Policy. Congress hereby declares that (1) the comprehensive development, utilization and conservation of Philippine water resources for all beneficial uses, including power generation, and (2) the total electrification of the Philippines through the development of power from all sources to meet the needs of industrial development and dispersal and the needs of rural electrification are primary objectives of the nation which shall be pursued coordinately and supported by all instrumentalities and agencies of the government, including the financial institutions. 23 Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans). As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows: The bonds issued under the authority of this subsection shall be exempt from the payment of all taxes by the Republic of the Philippines, or by any authority, branch, division or political subdivision

23

thereof which facts shall be stated upon the face of said bonds. . . . 24 As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as follows: The loans, credits and indebtedness contracted under this subsection and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials and supplies by the Corporation, paid from the proceeds of any loan, credit or indebtedeness incurred under this Act, shall also be exempt from all taxes, fees, imposts, other charges and restrictions, including import restrictions, by the Republic of the Philippines, or any of its agencies and political subdivisions. 25 A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character and tax exemptions of NPC as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared exempt: (a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, and municipalities and other government agencies and instrumentalities; (b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and (d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power. 26 On November 7, 1972, Presidential Decree No. 40 was issued declaring that the electrification of the entire country was one of the primary concerns of the country. And in connection with this, it was specifically stated that: The setting up of transmission line grids and the construction of associated generation facilities in Luzon, Mindanao and major islands of the country, including the Visayas, shall be the responsibility of the National Power Corporation (NPC) as the authorized implementing agency of the State. 27 xxx xxx xxx It is the ultimate objective of the State for the NPC to own and operate as a single integrated system all generating facilities supplying electric power to the entire area embraced by any grid set up by the NPC. 28 On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of P3,000,000,000.00 at any one time, 30 and the NPC was authorized to borrow a total of US$1,000,000,000.00 31 in foreign loans. The relevant tax exemption provision for these foreign loans states as follows:

24

The loans, credits and indebtedness contracted under this subsection and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials, supplies and services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions, including import restrictions previously and presently imposed, and to be imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. 32 (Emphasis supplied) Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows: (a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities including the taxes, duties, fees, imposts and other charges provided for under the Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended, and as further amended by Presidential Decree No. 34 dated October 27, 1972, and Presidential Decree No. 69, dated November 24, 1972, and costs and service fees in any court or administrative proceedings in which it may be a party; xxx xxx xxx (d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization and sale of electric power. 33 (Emphasis supplied) On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of electricity to its different customers. 34 No tax exemption provision was amended, deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated annually to cover the unpaid subscription of the Government in the NPC authorized capital stock, which amount would be taken from taxes accruing to the General Funds of the Government, proceeds from loans, issuance of bonds, treasury bills or notes to be issued by the Secretary of Finance for this particular purpose. 35 On May 27, 1976 P.D. No. 938 was issued (I)n view of the accelerated expansion programs for generation and transmission facilities which includes nuclear power generation, the present capitalization of National Power Corporation (NPC) and the ceilings for domestic and foreign borrowings are deemed insufficient; 36 xxx xxx xxx (I)n the application of the tax exemption provisions of the Revised Charter, the non-profit character of NPC has not been fully utilized because of restrictive interpretation of the taxing agencies of the government on said provisions; 37 xxx xxx xxx (I)n order to effect the accelerated expansion program and attain the declared objective of total electrification of the country, further amendments of certain sections of Republic Act No. 6395, as amended by Presidential Decrees Nos. 380, 395 and 758, have become imperative; 38 Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling was increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to read as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion.

25

To enable the Corporation to pay to its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. 42 II On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931 and Executive Order No. 93 (S'86). On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to imports as follows: WHEREAS, importations by certain government agencies, including government-owned or controlled corporation, are exempt from the payment of customs duties and compensating tax; and WHEREAS, in order to reduce foreign exchange spending and to protect domestic industries, it is necessary to restrict and regulate such tax-free importations. NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, and do hereby decree and order the following: Sec. 1. All importations of any government agency, including government-owned or controlled corporations which are exempt from the payment of customs duties and internal revenue taxes, shall be subject to the prior approval of an Inter-Agency Committee which shall insure compliance with the following conditions:

(a) That no such article of local manufacture are available in sufficient quantity and comparable quality at reasonable prices; (b) That the articles to be imported are directly and actually needed and will be used exclusively by the grantee of the exemption for its operations and projects or in the conduct of its functions; and (c) The shipping documents covering the importation are in the name of the grantee to whom the goods shall be delivered directly by customs authorities. xxx xxx xxx Sec. 3. The Committee shall have the power to regulate and control the tax-free importation of government agencies in accordance with the conditions set forth in Section 1 hereof and the regulations to be promulgated to implement the provisions of this Decree. Provided, however, That any government agency or government-owned or controlled corporation, or any local manufacturer or business firm adversely affected by any decision or ruling of the Inter-Agency Committee may file an appeal with the Office of the President within ten days from the date of notice thereof. . . . . xxx xxx xxx Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all general and special laws and decrees are hereby amended accordingly. xxx xxx xxx On July 30, 1977, P.D. 1177 was issued as it was . . . declared the policy of the State to formulate and implement a National Budget that is an instrument of national development, reflective of

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national objectives, strategies and plans. The budget shall be supportive of and consistent with the socioeconomic development plan and shall be oriented towards the achievement of explicit objectives and expected results, to ensure that funds are utilized and operations are conducted effectively, economically and efficiently. The national budget shall be formulated within a context of a regionalized government structure and of the totality of revenues and other receipts, expenditures and borrowings of all levels of government-owned or controlled corporations. The budget shall likewise be prepared within the context of the national long-term plan and of a long-term budget program. 43 In line with such policy, the law decreed that All units of government, including government-owned or controlled corporations, shall pay income taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that organizations otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General Fund in the exact amount of taxes/duties due: provided, further, that a procedure shall be established by the Secretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be considered as both revenue and expenditure of the General Fund. 44 The law also declared that [A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are inconsistent with the provisions of the Decree are hereby repealed and/or modified accordingly. 45 On July 11, 1984, most likely due to the economic morass the Government found itself in after the Aquino assassination, P.D. No. 1931 was issued to reiterate that: WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of tax privileges to any government-owned or controlled corporation and all other units of government; 46

and since there was a . . . need for government-owned or controlled corporations and all other units of government enjoying tax privileges to share in the requirements of development, fiscal or otherwise, by paying the duties, taxes and other charges due from them. 47 it was decreed that: Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of government-owned or controlled corporations including their subsidiaries, are hereby withdrawn. Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal Incentives Review Board created under Presidential Decree No. 776, is hereby empowered to restore, partially or totally, the exemptions withdrawn by Section 1 above, any applicable tax and duty, taking into account, among others, any or all of the following: 1) The effect on the relative price levels; 2) The relative contribution of the corporation to the revenue generation effort; 3) The nature of the activity in which the corporation is engaged in; or 4) In general the greater national interest to be served. xxx xxx xxx Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees, executive orders, administrative orders, rules, regulations or parts thereof which are inconsistent with this

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Decree are hereby repealed, amended or modified accordingly. On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration or grant of tax exemption to other government and private entities without benefit of review by the Fiscal Incentives Review Board, to wit: WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and October 14, 1984, respectively, withdrew the tax and duty exemption privileges, including the preferential tax treatment, of government and private entities with certain exceptions, in order that the requirements of national economic development, in terms of fiscals and other resources, may be met more adequately; xxx xxx xxx WHEREAS, in addition to those tax and duty exemption privileges were restored by the Fiscal Incentives Review Board (FIRB), a number of affected entities, government and private, had their tax and duty exemption privileges restored or granted by Presidential action without benefit or review by the Fiscal Incentives Review Board (FIRB); xxx xxx xxx Since it was decided that: [A]ssistance to government and private entities may be better provided where necessary by explicit subsidy and budgetary support rather than tax and duty exemption privileges if only to improve the fiscal monitoring aspects of government operations. It was thus ordered that: Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except:

a) those covered by the non-impairment clause of the Constitution; b) those conferred by effective internation agreement to which the Government of the Republic of the Philippines is a signatory; c) those enjoyed by enterprises registered with: (i) the Board of Investment pursuant to Presidential Decree No. 1789, as amended; (ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66 as amended; (iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to Presidential Decree No. 538, was amended. d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instructions No. 1416; e) those conferred under the four basic codes namely: (i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended;

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f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board. Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby authorized to: a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part; b) revise the scope and coverage of tax and/or duty exemption that may be restored; c) impose conditions for the restoration of tax and/or duty exemption; d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption; e) formulate and submit to the President for approval, a complete system for the grant of subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms and conditions for the grant thereof taking into consideration the international commitment of the Philippines and the necessary precautions such that the grant of subsidies does not become the basis for countervailing action. Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take into account any or all of the following considerations: a) the effect on relative price levels; b) relative contribution of the beneficiary to the revenue generation effort; c) nature of the activity the beneficiary is engaged; and

d) in general, the greater national interest to be served. xxx xxx xxx Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this Executive Order are hereby repealed or modified accordingly. E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to be issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and published in the Official Gazette on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official Gasetter, 51 which 15th day was March 10, 1987. III Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in their TAXATION I course, which fro convenient reference, is as follows: Classifications or kinds of Taxes: According to Persons who pay or who bear the burden: a. Direct Tax the where the person supposed to pay the tax really pays it. WITHOUT transferring the burden to someone else. Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's tax), residence tax, immigration tax b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.

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Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and the tariff and customs indirect taxes (import duties, special import tax and other dues) 52 IV To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to the following: (1) What kind of tax exemption privileges did NPC have? (2) For what periods in time were these privileges being enjoyed? (3) If there are taxes to be paid, who shall pay for these taxes? V Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No. 380, does not expressly include "indirect taxes." His point is not well-taken. A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to be completely tax exempt from all forms of taxes direct and indirect. NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations upon its creation by virtue of C.A. No. 120. When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained were to be completely tax exempt. After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it was again specifically exempted from all types of taxes "to facilitate payment of its indebtedness." Even when the ceilings for domestic and foreign borrowings were periodically increased, the tax exemption privileges of the NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No. 987, as above stated. The exemption was, however, restored by R.A. No. 6395. Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed NPC. Its section 13(d) is the starting point of this bone of contention among the parties. For easy reference, it is reproduced as follows: [T]he Corporation is hereby declared exempt: xxx xxx xxx (d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power. P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows: xxx xxx xxx (d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization and sale of electric power. (Emphasis supplied) Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective

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implementation of the policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of ALL FORMS OF taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. (Emphasis supplied) Petitioner reminds Us that: [I]t must be borne in mind that Presidential Decree Nos. 380 and 938 were issued by one man, acting as such the Executive and Legislative. 53 xxx xxx xxx [S]ince both presidential decrees were made by the same person, it would have been very easy for him to retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his intention were to preserve the indirect tax exemption of NPC. 54 Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his fault were. It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items: 13(a) : court or administrative proceedings; 13(b) : income, franchise, realty taxes; 13(c) : import of foreign goods required for its operations and projects; 13(d) : petroleum products used in generation of electric power. P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment or issuance as narrated above in part I hereof. President Marcos must have considered all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938. One common theme in all these laws is that the NPC must be enable to pay its indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved. By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to pay the government share in its capital stock P.D. No. 758 was issued mandating that P200 Million would be appropriated annually to cover the said unpaid subscription of the Government in NPC's authorized capital stock. And significantly one of the sources of this annual appropriation of P200 million is TAX MONEY accruing to the General Fund of the Government. It does not stand to reason then that former President Marcos would order P200 Million to be taken partially or totally from tax money to be used to pay the Government subscription in the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the other. The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the phrase "All FORMS OF" is supported by the fact that he did not do the same for the tax exemption provision for the foreign loans to be incurred. The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows: The loans, credits and indebtedness contracted under this subsection and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials and supplies by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all taxes, fees, imposts, other charges

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and restrictions, including import restrictions, by the Republic of the Philippines, or any of its agencies and political subdivisions. 57 The same was amended by P.D. No. 380 as follows: The loans, credits and indebtedness contracted this subsection and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials, supplies and services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions, including import restrictions previously and presently imposed, and to be imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. 58 (Emphasis supplied) P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do only with loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is with the express mention of "direct and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees, imposts, other charges . . . to be imposed" in the future surely, an indication that the lawmakers wanted the NPC to be exempt from ALL FORMS of taxes direct and indirect. It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirect taxes under P.D. No. 938. VI Five (5) years on into the now discredited New Society, the Government decided to rationalize government receipts and expenditures by formulating and implementing a National Budget. 60 The NPC, being a government owned and controlled corporation had to be shed off its tax exemption status privileges under P.D. No.

