Taxation I Case Assignments

chapter 1
1. Gr 92585 caltex vs coa
2. GR 125704 philex vs CIR
3. Gr 76778 chavez vs ongpin
4. Gr 122480 bpi vs ca
chapter 2
1. GR L-60126 cagayan electic vs cir
2. GR 124043 CIR vs CA
Chapter 3
1. GR 88291 maceda vs macaraig
2. GR 119786 atlas vs cir

EN BANC
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT,
HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER
ALBERTO P. CRUZ, respondents.
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 claims for recovery of financing charges from the
Fund and reimbursement of underrecovery arising from sales to the
National Power Corporation, Atlas Consolidated Mining and
Development Corporation (ATLAS) and Marcopper Mining Corporation
(MAR-COPPER), preventing it from exercising the right to offset its
remittances against its reimbursement vis-a-vis the OPSF and disallowing
its claims which 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 issues 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:
Sec. 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 the Board of Energy;
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
increases 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 under-recovery 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 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 P335,037,649.00 and informing it that, pending such
remittance, all of its claims for reimbursement from the OPSF shall be
held in abeyance.
6

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, broken
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 a 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 of P1.287 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 OEA, P1.287 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:
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 . . . claims for reimbursement from
the OPSF."
It appears that under letters of authority issued by 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 years 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 of remittances, advised these oil
companies 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 unsubmitted 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: . . .
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
Particulars Amount
Recovery of financing charges P162,728,475 /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

P257,263,300
Disallowances of OEA 130,420,235

Total P387,683,535
The reasons for the disallowances are discussed hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 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 of 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 reimbursements but
those of the borrower. Hence, we recommend reduction of
the claim for July, August, and November, 1987 amounting to
P14,034,786.
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
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 xxx 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 xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET
ARRANGEMENT, AS AUTHORIZED BY THE
EXECUTIVE BRANCH OF GOVERNMENT, REMAINS
VALID.
xxx xxx 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 disallowance for recovery of financing
charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales 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 reimbursement 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 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, . . ., 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,
. . . 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 OPSF, in view of which
CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is
represented that you are entitled to claim recovery from the
OPSF pursuant to LOI 1416 issued on July 17, 1984, since
these copper mining companies did not pay CPI (CALTEX)
and OPSF imposts 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.
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
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 discussions 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
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
(PBbl.)
Less than 180 days None
180 days to 239 days 1.90
240 days to 229 (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 OEA disseminated this Circular to all oil companies in its
Memorandum Circular No. 88-12-017.
26

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 OEA
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 petitioner's 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. No. 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:
Sec. 2(l). 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 government-owned 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 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 in 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:
Sec. 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 the 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.
There can be no doubt, however, that the audit power of the Auditor
General under the 1935 Constitution and the Commission on Audit under
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 framers 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 takes 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.
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 "[w]here 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 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:
Sec. 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 increases 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; . . .
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 and Marcopper 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:
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 No. 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 product's; 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
Notional 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
45
as required by Article 2 of the Civil Code, which reads:
Laws shall take effect after fifteen days following the
completion of their publication in the Official Gazette, unless
it is otherwise provided. . . .
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,
47
ruled:
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 enforce or implement
existing laws pursuant also to a valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as above
defined shall immediately upon their approval, or as soon
thereafter as possible, be published in full in the Official
Gazette, to become effective only after fifteen days from 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 pre-audit, the abovementioned
amount was already excluded.
An examination of the records of this case shows that petitioner failed to
prove or substantiate its 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 respondent
COA disapproving said claim must be upheld.
V. The last issue to be resolved in this case is 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 for offsetting, 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.
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 payment of a 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, amended,
did not create a source of taxation; it instead established a special fund . .
.,"
56
and that the OPSF contributions 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 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:
Sec. 2. Application of the fund shall be subject to the
following conditions:
xxx xxx xxx
(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 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

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 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 same time a principal creditor of the other;
(2) both debts consist in a sum of :money, or if 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 them 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. No. 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 with the government, without said
obligation 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 costs against petitioner.
SO ORDERED.
Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin,
Grio-Aquino, Medialdea, Regalado, Romero and Nocon, JJ., concur.