1177. It was, however, allowed to ask for a subsidy from the General Fund in the exact amount of taxes/duties due. Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importation privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed created by virtue of said P.D. No. 882. It is presumed that the NPC, being the special creation of the State, was allowed to continue its tax-free importations. This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the motion for Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss this tax exemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474, the basis of the petition at bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax exemption privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption privileges was not seasonably invoked 65 by the petitioner. Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption privileges as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax privileges of any government-owned or controlled corporation (GOCC). NPC included, was reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with recommending the partial or total restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931. The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in Section 23, P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had to submit to the Office of the President its request for the

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P200 million mandated by P.D. No. 758 to be appropriated annually by the Government to cover its unpaid subscription to the NPC authorized capital stock and that under Section 22, of the same P.D. No. NPC had to likewise submit to the Office of the President its internal operating budget for review due to capital inputs of the government (P.D. No. 758) and to the national government's guarantee of the domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177. There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly found themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that the Secretary of Finance and the Commissioner of the Budget had to establish the necessary procedure to accomplish the tax payment/tax subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay. In his memorandum filed July 16, 1992, petitioner submits: [T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty and tax exemptions, whether direct or indirect. And so there was nothing to be withdrawn or to be restored under P.D. No. 1931, issued on June 11, 1984. This is evident from sections 1 and 2 of said P.D. No. 1931, which reads: "Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, imports and other charges heretofore granted in favor of government-owned or controlled corporations including their subsidiaries are hereby withdrawn." Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal Incentives Review Board created under P.D. No. 776, is hereby empowered to restore partially or totally, the

exemptions withdrawn by section 1 above. . . . Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it had already lost all its tax exemptions privilege with the issuance of P.D. No. 1177 seven (7) years earlier or on July 30, 1977, there were no tax exemptions to be withdrawn by section 1 which could later be restored by the Minister of Finance upon the recommendation of the FIRB under Section 2 of P.D. No. 1931. Consequently, FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued since FIRB acted beyond their statutory authority by creating and not merely restoring the tax exempt status of NPC. The same is true for FIRB Res. No. 17-87 which restored NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and tax exemptions but allowed the President upon recommendation of the FIRB to restore those abolished. The Court disagrees. Applying by analogy the weight of authority that: When a revised and consolidated act re-enacts in the same or substantially the same terms the provisions of the act or acts so revised and consolidated, the revision and consolidation shall be taken to be a continuation of the former act or acts, although the former act or acts may be expressly repealed by the revised and consolidated act; and all rights and liabilities under the former act or acts are preserved and may be enforced. 66 the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with its institution of the

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FIRB recommendation of partial/total restoration of tax exemption privileges. The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the Minister of Finance. Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption status but merely restored it. 69 Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous Amendment No. 6 70 as there was no showing that President Marcos' encroachment on legislative prerogatives was justified under the then prevailing condition that he could legislate "only if the Batasang Pambansa 'failed or was unable to act inadequately on any matter that in his judgment required immediate action' to meet the 'exigency'. 71 Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos') judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. It must be remembered that said Presidential Decree was issued only around nine (9) months after the Philippines unilaterally declared a moratorium on its foreign debt payments 72 as a result of the economic crisis triggered by loss of confidence in the government brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment 6 power. 76 The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa" 77 does

not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No. 6 power. P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority. Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86). FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no indication, however, from the records of the case whether or not similar approvals were given by then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice" might have occurred when the Minister of Finance approved his own recommendation as Chairman of the Fiscal Incentives Review Board as what happened in Zambales Chromate vs. Court of Appeals 80 when the Secretary of Agriculture and Natural Resources approved a decision earlier rendered by him when he was the Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on appeal to Malacaang, his own decision as Chairman of the Civil Service Commission. 83 Upon deeper analysis, the question arises as to whether one can talk about "due process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives Review Board. 84 In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed. In the case of the tax exemption restoration of NPC, there is no other comparable entity not even a single public or private corporation whose rights would be violated if NPC's tax

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exemption privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State implementing arm for the electrification of the entire country. Besides, MERALCO was limited to Manila and its environs. And as of 1984, there was no more MERALCO as a producer of electricity which could have objected to the restoration of NPC's tax exemption privileges. It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate procedural due process. While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her thereunder. A misconception must be cleared up. When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not subdelegating her power. And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be carried out 85 and it fixed the standard to which the delegate had to conform in the performance of his functions, 86 both qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87 Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11, 1984 up to the present.

VII The next question that projects itself is who pays the tax? The answer to the question could be gleamed from the manner by which the Commissaries of the Armed Forces of the Philippines sell their goods. By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants but groceries and other goods free of all taxes and duties if bought from any AFP Commissaries. In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and other taxes on the goods earmarked for AFP Commissaries as an added cost of operation and distribute it over the total units of goods sold as it would any other cost. Thus, even the ordinary supermarket buyer probably pays for the specific, ad valorem and other taxes which theses suppliers do not charge the AFP Commissaries. 89 IN MUCH THE SAME MANNER, it is clear that private respondentsoil companies have to absorb the taxes they add to the bunker fuel oil they sell to NPC. It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders an opinion, 90 wherein he stated and We quote: xxx xxx xxx Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines and its provinces, cities, and municipalities." This exemption is broad enough to include all taxes, whether direct or indirect, which the National Power Corporation may be required to pay, such as the specific tax on petroleum products. That it is indirect or is of no amount [should be of no moment], for it is the corporation that ultimately pays it. The view which refuses to accord the exemption because the tax is first paid by the seller disregards realities and gives more importance to

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form than to substance. Equity and law always exalt substance over from. xxx xxx xxx Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as knowledge that many impositions taxpayers have to pay are in the nature of indirect taxes. To limit the exemption granted the National Power Corporation to direct taxes notwithstanding the general and broad language of the statue will be to thwrat the legislative intention in giving exemption from all forms of taxes and impositions without distinguishing between those that are direct and those that are not. (Emphasis supplied) In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR. If NPC nonetheless purchases such oil from the oil companies because to do so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to the BIR. It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:

EXECUTIVE ORDER NO. 195 AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED BY REVISING THE EXCISE TAX RATES OF CERTAIN PETROLEUM PRODUCTS. xxx xxx xxx Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as amended, is hereby amended to read as follows: Par. (b) For products subject to ad valorem tax only: PRODUCT AD VALOREM TAX RATE 1. . . . 2. . . . 3. . . . 4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the same generating power 0% xxx xxx xxx Sec. 3. This Executive Order shall take effect immediately. Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen hundred and eightyseven. (Emphasis supplied) The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear the economic burden of the ad valorem taxes. What this Court will now dispose of are petitioner's complaints that some indirect tax money has been illegally refunded by the Bureau of Internal Revenue to the NPC

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and that more claims for refunds by the NPC are being processed for payment by the BIR. A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes during the period from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the PNC did not have indirect tax exemptions with the enactment of P.D. No. 938. As We have already ruled otherwise, the only questions left are whether NPC Is entitled to a tax refund for the tax component of the price of the bunker fuel oil purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the amount to NPC. After P.D. No. 1931 was issued on June 11, 1984 withdrawing the tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the BIR issues its letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies pursuant to FIRB Resolution No. 10-85. 92 Since the tax exemption restoration was retroactive to June 11, 1984 there was a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the period above indicated and had billed NPC correspondingly. 93 It should be noted that the NPC, in its letter-claim dated September 11, 1985 to the Commissioner of the Bureau of Internal Revenue DID NOT CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker fuel oil price it purchased from Caltex (Phils) Inc. 94 The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National Internal Revenue Code of 1977, as amended which reads as follows: Sec. 230. Recover of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any Manner wrongfully collected. until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may

be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly, to have been erroneously paid. xxx xxx xxx Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption. Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the BIR from June 11, 1984 to the early part of 1986.
96

A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of the Deed of Assignment 97 executed by and between NPC and Caltex (Phils.) Inc., as follows: That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal Revenue amounting to P442,887,716.16. P58.020,110.79 of which is due to Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.) Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR from refunding said amount because of Our ruling that NPC has both direct and indirect tax exemption privileges. Neither can We order the BIR to refund said amount to NPC as there is no pending petition for review on

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certiorari of a suit for its collection before Us. At any rate, at this point in time, NPC can no longer file any suit to collect said amount EVEN IF lt has previously filed a claim with the BIR because it is timebarred under Section 230 of the National Internal Revenue Code of 1977. as amended, which states: In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty REGARDLESS of any supervening cause that may arise after payment. . . . (Emphasis supplied) The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by NPC for the amount of P410,580,000.00 had been made on said date. it is clear that more than two (2) years had already elapsed from said date. At the same time, We should note that there is no legal obstacle to the BIR granting, even without a suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had been made seasonably, and assuming the amounts covered had actually been paid previously by the oil companies to the BIR. WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby AFFIRMED. SO ORDERED. WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, plaintiffappellant, vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee. Ernesto J. Gonzaga for appellant. Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes." In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. According to section 6 of the law SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law. First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of the Philippine sugar in the United States market, and ultimately to insure its continued existence

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notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets of the world; Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all might continue profitably to engage therein;lawphi1.net Third, to limit the production of sugar to areas more economically suited to the production thereof; and Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies. Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the

estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17). The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121). As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by

39

public interests as to be within the police power of the sovereign. (128 Sp. 857). Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. 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" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251). From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400). The decision appealed from is affirmed, with costs against appellant. So ordered. REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. PEDRO B. PATANAO, defendant-appellee. Office of the Solicitor General Arturo A. Alafriz, Solicitor A. B. Afurong and L. O. Gal-lang for plaintiff-appellant. Tranquilino O. Calo, Jr. for defendant-appellee. ANGELES, J.: This is an appeal from an order of the Court of First Instance of Agusan in civil case No. 925, dismissing plaintiff's complaint so far as concerns the collection of deficiency income taxes for the years 1951, 1953 and 1954 and additional residence taxes for 1951 and 1952, and requiring the defendant to file his answer with respect to deficiency income tax for 1955 and residence taxes for 19531955. In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro B. Patanao, it is alleged that defendant was the holder of an ordinary timber license with concession at Esperanza, Agusan, and as such was engaged in the business of producing logs and lumber for sale during the years 1951-1955; that defendant failed to file income tax returns for 1953 and 1954, and although he filed income tax returns for 1951, 1952 and 1955, the same were false and fraudulent because he did not report substantial income earned by him from his business; that in an examination conducted by the Bureau of Internal Revenue on defendant's income and expenses for 19511955, it was ascertained that the sum of P79,892.75, representing

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deficiency; income taxes and additional residence taxes for the aforesaid years, is due from defendant; that on February 14, 1958, plaintiff, through the Deputy Commissioner of Internal Revenue, sent a letter of demand with enclosed income tax assessment to the defendant requiring him to pay the said amount; that notwithstanding repeated demands the defendant refused, failed and neglected to pay said taxes; and that the assessment for the payment of the taxes in question has become final, executory and demandable, because it was not contested before the Court of Tax Appeals in accordance with the provisions of section 11 of Republic Act No. 1125. Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by prior judgment, defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court, which were prosecutions for failure to file income tax returns and for non-payment of income taxes; and (2) that the action has prescribed. After considering the motion to dismiss, the opposition thereto and the rejoinder to the opposition, the lower court entered the order appealed from, holding that the only cause of action left to the plaintiff in its complaint is the collection of the income tax due for the taxable year 1955 and the residence tax (Class B) for 1953, 1954 and 1955. A motion to reconsider said order was denied, whereupon plaintiff interposed the instant appeal, which was brought directly to this Court, the questions involved being purely legal. The conclusion of the trial court, that the present action is barred by prior judgment, is anchored on the following rationale: There is no question that the defendant herein has been accused in Criminal Cases Nos. 2089 and 2090 of this Court for not filing his income tax returns and for non-payment of income taxes for the years 1953 and 1954. In both cases, he was acquitted. The rule in this jurisdiction is that the accused once acquitted is exempt from both criminal and civil responsibility because when a criminal action is instituted, civil action arising from the same offense is impliedly instituted unless the offended party expressly waives the civil action or reserves the right to file it separately. In the criminal cases abovementioned wherein the defendant was completely exonerated, there was no waiver or reservation to file a separate civil case so that the failure to obtain

conviction on a charge of non-payment of income taxes is fatal to any civil action to collect the payment of said taxes.1wph1.t Plaintiff-appellant assails the ruling as erroneous. Defendantappellee on his part urges that it should be maintained. In applying the principle underlying the civil liability of an offender under the Penal Code to a case involving the collection of taxes, the court a quo fell into error. The two cases are circumscribed by factual premises which are diametrically opposed to each either, and are founded on entirely different philosophies. Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another reason, of course, is found in the fact that while section 73 of the National Internal Revenue Code has provided the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it failed to provide the collection of said tax in criminal proceedings. The only civil remedies provided, for the collection of income tax, in Chapters I and II, Title IX of the Code and section 316 thereof, are distraint of goods, chattels, etc. or by judicial action, which remedies are generally exclusive in the absence of a contrary intent from the legislator. (People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs. Tierra, G.R. Nos. L-17177-17180, December 28, 1964) Considering that the Government cannot seek satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated, since the said civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. It is error to hold, as the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars the action in the present case. The acquittal in the said criminal cases cannot

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operate to discharge defendant appellee from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. (Castro vs. The Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962). Regarding prescription of action, the lower court held that the cause of action on the deficiency income tax and residence tax for 1951 is barred because appellee's income tax return for 1951 was assessed by the Bureau of Internal Revenue only on February 14, 1958, or beyond the five year period of limitation for assessment as provided in section 331 of the National Internal Revenue Code. Appellant contends that the applicable law is section 332 (a) of the same Code under which a proceeding in court for the collection of the tax may be commenced without assessment at any time within 10 years from the discovery of the falsity, fraud or omission. The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return for 1951, was discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically admitted this allegation as all the other averments in the complaint were so admitted. Hence, section 332 (a) and not section 331 of the National Internal Revenue Code should determine whether or not the cause of action of deficiency income tax and residence tax for 1951 has prescribed. Applying the provision of section 332 (a), the appellant's action instituted in court on December 7, 1962 has not prescribed. Wherefore, the order appealed from is hereby set aside. Let the records of this case be remanded to the court of origin for further proceedings. No pronouncement as to costs. ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.: The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the latter's name. The antecedent facts are as follows: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.

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On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering: (a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho Fernandez over the parcel of land including the improvements thereon, subject to whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795) cancelled. (b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on Appeal) The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review. Francia prefaced his arguments with the following assignments of grave errors of law: I RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER. II

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00. III RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo) We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due process of law. A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to dismiss it. Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit:

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(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; xxx xxx xxx (3) that the two debts be due. xxx xxx xxx This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is wellsettled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..."

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off." There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the auction sale without reading it. Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that plaintiff was duly and properly notified ... . (Petition for Review, Rollo p. 18; emphasis supplied) We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.

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The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that: xxx xxx xxx ... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale. (emphasis supplied) There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that: [T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice, the validity of the auction sale can not be assailed ... . We quote the following testimony of the petitioner on crossexamination, to wit: Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in question shall be sold at public auction to the highest bidder on December 5,

1977 pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this letter? A. I just signed it because I was not able to read the same. It was just sent by mail carrier. Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but you did not read the contents of it? A. Yes, sir, as I was in a hurry. Q. After you received that original where did you place it? A. I placed it in the usual place where I place my mails. Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force. Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held: ... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while

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in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale." The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290): If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369). In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555): Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve, but do so would unsettle longestablished rules and lead to uncertainty and difficulty in the collection of taxes which are the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to those who have invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area. However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the petitioner's claims lead us to deny the petition. And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly asking for the annulment of the sale. WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed. SO ORDERED. MANILA ELECTRIC COMPANY, petitioner, vs. MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, respondent. G.R. No. L-23847 October 22, 1975 MANILA ELECTRIC COMPANY, petitioner, vs. BENJAMIN. TABIOS, as Commissioner of Internal Revenue, respondent. Salcedo, Del Rosario, Bito, Misa and Lozada for petitioner.

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Office of the Solicitor General for respondents.

Inasmuch as the two appeals raise the same issue, they are consolidated in this Decision. The law under which the Commissioner of Internal Revenue, respondent in these two cases, assessed and collected the corresponding compensating taxes in 1962 and 1963 was found in Section 190 of the National Internal Revenue Code(Commonwealth Act No. 466, as amended) the pertinent provision of which read at the time as follows: Sec. 190. Compensating Tax. All persons residing or doing business in the Philippines, who purchase or receive from without the Philippines any commodities, goods, wares, or merchandise, excepting those subject to specific taxes under Title IV of this Code, shall pay on the total value thereof at the time they are received by such persons, including freight, postage, insurance, commission and all similar charges, a compensating tax equivalent to the percentage taxes imposed under this Title on original transactions effected by merchants, importers, or manufacturers, such tax to be paid before the withdrawal or removal of said commodities, goods, wares, or merchandise from the customhouse or the post office: ... 2 In deciding against petitioner, the Court of Tax Appeals held that following the ruling of the Supreme Court in the case of Panay Electric Co. vs. Collector of Internal Revenue, G.R. No. L-6753, July 30, 1955, Manila Gas Corp. vs. Collector of Internal Revenue, G.R. No. L-11784, October 24, 1958, and Borja vs. Collector of Internal Revenue, G.R. No. L-12134, November 30,1961, MERALCO is not exempt from paying the compensating tax provided for in Section 190 of the National Internal Revenue Code, the purpose of which is to "place casual importers, who are not merchants on equal putting with established merchants who pay sales tax on articles imported by them." The court further stated that MERALCO's claim for exemption from the payment of the compensating tax is not clear or expressed, contrary to the cardinal rule in

MUOZ PALMA, J.: Manila Electric Company, petitioner in these two cases, poses a single before Us: is Manila Electric Company (MERALCO for short) exempt from payment of a compensating tax on poles, wires, transformers, and insulators imported by it for use in the operation of its electric light, heat, and power system? MERALCO answers the query in the affirmative while the Commissioner of Internal Revenue asserts the contrary. MERALCO is the holder of a franchise to construct, maintain, and operate an electric light, heat, and power system in the City of Manila and its suburbs. 1 In 1962, MERALCO imported and received from abroad on various dates copper wires, transformers, and insulators for use in the operation of its business on which, the Collector of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating tax amounting to a total of P62,335.00. A claim for refund of said amount was presented by MERALCO and because no action was taken by the Commissioner of Internal Revenue on its claim, it appealed to the Court of Tax Appeals by filing a petition for review on February 25, 1964 (CTA Case No. 1495). On November 28, 1968, the Court of Tax Appeals denied MERALCO claim, forthwith, the case was elevated to the Court on appeal (L-29987). Again in 1963, MERALCO imported certain quantities of copper wires, transformers and insulators also to be used in its business and again a compensating tax of P6,587.00 on said purchases was collected. Its claim for refund of the amount having been denied by the Commissioner of Internal Revenue on January 23, 1964, MERALCO riled with the Court of Tax Appeals CTA Case No. 1493. On September 23, 1964 the Court of Tax Appeals decided against petitioner, and the latter filed with this Court the corresponding Petition for Review of said decision docketed herein as G.R. No. L-23847.

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taxation that "exemptions from taxation are highly disfavored in law, and he who claims exemption must be able to justify his claim by the clearest grant of organic or statute law. (pp. 10-11, L-23847, rollo) Petitioner, on the other hand, bases its claim for exemption from the compensating tax on poles, wires, transformers and insulators purchased by it from abroad on paragraph 9 of its franchise which We quote from its brief: PARAGRAPH 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including poles, wires, transformers, and insulators), machinery, and personal property as other persons are or may be hereafter by law to pay. Inconsideration of Part Two of the franchise herein granted, to wit, the right to build and maintain in the City of Manila and its suburbs a plant for the conveying and furnishing of electric current for light, heat, and power, and to charge for the same, the grantee shall pay to the City of Manila a five per centum of the gross earnings received form its business under this franchise in the City and its suburbs: PROVIDED, That two and one-half per centum of the gross earnings received from the business of the line to Malabon shall be paid to the Province of Rizal. Said percentage shall be due and payable at the times stated in paragraph nineteen of Part One hereof, and after an audit, like that provided in paragraph twenty of Part One hereof, and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted. (Petitioner's brief, p. 4, G.R. No. L-29987; see also pp. 3-4, petitioner's brief, L-23847) Petitioner argues that the abovequoted provision in plain and unambiguous terms makes two references to the exemption of the articles in question from all taxes except

the franchise tax. Thus, after prescribing in the opening sentence that "the grantee shall be liable to pay the said taxes upon its real estate buildings, plant (not including poles, wires, transformers and insulators), machinery and personal property as other persons are or may be hereinafter required by law to pay," par. 9, specifically provides that the percentage tax payable by petitioner as fixed therein "shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers and insulators of the grantee from which taxes and assessments the grantee is hereby expressly exempted." Petitioner further states that while par. 9 does not specifically mention the compensating tax for the obvious reason that petitioner's original franchise was an earlier enactment, the words "in lieu of all taxes and assessments of whatsoever nature and by whatsoever authority" are broad and sweeping enough to include the compensating tax. (p. 5, petitioner's brief, L-29987; pp, 45, ibid, L-23847) Petitioner also contends that the ruling of this Court in the cases of Panay Electric Co., Manila Gas Corporation, and Borja (supra) are not applicable to its situation. We find no merit in petitioner's cause. 1. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may almost be said "to be odious to the law." He who claims an exemption must be able to print to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. 3 The right of taxation will not beheld to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken (Ohio Life Insurance & Trust Co. vs. Debolt, 60 Howard, 416), for the state cannot strip itself of the most essential power of taxation by doubtful words; it cannot, by ambiguous language, be deprived of this highest attribute of sovereignty (Erie Railway Co. vs. Commonwealth of Pennsylvania, 21 Wallace 492, 499). So, when exemption is

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claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim (Farrington vs. Tennessee & County of Shelby, 95 U.S. 679, 686). 4 2. Petitioner's submission that its right to exemption is supported by the "plain and unambiguous" term of paragraph 9 of its franchise is positively without basis. First, the Court cannot overlook the tax court's finding that, and We quote: At the outset it should be noted that the franchise by the Municipal Board of the City of Manila to Mr. Charles M. Swift and later assumed and taken over by petitioner (see Rep. Act No. 150, CTA rec. p. 84), is a municipal franchise and not a legal franchise. While it is true that Section 1 of Act No. 484 of the Philippine Commission of 1902 authorizes the Municipal Board of the City of Manila to grant a franchise to the person making the most favorable bid for the construction and maintenance of an electric street railway and the construction, maintenance, and operation of an electric light, heat, and power system in Manila and its suburbs, Section 2 of the same Act authorize the said Municipal Board to make necessary amendments to be fixed by the terms of the successful bid; otherwise, the form of the franchise to be granted shall be in the words and figures appearing in Act No. 484 of the Philippine Commission, which includes Par. 9. Part Two, thereof, supra. This Court is not aware whether or not the tax exemption provisions contained in Par. 9, Part Two of Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal franchise granted to Mr. Charles M. Swift by the Municipal Board of the City of Manila and later assumed and taken over by petitioner because no admissible copy of Ordinance No. 44 of the said Board was ever presented in evidence by

the herein petitioner. Neither is this Court aware of any amendment to the terms of this franchise granted by the aforesaid Municipal Board to the successful bidder in the absence of Ordinance No. 44 and the amendment thereto, if any. In the circumstances, we are at a Las to interpret and apply the tax exemption provisions relied upon by petitioner. (pp. 11-13, rollo, L-29987) Second, and this is the controlling reason for the denial of petitioner's claim in these cases, We do not see in paragraph 9 of its petitioner's franchise, on the assumption that it does exist as worded, what may be considered as "plain and unambiguous terms" declaring petitioner MERALCO exempt from paying a compensating tax on its imports of poles, wires, transformers, and insulators. What MERALCO really wants Us to do, but which We cannot under the principles enumerated earlier, is to infer and imply that there is such an exemption from the following phrase: "... the grantee shall pay to the City of Manila five per centum of the gross earnings received from its business ... and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted." Note that what the above provision exempts petitioner from, is the payment of property, tax on its poles, wires, transformers, and insulators; it does not exempt it from payment of taxes like the one in question which, by mere necessity or consequence alone, fall upon property. The first sentence of paragraph 9 of petitioner's franchise expressly states that the grantee like any other taxpayer shall pay taxes upon its real estate, buildings, plant (not including poles, wires, transformers, and insulators),machinery, and personal property. These are direct taxes imposed upon the thing or property itself. Thus, while the grantee is to pay tax on its plant, its poles, wires, transformers, and insulators as forming part of the plant or installation(significantly the enumeration is in parenthesis and follows the word "plant") are exempt and

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as such are not to be included in the assessment of the property tax to be paid. The ending clause of paragraph 9 providing in effect that the percentage tax imposed upon petitioner shall be in lieu of "all taxes and assessments of what and by whatsoever authority" cannot be said to have granted it exemption from payment of compensating tax. The phrase "all taxes and assessments of whatsoever nature and by whatsoever authority" is not so broad and sweeping, as petitioner would have Us think, as to include the tax in question because there is an immediately succeeding phrase which limits the scope of exemption to taxes and assessments "upon the privileges earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee." The last clause of paragraph 9 merely reaffirms, with regards to poles, wires, transformers, and insulators, what has been expressed in the that first sentence of the same paragraph namely, exemption of petitioner from payment of property tax. It is a principle of statutory construction that general terms may be restricted by specific words, with the result that the general language will be limited by the specific language which indicates the statute's object and purpose. (Statutory Construction by Crawford, 1940 ed. p. 324-325) 3. It is a well-settled rule or principle in taxation that a compensating tax is not a property tax but is an excise tax. 5 Generally stated, an excise tax is one that is imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. 6 A tax upon property because of its ownership its a direct tax, whereas one levied upon property because of its use is an excise duty. (Manufacturer's Trust Co. vs. United States, Ct. Cl., 32 F. Supp. 289, 296) Thus, where a tax which is not on the property as such, is upon certain kinds of property, having reference to their origin and their intended use, that is an excise tax. (State v. Wynne, 133 S.W. 2d 951, 956,957, 133 Tex. 622) The compensating tax being imposed upon petitioner herein, MERALCO, is an impost on its use of imported articles and is not in the nature of a direct tax on the articles themselves, the latter tax falling within the exemption. Thus, in International Business Machine Corp. vs. Collector of Internal

Revenue, 1956, 98 Phil. Reports 595, 593, which involved the collection of a compensating tax from the plaintiffpetitioner on business machines imported by it, this Court stated in unequivocal terms that "it is not the act of importation that is taxed under section 190, but the use of imported goods not subjected to sales tax" because "the compensating tax was expressly designed as a substitute to make up or compensate for the revenue lost to the government through the avoidance of sales taxes by means of direct purchases abroad. ..." It is true that upon the collection of a compensating tax on petitioner's poles, wires, transformers, and insulators purchased from abroad, the tax falls on the goods themselves; this fact leads petitioner to claim that what is being imposed upon it is a property tax. But petitioner loses sight of the principle that "every excise necessarily must finally fall upon and be paid by property, and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (51 Am. Jur. 1d, Taxation, Sec. 34, emphasis supplied) And so, to reiterate, what is being taxed here is the use of goods purchased from out of the country, and the imposition is in the nature of an excise tax. 4. There is no valid reason for Us not to apply to petitioner the ruling of the Court in Panay Electric Co. and Borja, supra, for MERALCO is similarly situated. Panay Electric Co. sought exemption from payment of a compensating tax on equipments purchased abroad for use in its electric plant. A provision in its franchise reads: Sec 8. ... Said percentage shall be due and payable quarterly and shall be lieu of all taxes of any kind levied, established, or collected by any authority whatsoever, now or in the future, on its poles, wires, insulators, switches, transformers and other structures, installations, conductors, and accessories, placed in and over the public streets, avenues, roads, thoroughfares, squares,

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bridges, and other places on its franchise, from which taxes the grantee is hereby expressly exempted. (113 Phil. 570) This Court rejected the exemption sought by Panay Electric and held that the cited provision in its franchise exempts from taxation those rights and privileges which are not enjoyed by the public in general but only by the grantee of a franchise, but do not include the common right or privileges of every citizen to make purchases anywhere; and that we must bear in mind the purpose for the imposition of compensating tax which as explained in the report of the Tax Commission is as follows: The purpose of this proposal is to place persons purchasing goods from dealers doing business in the Philippines on an equal footing, for tax purposes, with those who purchase goods directly from without the Philippines. Under the present tax law, the former bear the burden of the local sales tax because it is shifted to them as part of the selling price demanded by the local merchants, while the latter do not. The proposed tax will do away with this inequality and render justice to merchants and firms of all nationalities who are in legitimate business here, paying taxes and giving employment to a large number of people. (113 Phil. 571) In Borja, petitioner Consuelo P. Borja, a grantee of a legislative franchise, also claimed to be free from paying the compensating tax imposed on the materials and equipment such as wires, insulators, transformers, conductors, etc. imported from Japan, on the basis of Sec. 10 of Act No. 3636 (Model Electric Light and Power Franchise Act) which has been incorporated by reference in franchise under Act No. 3810. Section 10 provides: The grantee shall pay the same taxes as are now or may "hereafter be required by law from other individuals, co-partnerships, private, public or quasi-public associations, corporations, or joint-stock companies, on his (its) real estate, buildings, plants, machinery;

and other personal property, except property section. In consideration of the franchise and rights hereby granted, the grantee shall pay into the municipal treasury of the (of each) municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the gross earnings from electric current sold or supplied under this franchise in said (each) municipality. Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial or insular, now or in the future, on its poles, wires, insulators, switches; transformers and structures, installations, conductors, and accessories, placed in and over and under all public property, including public streets and highways, provincial roads, bridges and public squares, and on its franchise, rights, privileges, receipts, revenues and profits, from which taxes the grantee is hereby expressly exempted. (113 Phil. 569-570) The Court applying the ruling in Panay Electric denied the exemption with the added statement that Considering, therefore, the fact that section 190 of the Tax Code is a sort of an equalizer, to place casual importers, who are not merchants on equal footing with established merchants who pay sales tax on articles imported by them ... We may conclude that it was not the intention of the law to exempt the payment of compensating tax on the personal properties in question. The principle and legal philosophy underlying the imposition of compensating tax, as enunciated in the above case (referring to Borja), are fundamentally correct, and no plausible reason is advanced for their nonapplication to the case at bar. (p. 572, ibid.)

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Petitioner claims that there exists a difference between paragraph 9 of its franchise and the corresponding provisions of the franchise of Panay Electric and Borja in that in the latter, unlike in the former, there is no statement that the grantee is exempt from "all taxes of whatsoever nature and whatsoever authority." In addition, petitioner points out, the franchise of Panay Electric and Borja contains a qualifying phrase, to wit: "placed in and over the public streets, avenues, roads, thoroughfares, etc." A comparison of the pertinent provisions mentioned by petitioner and which are quoted in the preceding pages reveals no substantial or fundamental distinction as to remove petitioner MERALCO from the ambit of the Panay Electric and Borja ruling. There may be differences in the phraseology used, but the intent to exempt the grantee from the payment only of property tax on its poles, wires, transformers, and insulators is evidently common to the three; withal, in all the franchises in question there is no specific mention of exemption of the grantee from the payment of compensating tax. Petitioner disputes, however, the applicability of the stare decisis principle to its case claiming that this Court should not blindly follow the doctrine of Panay Electric and Borja, and that in Philippine Trust Co. et al. vs. Mitchell, 59 Phil. 30, 36, the Court had occasion to state: ,the rule of stare decisis is entitled to respect. Stability in the law, particularly in the business field, is desirable. But idolatrous reverence for precedent, simply as precedent, no longer rules. More important than anything else is that the court should be right." (pp. 18-19, petitioner's brief, L-29987) But what possible ground can there be for deviating from the decisions of this Court in these two cases? A doctrine buttressed by the law, reason, and logic is not to be simply brushed aside to suit the convenience of a particular party or interest or to avoid hardship to one. As We view this legal problem, no justification can be found for giving petitioner herein preferential treatment by reading into its franchise an exemption from a particular kind of tax which is not there. If it had been the legislative intent to exempt MERALCO from paying a tax on the use of imported equipments, the legislative body could have easily done so by expanding the

provision of paragraph 9 and adding to the exemption such words as "compensating tax" or "purchases from abroad for use in its business," and the like. We cannot ignore the principle that express mention in a statute of one exemption precludes reading others into it. (Hoard vs. Sears, Roebuck & Co., 122 Conn. 185, 193, 188 A. 269) On this point, the Government correctly argues that the provision in petitioner's franchise that the payment of the percentage tax on the gross earnings shall be "in lieu of all taxes and assessments of whatsoever nature, and whatsoever authority" is not to be given a literal meaning as to preclude the imposition of the compensating tax in this particular case, and cites for its authority the Opinion of the Supreme Court of Connecticut rendered in Connecticut Light & Power Co., et al. vs. Walsh, 1948, which involved the construction of a statute imposing a sales and use tax, and which inter alia held: The broad statement that the tax upon the gross earning of telephone companies shall be "in lieu of all other taxation" upon them is not necessarily to be given a literal meaning. "In construing the act it is our duty to seek the real intent of the legislature, even though by so doing we may limit the literal meaning of the broad language used." Greenwich Trust Co. v. Tyson, 129 Conn. 211, 222, 27 A. 2d 166, 172. It is not reasonable to assume that the General Assembly intended by the provisions we have quoted that the tax on gross earnings should take the place of taxes of a kind not then anywhere imposed and entire outside its knowledge. ... ." (57 A.R., 2d S, pp. 129, 133-134, emphasis supplied) In 1902 when Act 484 of the Philippine Commission was enacted, "compensating tax' was certainly not generally known or in use, hence, to paraphrase the abovementioned Connecticut decision, the Court cannot assume that the Philippine Commission in providing that the gross earnings taxes imposed on the grantee of the electric light franchise shall be in lieu of all taxes and assessments, meant to include impositions in the nature of a

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compensating tax which came into use in this country only upon the enactment of Commonwealth Act 466 in 1939. 5. One last argument of petitioner to support its cause is that just as a new and necessary industry was held to be exempt from paying a compensating tax on its imports under the tax exemption provision of Republic Act 901, so should MERALCO be exempt from such a tax under the general clause in its franchise, to wit: "... in lieu of all taxes and assessments of whatsoever nature and whatsoever authority upon poles, wires, etc." We agree with the court below that there can be no analogy between MERALCO and what is considered as a new and necessary industry under Republic Act 35 now superseded by Republic Act 901. The rationale of Republic Act 901 is "to encourage the establishment or exploitation of new and necessary industries to promote the economic growth of the country," and because "an entrepreneur engaging in a new and necessary industry faces uncertainty and assumes a risk bigger than one engaging in a venture already known and developed ... the law grants him tax exemption to lighten onerous financial burdens and reduce losses." (Marcelo Steel Corporation vs. Collector of Internal Revenue, 109 Phil. 921, 926) This intendment of the legislature in enacting Republic Act 901 is not the motivation behind the tax exemption clause found in petitioner MERALCO's franchise; consequently, there can be no analogy between the two. IN VIEW OF THE FOREGOING, We find no merit in these Petitions for Review and We hereby AFFIRM the decision of the Court of Tax Appeals in these two cases, with costs against petitioner in both instances. So Ordered. EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee, vs. CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees. Assistant City Fiscal Vicente P. Gengos for defendant-appellant. CASTRO, J.: Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance. On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full: AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:

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Section 1. A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of payment herein provided. Section 2. Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space divided into separate apartments or accessorias. Section 3. The municipal license tax provided in Section 1 hereof shall be as follows: I. Tenement houses: (a) Apartment house made of strong materials (b) Apartment house made of mixed materials II Rooming house of strong materials Rooming house of mixed materials

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not impose tenement or apartment taxes. By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a III. Tenement house partly or wholly engaged in or dedicated complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance to business in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma from Plazoleto Gay to Valeria.11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and St. unconstitutional for being violative of the rule as to uniformity of IV. Tenement house partly or wholly engaged in or dedicated taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund to business in any other street the amounts collected from them under the said ordinance. V. Tenement houses at the streets surrounding the super market as soon as said place is declared commercial On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the Section 4. All ordinances or parts thereof inconsistent same is "oppressive and unreasonable," for the reason that it herewith are hereby amended. penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it Section 5. Any person found violating this ordinance shall violates the rule of uniformity of taxation. be punished with a fine note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) The issues posed in this appeal are: months or both at the discretion of the Court. Section 6 This ordinance shall take effect upon approval. ENACTED, January 15, 1960. 1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?

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2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? 3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause? 4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation? 1. The pertinent provisions of the Local Autonomy Act are hereunder quoted: SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code; Provided, however, That no city, municipality or municipal district may levy or impose any of the following: (a) Residence tax; (b) Documentary stamp tax; (c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular intervals and having fixed prices

for for subscription and sale, and which is not published primarily for the purpose of publishing advertisements; (d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power; (e) Taxes on forest products and forest concessions; (f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa; (g) Taxes on income of any kind whatsoever; (h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; (i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other kinds of customs fees, charges and duties; (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and (k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies. A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of such ordinance shall be suspended. In such event, the municipal board or city council in the case of cities and the municipal council or municipal district council in the case of municipalities or municipal districts may appeal the decision of the Secretary of

55

Finance to the court during the pendency of which case the tax levied shall be considered as paid under protest. It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti. Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158."5. It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor.9 The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and

requires, therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and not by imprisonment of the owner. The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate tax. "The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks less to its words and more to the context, subject-matter, consequence and effect. Accordingly, what is within the spirit is within the ordinance although it is not within the letter thereof, while that which is in the letter, although not within the spirit, is not within the ordinance."15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege."16. "The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such words must be taken in the connection in which they are used and the true character is to be deduced from the nature and essence of the subject."17 The subject-matter of the ordinance is tenement houses whose nature and essence are expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the

56

definition of a tenement house18 as "any house or building, or portion thereof, which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more living independently of each other and doing their cooking in the premises or by more than two families upon any floor, so living and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some of them." Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding houses. This is precisely one of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs," tenement houses, which constitute a different business enterprise,19 are not mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:. "And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." . The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." .

2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in "leasing or renting property, whether on their account as principals or as owners of rental property or properties," are considered "real estate dealers" and are taxed according to the amount of their annual income.20. While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof.21. The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax.22. "In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or character.

57

At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform."25. 3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30. 4. The trial court brands the ordinance as violative of the rule of uniformity of taxation. "... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax all

parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation.". Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." . It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time.32 So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.34. 5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no identity of subjectmatter in that case andthis case because the subject-matter in L12695 was an ordinance which dealt not only with tenement

58

houses but also warehouses, and the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law, and their power to tax was construed in strictissimi juris. 35. ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby dismissed. No pronouncement as to costs.. MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, vs. CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR OF PASAY, Respondents. DECISION CARPIO, J.: This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. The Facts Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO 903),3 otherwise known as the Revised Charter of the Manila International Airport Authority. EO 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Under Sections 34 and 225 of EO 903, approximately 600 hectares of

land, including the runways, the airport tower, and other airport buildings, were transferred to MIAA. The NAIA Complex is located along the border between Pasay City and Paraaque City. On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the taxable years 1992 to 2001. MIAAs real property tax delinquency for its real properties located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is tabulated as follows: TAX DECL TAXAB ALE RATI YEAR ON A71830834 6 A71830522 4 A71910084 3 A71910014 0 A71910013 9 A71830540 9 19972001

TAX DUE

PENALTY

TOTAL

243,522,855 123,351,728 366,874,583. .00 .18 18

19922001

113,582,466 71,159,414. .00 98

184,741,880. 98

19922001

54,454,800. 00

34,115,932. 20

88,570,732.2 0

19922001

1,632,960.0 0

1,023,049.4 4

2,656,009.44

19922001

6,068,448.0 0

3,801,882.8 5

9,870,330.85

19922001

59,129,520. 00

37,044,644. 28

96,174,164.2 8

59

A71830541 0 A71830541 3 A71830541 2 A71830541 1 A71830524 5

19922001

20,619,720. 00

12,918,254. 58

33,537,974.5 8

reconsideration, which the Court of Appeals denied. Hence, this petition. The Court of Appeals Ruling The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local Government Code, which took effect on 1 January 1992, withdrew the exemption from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under Republic Act No. 6938, non-stock and non-profit hospitals and educational institutions. Since MIAA is a government-owned corporation, it follows that its tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the Local Government Code. The Issue

19922001

7,908,240.0 0

4,954,512.3 6

12,862,752.3 6

19922001

18,441,981. 20

11,553,901. 13

29,995,882.3 3

19922001

109,946,736 68,881,630. .00 13

178,828,366. 13

19922001

7,440,000.0 0

4,661,160.0 0

12,101,160.0 0

The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from real property tax. The Courts Ruling The petition is meritorious. In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited Sections 193 and 234 of the Local Government Code which read: SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:

GRAND TOTAL

P642,747,72 P373,466,11 P1,016,213,83 6.20 0.13 6.33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and warrants of levy for the NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the delinquent real property taxes remain unpaid. On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with prayer for preliminary injunction or temporary restraining order. The petition sought to enjoin the City of Pasay from imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties. On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the City of Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a motion for

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(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise to a taxable person; (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and (e) Machinery and equipment used for pollution control and environment protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all governmentowned or controlled corporations are hereby withdrawn upon the effectivity of this Code. The Court of Appeals held that as a government-owned corporation, MIAAs tax exemption under Section 21 of EO 903 has already been withdrawn upon the effectivity of the Local Government Code in 1992. In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court already resolved the issue of whether the airport lands and buildings of MIAA are exempt from tax under existing laws. The 2006 MIAA case originated from a petition for prohibition and injunction which MIAA filed with the Court of Appeals, seeking to restrain the City of Paraaque from imposing real property tax on, levying against, and auctioning for public sale the airport lands and buildings located in Paraaque City. The only difference between the 2006 MIAA case and this case is that the

2006 MIAA case involved airport lands and buildings located in Paraaque City while this case involved airport lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same threshold issue: whether the local government can impose real property tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held: To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity. Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides: Art. 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are

61

intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.7 (Emphasis in the original) The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of 1987 uses the phrase "includes x x x government-owned or controlled corporations" which means that a government "instrumentality" may or may not be a "government-owned or controlled corporation." Obviously, the term government "instrumentality" is broader than the term "government-owned or controlled corporation." Section 2(10) provides: SEC. 2. General Terms Defined. x x x (10) Instrumentality refers to any agency of the national Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and governmentowned or controlled corporations. The term "government-owned or controlled corporation" has a separate definition under Section 2(13)8 of the Introductory Provisions of the Administrative Code of 1987: SEC. 2. General Terms Defined. x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: Provided, That government-owned or controlled corporations may further be categorized by the department of Budget, the Civil Service Commission, and the Commission on Audit for the purpose of the exercise and discharge

of their respective powers, functions and responsibilities with respect to such corporations. The fact that two terms have separate definitions means that while a government "instrumentality" may include a "governmentowned or controlled corporation," there may be a government "instrumentality" that will not qualify as a "government-owned or controlled corporation." A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that MIAA would not fall under such definition. MIAA is a government "instrumentality" that does not qualify as a "governmentowned or controlled corporation." As explained in the 2006 MIAA case: A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. x x x Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation. xxx MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock corporation.

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Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use. Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of MIAA within the National Government? MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. x x x When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."9 Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code.10 Under Section 133(o)11 of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties. Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from real property tax under Section 234(a) of the Local Government Code. However, under the same provision, if MIAA leases its real property to a taxable person, the specific property leased becomes subject to real property tax.12 In this case, only those portions of the

NAIA Pasay properties which are leased to taxable persons like private parties are subject to real property tax by the City of Pasay. WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA Pasay properties of the Manila International Airport Authority EXEMPT from real property tax imposed by the City of Pasay. We declare VOID all the real property tax assessments, including the final notices of real property tax delinquencies, issued by the City of Pasay on the NAIA Pasay properties of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. No costs. SO ORDERED. ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO SANCHEZ, petitioners, vs. PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent. H.B. Basco & Associates for petitioners. Valmonte Law Offices collaborating counsel for petitioners. Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:p A TV ad proudly announces: "The new PAGCOR responding through responsible gaming." But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine Amusement and

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Gaming Corporation (PAGCOR) Charter PD 1869, because it is allegedly contrary to morals, public policy and order, and because A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City government's right to impose taxes and license fees, which is recognized by law; B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local autonomy; C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR conducted gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices; D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo) In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national policy of the "new restored democracy" and the people's will as expressed in the 1987 Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo). The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the Chairman of the Committee on Laws of the City Council of Manila), can question and seek the annulment of PD 1869 on the alleged grounds mentioned above. The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish, operate and maintain gambling casinos on land or water

within the territorial jurisdiction of the Philippines." Its operation was originally conducted in the well known floating casino "Philippine Tourist." The operation was considered a success for it proved to be a potential source of revenue to fund infrastructure and socio-economic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective. Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law, under the following declared policy Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to centralize and integrate all games of chance not heretofore authorized by existing franchises or permitted by law in order to attain the following objectives: (a) To centralize and integrate the right and authority to operate and conduct games of chance into one corporate entity to be controlled, administered and supervised by the Government. (b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement and recreation including games of chance, which may be allowed by law within the territorial jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to fund infrastructure and socio-civic projects, such as flood control programs, beautification, sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs, Population Control and such other essential public services; (2) create recreation and integrated facilities which will expand and improve the country's existing tourist attractions; and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are normally prevalent on the conduct and operation of gambling clubs and casinos without direct government involvement. (Section 1, P.D. 1869)

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To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified. It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to the National Government a total of P2.5 Billion in form of franchise tax, government's income share, the President's Social Fund and Host Cities' share. In addition, PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with various governmental agencies, and other private associations and organizations. In its 3 1/2 years of operation under the present administration, PAGCOR remitted to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families. But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and void" for being "contrary to morals, public policy and public order," monopolistic and tends toward "crony economy", and is violative of the equal protection clause and local autonomy as well as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution. This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate consideration by the Court, involving as it does the exercise of what has been described as "the highest and most delicate function which belongs to the judicial department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323). As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature or the executive for that matter,

has over-stepped the limits of its authority under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra). In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored the . . . thoroughly established principle which must be followed in all cases where questions of constitutionality as obtain in the instant cases are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld and the challenger must negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or expediency of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of legislation should be adopted. (Danner v. Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540) Of course, there is first, the procedural issue. The respondents are questioning the legal personality of petitioners to file the instant petition. Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)

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With particular regard to the requirement of proper party as applied in the cases before us, We hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of. And even if, strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised. In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure." We have since then applied the exception in many other cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343). Having disposed of the procedural issue, We will now discuss the substantive issues raised. Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power. The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra) It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power co-extensive with selfprotection and is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of change. What was the reason behind the enactment of P.D. 1869? P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D.

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1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." (2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or otherwise as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this franchise from the Corporation; nor shall any form or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or earnings derived by the Corporation from its operations under this franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority (Section 13 [2]). Their contention stated hereinabove is without merit for the following reasons: (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445). (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain

matters, it can also provide for exemptions or even take back the power. (c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government, thus: Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local governments to issue license, permit or other form of franchise to operate, maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is hereby revoked. Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-alai and other forms of gambling shall be issued by the national government upon proper application and verification of the qualification of the applicant . . . Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila. (d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus: Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated entities, and shall exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over such affiliating entities mentioned under the preceding section, including,

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but not limited to amendments of Articles of Incorporation and By-Laws, changes in corporate term, structure, capitalization and other matters concerning the operation of the affiliated entities, the provisions of the Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original incorporation. PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments. Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides: Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government. (emphasis supplied) The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio." Local Government has been described as a political subdivision of a nation or state which is constituted by law and has substantial control of local affairs. In a unitary system of government, such as the government under the Philippine Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. Local government in such a system can only mean a measure of

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decentralization of the function of government. (emphasis supplied) As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539). What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local governments. As gambling is usually an offense against the State, legislative grant or express charter power is generally necessary to empower the local corporation to deal with the subject. . . . In the absence of express grant of power to enact, ordinance provisions on this subject which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis supplied) Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it legalized PAGCOR conducted gambling, while most gambling are outlawed together with prostitution, drug trafficking and other vices" (p. 82, Rollo). We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989). The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects upon which different

rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are different in fact or opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827). Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869 for one, unconstitutional. If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA 827) The equal protection clause of the 14th Amendment does not mean that all occupations called by the same name must be treated the same way; the state may do what it can to prevent which is deemed as evil and stop short of those cases in which harm to the few concerned is not less than the harm to the public that would insure if the rule laid down were made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651). Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is for the Executive Department to recommend to Congress its repeal or amendment. 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. (Valmonte v. Belmonte, Jr., 170 SCRA 256).

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On the issue of "monopoly," however, the Constitution provides that: Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. (Art. XII, National Economy and Patrimony) It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the Constitution. The state must still decide whether public interest demands that monopolies be regulated or prohibited. Again, this is a matter of policy for the Legislature to decide. On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles and, policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and effectuate such principles. In general, therefore, the 1935 provisions were not intended to be self-executing principles ready for enforcement through the courts. They were rather directives addressed to the executive and the legislature. If the executive and the legislature failed to heed the directives of the articles the available remedy was not judicial or political. The electorate could express their displeasure with the failure of the executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2) Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869,

the Court finds that petitioners have failed to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as well as the state principles on social justice, role of youth and educational values" being raised, is up for Congress to determine. As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521 Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the presumption of validity and constitutionality which petitioners Valmonte and the KMU have not overturned. Petitioners have not undertaken to identify the provisions in the Constitution which they claim to have been violated by that statute. This Court, however, is not compelled to speculate and to imagine how the assailed legislation may possibly offend some provision of the Constitution. The Court notes, further, in this respect that petitioners have in the main put in question the wisdom, justice and expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and which this Court may not constitutionally pass upon. Those issues should be addressed rather to the political departments of government: the President and the Congress. Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the gambling resorted to is excessive. This excessiveness necessarily depends not only on the financial resources of the gambler and his family but also on his mental, social, and spiritual outlook on life. However, the mere fact that some persons may have lost their material fortunes, mental control, physical health, or even their lives does not necessarily mean that the same are directly attributable to gambling. Gambling may have been the antecedent, but certainly not necessarily the cause. For the same consequences could have been preceded by an overdose of food, drink, exercise, work, and even sex.

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WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED.

G.R. NO. 92585. May 8, 1992. CALTEX PHILIPPINES, INC., Petitioner vs. THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ. DECISION DAVIDE, JR., J.: This is a petition erroneously brought under Rule 44 of the Rules of Court (*1) questioning the authority of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil Price Stabilization fund (OPSF) and seeking the reversal of said Commission's decision denying its claim for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to the National Power Corporations, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining Corporation (MARCOPPER), preventing it from exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims are still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF). Pursuant to the 1987 Constitution, (*2) any decision, order or ruling of the Constitutional Commissions (*3) may be brought to this Court on certiorari by the aggrieved party within thirty (30) days from receipt of a copy thereof. The certiorari referred to is the special civil action for certiorari under Rule 65 of the Rules of Court. (*4) Considering, however, that the allegations that the COA acted with: (a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings and rulings of the administrator of the fund itself and in disallowing a claim which is still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" (*5) in declaring that petitioner cannot avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court, and, considering further the importance of the issue raised, the error in the designation of the remedy pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows: "SECTION 8. There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund may be sourced from any of the following: a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with Board of Energy;

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b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy; c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment by persons or companies engaged in the business of importing, manufacturing and/or marketing petroleum products; d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy; The Fund herein created shall be used for the following: 1) To reimburse the oil companies for cost increase in crude oil and imported petroleum products resulting from exchange rate adjustment and/or increase in world market prices of crude oil; 2) To reimburse the oil companies for possible cost underrecovery incurred as result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. Cost underrecovery shall include the following: i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery. The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy." The material operative facts of this case, as gathered from the pleadings of the parties, are not disputed. On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956 which as of 31 December 1987, amounted to 335,037,649.00 and informing it that, pending such remittance, all of its claims for from the OPSF shall be held in abeyance. (*6)

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On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00, broke down as follows: 1986 - P233,190,916.00 1987 - 335,065,650.00 1988 - 719,412,254.00 directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods. (7*) In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of energy Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national government agencies and government-owned or controlled corporations.(*8) In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the reimbursement claims. (*9) By way of reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the payment of the collections and the recovery of claims, since the outright payment of the sum 1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very serious impairment of its cash position. (10*) The proposal reads: "We therefore, very respectfully propose the following: (1) Any procedural arrangement acceptable to COA to facilitate monitoring of payments and reimbursements will be administered by the ERB/Finance Dept./OEA, as agencies designated by law to administer/regulate OPSF. (2) For the retroactive period, Caltex will deliver to EOA, 1.287 billion as payment to OPSF, similarly OEA will deliver to Caltex the same amount in cash reimbursement from OPSF. (3) The COA audit will commence immediately and will be conducted expeditiously. (4) The review of current claims (1989) will be conducted expeditiously to preclude further accumulation of reimbursement from OPSF."

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances and reimbursements for the current and ensuing years. (*11) Decision No. 921 reads:

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"This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron corporation, and Mr. Francis Ablan, President and Managing Director, Caltex (Philippines) Inc., for reconsideration of this Commission's adverse action embodied in its letters dated February 2, 1989 and March 9, 1989, the former directing immediate remittance to the Oil Price Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter reiterating the same directive but further advising the firms to desist from offsetting collections against their claims with the notice that this Commission will hold in abeyance the audit of all xxx claims for reimbursement from the OPSF. It appears that under letters of authority issued the Chairman, Energy Regulatory Board, the aforenamed oil companies were allowed to offset the amounts due to the Oil Price Stabilization Fund against their outstanding claims from the said Fund for the calendar year 1987 and 1988, pending with the then Ministry of Energy, the government entity charged with administering the OPSF. This Commission, however, expressing serious doubts as to the propriety of the offsetting of all types of reimbursements from the OPSF against all categories that such offsetting was bereft of legal basis. Aggrieved thereby, these companies now seek reconsideration and in support thereof clearly manifest their intent to make arrangements for the remittance to the Office of Energy Affairs of the amount of collections equivalent to what has been previously offset, provided that this Commission authorizes the Office of Energy Affairs to prepare the corresponding checks representing reimbursement from the OPSF. It is alleged that the implementation of such an arrangement, whereby the remittance of collections due to the OPSF and the reimbursement of claims from the Fund shall be made within a period of not more than one week from each other, will benefit the Fund and not unduly jeopardize the continuing daily cash requirements of these firms. Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives no further objectionable feature in the proposed arrangement, provided that 15% of whatever amount is due from the Fund is retained by the Office of Energy Affairs, the same to be answerable for suspensions or disallowances, errors or discrepancies which may be noted in the course of audit and surcharges for late remittances without prejudice to similar future retentions to answer for any deficiency in such surcharges, and provided further that no offsetting of remittances and reimbursements for the current and ensuing years shall be allowed."

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director Wenceslao R. De la Paz of the Office of Energy Affairs: (*12) "Dear Atty. dela Paz: Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial verification of documents submitted to us by your Office in support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the Oil Price Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906, representing remittances to the OPSF which were offset against its claims reimbursements (net of submitted claims). In addition, the Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details of which are presented hereunder: x x x

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As presented in the foregoing computation the disallowances totalled P387,683,535, which included P130,420,235 representing those claims disallowed by OEA, details of which is (sic) shown in Schedule 1 as summarized as follows: Disallowance of COA Amount Particulars Recovery of financing charges P 162,728,475 /a Product Sales 48,402,398 /b Inventory losses Borrow loan arrangement 14,034,786 /c Sales to Atlas/Marcopper 32,097,083 /d Sales to NPC 558 P 257,263,300 Disallowances of OEA 130,420,235 Total P 387,683,535 The reasons for the disallowances are discussed hereunder: a. Recovery of Financing Charges Review of the provisions of P.D. 1956 as amended by E.O. 137 seems to indicate that recovery of financing charges by oil companies is not among the items for which the OPSF may be utilized. Therefore, it is our view that recovery if financing charges has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87. b. Product Sales - Sales to International Vessels/Airlines BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil companies should pay OPSF impost on export sales of petroleum products. Effective February 7, 1987 sales to international vessels/airlines should not be included as part of its domestic sales. Changing the effectivity date of the resolution from February 7, 1987 to October 20, 1987 as covered by subsequent ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in their domestic sales volumes to international vessels/airlines and claim the corresponding reimbursements from OPSF during the period. It is our opinion that the effectivity of the said resolution should be February 7, 1987. c. Inventory losses - Settlement of Ad Valorem We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA agreement, as they affect the claims for reimbursements of ad valorem taxes. We observed that oil companies immediately settle ad valorem taxes for BLA transaction (sic). Loan balances therefore are not tax paid inventories of Caltex subject to reimbursement but those of the borrower. Hence, we recommend reduction of the claim for July, August, and November, 1987 amounting to 14,034,786.

d. Sales to Atlas/Marcopper LOI No. 1416 dated July 17, 1984 provides that I hereby order and direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect due

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and payable by the copper mining companies in distress to the national and local governments'. It is our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis. Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc. of the amount as herein authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable auditing rules and regulations. With regard to the disallowances, it is further informed that the aggrieved party has 30 days within which to appeal the decision of the Commission in accordance with law." On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision based on the following grounds: (*13) "A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO. 137. xxx "B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION. xxx "C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID." xxx On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration. (*14) On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner Fernandez dissenting in part, handed down Decision No. 1171 affirming the for recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while allowing the recovery of product sale or those arising from export sales. (*15) Decision No. 1171 reads as follows: "Anent the recovery of financing charges, you contend that Caltex Phil. Inc. has the authority to recover financing charges from the OPSF on the basis of Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies to recover cost of financing working capital associated with crude oil shipments, and provided a schedule of in terms of peso per barrel. It appears that on November 6, 1989, the DOF issued a Memorandum to the President of the Philippines explaining the nature of these financing charges and justifying their reimbursement as follows:

As part of your program to promote economic recovery, oil companies (were authorized) to refinance their imports of crude oil and petroleum products from the normal trade credit of 30 days up to 360 days from date of loading. Conformably, the oil companies deferred their foreign exchange remittances for purchases by refinancing their import bills from the normal 30-day

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payment term up to the desired 360 days. This refinancing of importations carried additional costs (financing charges) which then became, due to government mandate, an inherent part of the cost of the purchases of our country's oil requirement. We beg to disagree with such contention. The justification that financing charges increased oil costs and the schedule of reimbursement rate in peso per barrel (Exhibit 1) used to support alleged increase (sic) were not validated in our independent inquiry. As manifested in Exhibit 2, using the same formula which the DOF used in arriving at the reimbursement rate but using comparable percentages instead of pesos, the ineluctable conclusion is that the oil companies are actually gaining rather than losing from the extension of credit because such extension enables them to invest the collections in marketable securities which have much higher rates than those they incur due to the extension. The Data we used were obtained from CPI (CALTEX) Management and can easily be verified from our records. With respect to product sales or those arising from sales to international vessels or airlines, xxx it is believed that export sales (product sales) are entitled to claim refund from the OPSF. As regard your claim for underrecovery arising from inventory losses, xxx It is the considered view of this Commission that the OPSF is not liable to refund such surtax on inventory losses because these are paid to BIR and not to OPSF, in view of which CPI (CALTEX) should seek refund from BIR. x x x Finally, as regards the sales to Atlas and Marcopper, it is represented that you are entitled to claim recovery form the OPSF pursuant to LOI 1416 issued July 17, 1984 since these copper mining companies did not pay CPI (CALTEX) and OPSF imposed which were added to the selling price. Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX) has no authority to claim reimbursement for this uncollected OPSF impost because LOI 1416 dated July 17, 1984, which exempts distressed mining companies from all taxes, duties, import fees and other charges was issued when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of its formulation. Moreover, it is evident that OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices." Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes to the COA the commission of the following errors: (*16) "I

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE OPSF. II RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's (*17) CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO NPC.

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III RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER. IV RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS THE OPSF. V RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF." In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within ten (10) days from notice. (*18) On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the Office of the Solicitor General, filed their Comment. (19*) This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file their respective Memoranda within twenty (20) days from notice. (*20) In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment filed on 6 September 1990 be considered as the Memorandum for respondents. (*21) Upon the other hand, petitioner filed its Memorandum on 14 August 1991. I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that: (1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a second purpose, to wit: "2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. Cost underrecovery shall include the following: i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery." The "other factors" mentioned therein that may be determined by the Ministry (now Department) of Finance may include financing charges for "in essence. financing charges constitute unrecovered

cost of acquisition of crude oil incurred by the oil companies," as explained in the 6

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November 1989 Memorandum to the President of the Department of Finance; they "directly translate to cost underrecovery in cases where the money market placement rates decline and at the same time the tax on interest income increases. The relationship is such that the presence of underrecovery or overrecovery is directly dependent on the amount and extent of financing charges." (2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of Department of Finance Circular No. 1-87, dated 18 February 1987, which provides: To allow oil companies to recover the costs of financing working capital associated with crude oil shipments, the following guidelines on the utilization of the Oil Price Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk premium and recovery of financing charges will be implemented. 1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the first (6) months and 1/32 of one percent per month thereafter up to a maximum period of one year, to be applied on crude oil shipments from January 1, 1987. Shipments with outstanding financing as of January 1, 1987 shall be charged on the basis of the fee applicable to the remaining period of financing. 2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to recover financing charges directly from the OPSF per barrel of crude oil based on the following schedule: Financing Period Reimbursement Rate Pesos per Barrel Less than 180 days None 180 days to 239 days 1.90 241 (sic) days to 299 4.02 300 days to 369 (sic) days 6.16 360 days or more 8.28 The above rates shall be subject to review every sixty days." (*22) Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office of Energy Affairs as follows: "HON. VICENTE T. PATERNO Deputy Executive Secretary For Energy Affairs Office of the President Makati, Metro Manila Dear Sir: This refers to the letters of the Oil Industry dated December 4, 1986 and February 5, 1987 and subsequent discussion held by the Price Review committee on February 6, 1987.

On the basis of the representations made, the Department of Finance recognizes the necessity to reduce the foreign exchange risk premium accruing to the Oil Price Stabilization

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Fund (OPSF). Such a reduction would allow the industry to recover partly associated financing charges on crude oil imports. Accordingly, the OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6) months plus 1/32 of 1% per month thereafter up to a maximum period of one year, effective January 1, 1987. In addition, since the prevailing company take would still leave unrecovered financing charges, reimbursement may be secured from the OPSF in accordance with the provisions of the attached Department of Finance circular." (*23) Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines for the computation of the foreign exchange risk fee and the recovery of financing charges from the OPSF, to wit: "B. FINANCE CHARGES 1. Oil companies shall be allowed to recover financing charges directly from the OPSF for both crude and product shipments loaded after January 1, 1987 based on the following rates: Financing Period Reimbursement Rate (PPb1.) Less than 180 days None 180 days to 239 days 1.90 240 days to 229 days (sic) days 4.02 300 days to 359 days 6.16 360 days to more 8.28 2. The above rates shall be subject to review every sixty days." (*24) Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further guidelines on the recoverability of financing charges, to wit: "Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18, 1987 which allowed the recovery of financing charges directly from the Oil Price Stabilization Fund. (OPSF): 1. The claim for reimbursement shall be on a per shipment basis. 2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost differential for a particular shipment and duly certified supporting documents provided for under Ministry of Finance No. 11-85. 3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued by the Office of Energy Affairs. The said certificate may be used to offset against amounts payable to the OPSF. The oil companies may also redeem said certificates in cash if not utilized, subject to availability of funds." (*25) The EOA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017.(*26)

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The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light of the determination of executive agencies. The determination by the Department of Finance and the EOA that financing charges are recoverable from the OPSF is entitled to great weight and consideration. (*27) The function of the COA, particularly in the matter of allowing or disallowing certain expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. (*28) (3) Denial of petitioners claim for reimbursement would be inequitable. Additionally, COA's claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and not supported by expert analysis. In impeaching the validity of petitioner's assertions, the respondents argue that: 1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary government expenditures and as the monetary claims of petitioner are not allowed by law, the COA acted within its jurisdiction in denying them; 2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the OPSF; 3. Under the principle of ejusdem generis, the "other factors" mentioned in the second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors which are of the same nature or analogous to those enumerated;" 4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and 5. Department of Finance rules and regulations implementing P.D. 1956 do not likewise allow reimbursement of financing charges. (*29) We find no merit in the first assigned error. As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of petitioner -- that such does not extend to the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or use of government funds and properties, but only to the promulgation of accounting and auditing rules for, among others, such disallowance -- to be untenable in the light of the provisions of the 1987 Constitution and related laws. Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides: "SECTION 2(1). The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts

pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other governmentowned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are

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required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (2) The commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties." These present powers, consistent with the declared independence of the Commission, (*30) are broader and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission was empowered to: "Examine, audit and settle, in accordance with law and regulations, all accounts pertaining to the revenues, and receipts of, and expenditures or uses of funds and property, owned or held n trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities including government-owned or controlled corporations; keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers pertaining thereto; and promulgate accounting and auditing rules and regulations including those for the prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and property." (*31) Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor, the General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section 2 of Article XI thereof provided: "SECTION 2. The Auditor General shall examine, audit, and settle all accounts pertaining to the revenues and receipts from whatever source, including trust funds derived from bond issues; and audit, in accordance with law and administrative regulations, all expenditures of funds or property pertaining to or held in trust by the Government or the provinces or municipalities thereof. He shall keep the general accounts of the Government and preserve the vouchers pertaining thereto. It shall be the duty of the Auditor General to bring to the attention of the proper administrative officer expenditures of funds or property which, in his opinion, are irregular,

unnecessary, excessive, or extravagant. He shall also perform such other functions as may be prescribed by law." As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and regulations to prevent the same. His was merely to bring that matter to the attention of the proper administrative officer. The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez (*32) and Ramos vs. Aquino, (*33) are no longer controlling as the two (2) were decided in the light of the 1935 Constitution.

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There can be no doubt, however, that the audit power of the Auditor General under the 1935 Constitution and the Commission on Audit the 1973 Constitution authorized them to disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains that same power and authority, further strengthened by the definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code of the Philippines (*34) and Administrative Code of 1987. (*35) Pursuant to its power to promulgate accounting and auditing rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds,(*36) the COA promulgated on 29 March 1977 COA Circular No, 77-55. Since the COA is responsible for the enforcement of the rules and regulations, it goes without saying that failure to comply with them is a ground for disapproving the payment of the proposed expenditure. As observed by one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: (*37) It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the Auditor General could not correct irregular, unnecessary, excessive or extravagant expenditures of public funds but could only bring [the matter] to the attention of the proper administrative officer under the 1987 Constitution, as also under the 1973 Constitution, the Commission on Audit can promulgate accounting and auditing rules and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties. Hence, since the Commission on Audit must ultimately be responsible for the enforcement of these rules and regulations, the failure to comply with these regulations can be a ground for disapproving the payment of a proposed expenditure." Indeed, when the frames of the last two (2) Constitutions conferred upon the COA a more active role and invested it with broader and more extensive powers, they did not intend merely to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the Government. The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other factors" which may result in cost underrecovery and a consequent reimbursement from the OPSF. The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are not included in "cost underrecovery" and, therefore, cannot be considered as one of the

"other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what "cost underrecovery" is. It merely states what it includes. Thus: Cost underrecovery shall include the following: i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery."

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These "other factors" can include only those which are of the same class or nature as the two specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are in the nature of government mandated price reductions. Hence, any other factor which seeks to be a part of the enumeration, or which could qualify as a cost underrecovery, must be of the same class or nature as those specifically enumerated. Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and unrestricted authority to determine or define "other factors." Both views are unacceptable to this Court. The rule of ejusdem generis states that "where general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are held to be as applying only to persons or things of the same kind or class as those specifically mentioned."(*38) A reading of subparagraphs (i) and (ii) easily discloses that they do not have a common characteristic. The first relates to price reduction as directed by the Board of Energy while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What should be considered for purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows cost underrecovery only if such were incurred as a result of the reduction of domestic prices of petroleum products. Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the sense that such were incurred as a result of the inability to fully offset financing expenses from yields in money market placements, they do not, however, fall under the foregoing provision of P.D. No. 1956, as amended, because the same did not result from the reduction of the domestic price of petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further amended by Congress, this Court can do nothing. The duty of this Court is not to legislate, but to apply or interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in this case have shown, it was at the behest of the government that petitioner refinanced its oil import payments from the normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that owing to the extended period for payment, the financial institution which refinanced said payments charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It would appear then that equity considerations dictate that petitioner should somehow be allowed to recover its financing losses, if any, which may have been sustained

because it accommodated the request of the Government. Although under Section 29 of the National Internal Revenue Code such losses may be deducted from gross income, the effect of that loss would be merely to reduce its taxable income, but not to actually wipe out such losses. The Government then may consider some positive measures to help petitioner and others similarly situated to obtain substantial relief. An amendment, as aforestated, may then be in order. Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of Finance to determine or define "other factors" is to uphold an undue delegation of legislative power, it clearly appearing that the subject provision does not provide any standard for the exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature, in making the delegation, has prescribed the manner of the exercise of the delegated authority.(*39) Finally, whether petitioner gained or lost by reason of the extensive credit is rendered

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irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It cannot have its cake and eat it too. II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The respondents themselves admit in their Comment that underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of taxes; to prove this, respondents trace the laws providing for such exemption.(*40) The last law cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products... are restored effective March 10, 1987." In a Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax exemption was confirmed and approved. Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support the OPSF.(*41) The pertinent part of Section 2, Republic Act No. 6952 provides: "SECTION 2. Application of the Fund shall be subject to the following conditions: (1) That the Fund shall be used to reimburse the oil companies for (a) cost increase of imported crude oil and finished petroleum products resulting from foreign exchange rate adjustments and/or increases in world market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation (NPC); and (c) other cost underrecoveries incurred as may be finally decided by the Supreme Court; x x x" Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power Corporation. III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the national government. Pursuant to this LOI then Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising the oil companies that Atlas Consolidated Mining Corporation are among those declared to be in distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August 1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis;"(*42) in its Decision No. 1171, it ruled that the CPI (CALTEX) (Caltex) has no authority to claim reimbursement for this uncollected impost because LOI 1416 dated July 17, 1984, ... was issued when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of its formulation."(*43) It is further stated that: "Moreover, it is evident that OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices." In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to exempt said distressed mining companies from the payment of OPSF dues for the following reasons:

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a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on February 25, 1987. b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the government's effort to prevent the collapse of the copper industry. P.D. 1956, as amended, was issued for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products'; and c. LOI 1416 caused the 'suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the National and Local Governments...' On the other hand, OPSF dues are not payable by (sic) distressed copper companies but by oil companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil products."(*44) Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF dues. We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent that LOI 1416 was never published in the Official Gazette as required by Article of the Civil Code, which reads: "Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette,(*45) unless it is otherwise provided. x x x" In applying said provision, this Court ruled in the case of Taada vs. Tuvera:(*46) "WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished presidential issuances which are of general application, and unless so published they shall have no binding force and effect." Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated on 29 December 1986, ruled: (*47) "We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition for their effectivity, which shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature. Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers whenever the same are validly delegated by the legislature

or, at present, directly conferred by the Constitution. Administrative rules and regulations must also be published if their purpose is to enforcer or implement existing laws pursuant also to a valid delegation. xxx WHEREFORE, it hereby declared that all laws as above defined shall immediately upon their approval, or as soon thereafter as possible, to become effective only after fifteen days from

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their publication, or on another date specified by the legislature, in accordance with Article 2 of the Civil Code." LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after its issuance or at any time after the decision in the abovementioned cases. Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18 June 1987. As amended, the said provision now reads: "Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise provided." We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to Executive Order No. 200. Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority.(*48) The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent. In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to the payment of OPSF dues. IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction.(*49) Respondents, on the other hand, contend that said amount was already disallowed by the OEA for failure to substantiate it.(*50) In fact, when OEA submitted the claims of petitioner for preaudit, the abovementioned amount was already excluded. An examination of the records of this case shows that petitioner failed to prove or substantiate it contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF. Additionally, We find no reason to doubt the submission of respondents that said amount has already been passed upon by the OEA. Hence, the ruling of respondents COA disapproving said claims must be upheld.

V. The last issue to be resolved in this case whether or not the amounts due to the OPSF from petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends that it should be allowed to offset its claims from the OPSF against its contributions to the fund as this has been allowed in the past, particularly in the years 1987 and 1988.(*51) Furthermore, petitioner cites, as bases foroffsetting, the provisions of the New Civil Code on compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides for "Retention of Money for Satisfaction of Indebtedness to Government."(*52) Petitioner also mentions communications from the Board of Energy and the Department of Finance that supposedly authorize compensation.

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Respondents, on the other hand, citing Francia vs. IAC and Fernandez,(*53) contend that there can be no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative Code is misplaced because "while this provision empowers the COA to withhold payments of government indebtedness to a person who is also indebted to the government and apply the government indebtedness to the satisfaction of the obligation of the person to the government, like authority or right to make compensation is not given to the private person."(*54) The reason for this, as stated in Commissioner of Internal Revenue vs. Algue, Inc.,(*55) is that money due the government, either in the form of taxes or other dues, is its lifeblood and should be collected without hindrance. Thus, instead of giving petitioner a reason for compensation or set-off, the Revised Administrative Code makes it the respondents' duty to collect petitioner's indebtedness to the OPSF. Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result of taxation because "P.D. 1956, as amended, did not create a source of taxation; it instead established a special fund...,"(*56) and that the OPSF contribution do not go to the general fund of the state and are not used for public purpose, i.e., not for the support of the government, the administration of law, or the payment of public expenses. This alleged lack of a public purpose behind expenses. This alleged lack of a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is inapplicable. Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the OPSF; the said law provides in part that: SECTION 2. Application of the fund shall be subjected to the following conditions: (3) That no amount of the Petroleum Price Standby Fund shall be used to pay any oil company which has an outstanding obligation to the Government without said obligation being offset first, subject to the requirements of compensation or offset under the Civil Code." We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the

police power of the state.(*57) There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil prices is one of prime concern which the state, via its police power, may properly address. Also P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is taxation. No amount of semantical juggleries could dim this fact. It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government.(*58) Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.(*59)

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We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed unto the end-users -- the consuming public. In that capacity, the petitioner, as one of such companies, has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship between the two; petitioner certainly cannot certainly cannot be considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof that petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in order that compensation may be proper, it is necessary that: (1) each one of the obligors be bound principally, and that he be at the time a principal creditor of the other; (2) both debts consist in a sum of money, or it the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) the two (2) debts be due; (4) they be liquidated and demandable; (5) over neither of then there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis. Lastly, R.A. Mo. 6952 does not authorize oil companies to offset their claims against their OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price Standby Fund to oil companies which have outstanding obligations being offset first subject to the rules on compensation in the Civil Code. WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for reimbursement of underrecovery arising from sales to the National Power Corporation, which is hereby allowed. With cost against petitioner. SO ORDERED.

MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR NICOMEDES F. PATENIA, respondent. Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.

PARAS, J.:p This is a petition for certiorari seeking to annul and set aside: (a) the March 17, 1989 decision * of the Regional Trial Court, Branch 80, Tanay, Rizal in Civil Case No. 057-T entitled, "Municipality of Pililla, Rizal, represented by Mayor Nicomedes F. Patenia vs. Philippine Petroleum Corporation", (PPC for short) upholding the legality of the taxes, fees and charges being imposed in Pililla under Municipal Tax Ordinance No. 1 and directing the herein petitioner to pay the amount of said taxes, fees and charges due the respondent: and (b) the November 2, 1989 resolution of the same court denying petitioner's motion for reconsideration of the said decision. The undisputed facts of the case are: Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged in the manufacture of lubricated oil basestock which is a petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal, conducting its business activities within the territorial jurisdiction of the Municipality of Pililla, Rizal and is in continuous operation up to the present (Rollo p. 60). PPC owns and maintains an oil refinery including forty-nine storage tanks for its petroleum products in Malaya, Pililla, Rizal (Rollo, p. 12). Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and other fuels are subject to specific tax. On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax Code was issued by former President Ferdinand E. Marcos governing the exercise by provinces, cities, municipalities and barrios of their taxing and other revenueraising powers. Sections 19 and 19 (a) thereof, provide among others, that the municipality may impose taxes on business, except on those for which fixed taxes are provided on

PHILIPPINE PETROLEUM CORPORATION, petitioner, vs.

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manufacturers, importers or producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in accordance with the schedule listed therein. The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973, directed to all provincial, city and municipal treasurers to refrain from collecting any local tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the specific tax under the National Internal Revenue Code (Rollo, p. 76). Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the Secretary of Finance instructing all City Treasurers to refrain from collecting any local tax imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code on July 1, 1973, on the businesses of manufacturing, wholesaling, retailing, or dealing in, petroleum products subject to the specific tax under the National Internal Revenue Code (Rollo, p. 79). Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution No. 25, S-1974 enacted Municipal Tax Ordinance No. 1, S1974 otherwise known as "The Pililla Tax Code of 1974" on June 14, 1974, which took effect on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the said ordinance imposed a tax on business, except for those for which fixed taxes are provided in the Local Tax Code on manufacturers, importers, or producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in accordance with the schedule found in the Local Tax Code, as well as mayor's permit, sanitary inspection fee and storage permit fee for flammable, combustible or explosive substances (Rollo, pp. 183187), while Section 139 of the disputed ordinance imposed surcharges and interests on unpaid taxes, fees or charges (Ibid., p. 193). On March 30, 1974, Presidential Decree No. 426 was issued amending certain provisions of P.D. 231 but retaining Sections 19 and 19 (a) with adjusted rates and 22(b). On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum products levied under Sections 142, 144 and 145 of the National Internal Revenue Code, as amended, and

granting provinces, cities and municipalities certain shares in the specific tax on such products in lieu of local taxes imposed on petroleum products. The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the Provincial Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but was not implemented and/or enforced by the Municipality of Pililla because of its having been suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A-73. Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing all city and municipal treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials imposed under the local tax ordinance of their respective locality, said fee partaking of the nature of a strictly revenue measure or service charge. On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was enacted, Section 153 of which specifically imposes specific tax on refined and manufactured mineral oils and motor fuels. Enforcing the provisions of the above-mentioned ordinance, the respondent filed a complaint on April 4, 1986 docketed as Civil Case No. 057-T against PPC for the collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986; mayor's permit and sanitary inspection fees from 1975 to 1984. PPC, however, have already paid the last-named fees starting 1985 (Rollo, p. 74). After PPC filed its answer, a pre-trial conference was held on August 24, 1988 where the parties thru their respective counsel, after coming up with certain admissions and stipulations agreed to the submission of the case for decision based on documentary evidence offered with their respective comments (Rollo, p. 41). On March 17, 1987, the trial court rendered a decision against the petitioner, the dispositive part of which reads as follows: WHEREFORE, premises considered, this Court hereby renders judgment in favor of the plaintiffs as against the defendants thereby directing the defendants to 1) pay the plaintiffs the amount of

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P5,301,385.00 representing the Tax on Business due from the defendants under Sec. 9 (A) of the Municipal Tax Ordinance of the plaintiffs for the period from 1979 to 1983 inclusive plus such amount of tax that may accrue until final determination of case; 2) to pay storage permit fee in the amount of P3,321,730.00 due from the defendants under Sec. 10, par. z (13) (b) (1 C) of the Municipal Tax Ordinance of the plaintiffs for the period from 1975 to 1986 inclusive plus such amount of fee that may accrue until final determination of case; 3) to pay Mayor's Permit Fee due from the defendants under Sec. 10, par. (P) (2) of the Municipal Tax Ordinance of the plaintiffs from 1975 to 1984 inclusive in the amount of P12,120.00 plus such amount of fee that may accrue until final determination of the case; and 4) to pay sanitary inspection fee in the amount of P1,010.00 for the period from 1975 to 1984 plus such amount that may accrue until final determination of case and 5) to pay the costs of suit. SO ORDERED. (Rollo, pp. 49-50) PPC moved for reconsideration of the decision, but this was denied by the lower court in a resolution of November 2, 1989, hence, the instant petition. The Court resolved to give due course to the petition and required both parties to submit simultaneous memoranda (June 21, 1990 Resolution; Rollo, p. 305). PPC assigns the following alleged errors: 1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE BUSINESS TAX UNDER SECTION 9 (A) OF THE TAX ORDINANCE IN THE LIGHT OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26 A-73;. 2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE FOR THE PAYMENT OF STORAGE PERMIT FEE UNDER SECTION 10 Z (13) (b) (1-c) OF THE TAX ORDINANCE CONSIDERING THE ISSUANCE OF PROVINCIAL CIRCULAR NO. 6-77;

3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS COMPUTATION OF TAX LIABILITY HAS ABSOLUTELY NO BASIS; 4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S PERMIT AND SANITARY INSPECTION FEES CONSIDERING THAT THE SAME HAS BEEN VALIDLY AND LEGALLY WAIVED BY THE MAYOR; 5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND DUTIES NOT COLLECTED FROM PETITIONER PRIOR TO THE FIVE (5) YEAR PERIOD FROM THE FILING OF THIS CASE ON APRIL 4, 1986 HAS ALREADY PRESCRIBED. The crucial issue in this case is whether or not petitioner PPC whose oil products are subject to specific tax under the NIRC, is still liable to pay (a) tax on business and (b) storage fees, considering Provincial Circular No. 6-77; and mayor's permit and sanitary inspection fee unto the respondent Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1. Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as contrary to national economic policy the imposition of local taxes on the manufacture of petroleum products as they are already subject to specific tax under the National Internal Revenue Code; (b) the above declaration covers not only old tax ordinances but new ones, as well as those which may be enacted in the future; (c) both Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless and until revoked, any effort on the part of the respondent to collect the suspended tax on business from the petitioner would be illegal and unauthorized; and (d) Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products. PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax ordinances imposing a tax on business under Section 19 (a) of the Local Tax Code (P.D. No. 231), with regard to manufacturers, retailers, wholesalers or dealers in petroleum products subject to the specific tax under the National Internal Revenue Code NIRC, in view of Section 22 (b) of the Code regarding non-imposition by municipalities of taxes on articles, subject to specific tax under the provisions of the NIRC.

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There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees and charges is valid especially Section 9 (A) which according to the trial court "was lifted in toto and/or is a literal reproduction of Section 19 (a) of the Local Tax Code as amended by P.D. No. 426." It conforms with the mandate of said law. But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no exemptions were given to manufacturers, wholesalers, retailers, or dealers in petroleum products. Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails (Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628 [1988]). As aptly held by the court a quo: Necessarily, there could not be any other logical conclusion than that the framers of P.D. No. 426 really and actually intended to terminate the effectivity and/or enforceability of Provincial Circulars Nos. 26-73 and 26 A-73 inasmuch as clearly these circulars are in contravention with Sec. 19 (a) of P.D. 426-the amendatory law to P.D. No. 231. That intention to terminate is very apparent and in fact it is expressed in clear and unequivocal terms in the effectivity and repealing clause of P.D. 426 . . . Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a declared national policy, it should have been expressly stated in P.D. No. 436. The exercise by local governments of the power to tax is ordained by the present Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere administrative issuances.

Under Section 5, Article X of the 1987 Constitution, only guidelines and limitations that may be established by Congress can define and limit such power of local governments. Thus: Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy . . . Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials imposed in the local tax ordinance of their respective locality frees petitioner PPC from the payment of storage permit fee. The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and keeping in storage of any flammable, combustible or explosive substances. Inasmuch as said storage makes use of tanks owned not by the municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any service rendered by the municipality as what is envisioned in Section 37 of the same Code. Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit fee allowed under Section 36 of the amended Code. As to the authority of the mayor to waive payment of the mayor's permit and sanitary inspection fees, the trial court did not err in holding that "since the power to tax includes the power to exempt thereof which is essentially a legislative prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally withdraw such an expression of a policy thru the enactment of a tax." The waiver partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority (Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon with disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121 [1983]). Thus, in the absence of a clear and express exemption from the payment of said fees, the waiver cannot be recognized. As already

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stated, it is the law-making body, and not an executive like the mayor, who can make an exemption. Under Section 36 of the Code, a permit fee like the mayor's permit, shall be required before any individual or juridical entity shall engage in any business or occupation under the provisions of the Code. However, since the Local Tax Code does not provide the prescriptive period for collection of local taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon an obligation created by law prescribes within ten (10) years from the time the right of action accrues. The Municipality of Pililla can therefore enforce the collection of the tax on business of petitioner PPC due from 1976 to 1986, and NOT the tax that had accrued prior to 1976. PREMISES CONSIDERED, with the MODIFICATION that business taxes accruing PRIOR to 1976 are not to be paid by PPC (because the same have prescribed) and that storage fees are not also to be paid by PPC (for the storage tanks are owned by PPC and not by the municipality, and therefore cannot be a charge for service by the municipality), the assailed DECISION is hereby AFFIRMED. SO ORDERED.

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