G.R. No. 125704 August 28, 1998
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF
APPEALS, and THE COURT OF TAX APPEALS, respondents.

ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975
1

affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated
March 16, 1995
2
ordering it to pay the amount of P110,677,668.52 as
excise tax liability for the period from the 2nd quarter of 1991 to the 2nd
quarter of 1992 plus 20% annual interest from August 6, 1994 until fully
paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex
asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991
as well as the 1st and 2nd quarter of 1992 in the total amount of
P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE
INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16
19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09
21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72
26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97
68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82
30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18
24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00
55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97
123,821,982.52
3

========= ========= =========
=========
In a letter dated August 20, 1992,
4
Philex protested the demand for
payment of the tax liabilities stating that it has pending claims for VAT
input credit/refund for the taxes it paid for the years 1989 to 1991 in the
amount of P119,977,037.02 plus interest. Therefore these claims for tax
credit/refund should be applied against the tax liabilities, citing our ruling
in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.
5

In reply, the BIR, in a letter dated September 7, 1992,
6
found no merit in
Philex's position. Since these pending claims have not yet been established
or determined with certainty, it follows that no legal compensation can
take place. Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT
input credit/refund against its excise tax obligation, Philex raised the issue
to the Court of Tax Appeals on November 6, 1992.
7
In the course of the
proceedings, the BIR issued Tax Credit Certificate SN 001795 in the
amount of P13,144,313.88 which, applied to the total tax liabilities of
Philex of P123,821,982.52; effectively lowered the latter's tax obligation
to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to
pay the remaining balance of P110,677,688.52 plus interest, elucidating its
reason, to wit:
Thus, for legal compensation to take place, both obligations
must be liquidated and demandable. "Liquidated" debts are those
where the exact amount has already been determined
(PARAS, Civil Code of the Philippines, Annotated, Vol. IV,
Ninth Edition, p. 259). In the instant case, the claims of the
Petitioner for VAT refund is still pending litigation, and still
has to be determined by this Court (C.T.A. Case No. 4707). A
fortiori, the liquidated debt of the Petitioner to the government
cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favor (see Compaia
General de Tabacos vs. French and Unson, No. 14027,
November 8, 1918, 39 Phil. 34).
8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject
to set-off on compensation since claim for taxes is not a debt or contract."
9
The dispositive portion of the CTA decision
10
provides:
In all the foregoing, this Petition for Review is hereby
DENIED for lack of merit and Petitioner is hereby
ORDERED to PAY the Respondent the amount of
P110,677,668.52 representing excise tax liability for the period
from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus
20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of
Appeals docketed as CA-GR. CV No. 36975.
11
Nonetheless, on April 8,
1996, the Court of Appeals a Affirmed the Court of Tax Appeals
observation. The pertinent portion of which reads:
12

WHEREFORE, the appeal by way of petition for review is
hereby DISMISSED and the decision dated March 16, 1995
is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied
in a Resolution dated July 11, 1996.
13

However, a few days after the denial of its motion for reconsideration,
Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994, computed as
follows:
14

Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends
that the same should, ipso jure, off-set its excise tax liabilities
15
since both
had already become "due and demandable, as well as fully liquidated;"
16

hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the
simple reason that the government and the taxpayer are not creditors and
debtors of each other.
17
There is a material distinction between a tax and
debt. Debts are due to the Government in its corporate capacity, while
taxes are due to the Government in its sovereign capacity.
18
We find no
cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court,
19

we categorically held that taxes cannot be subject to set-off or
compensation, thus:
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.
The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,
20
which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that
he may have against the government. 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.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue
v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending refund may be
set off against an existing tax liability even though the refund has not yet
been approved by the Commissioner,
21
is no longer without any support
in statutory law.
It is important to note, that the premise of our ruling in the
aforementioned case was anchored on Section 51 (d) of the National
Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc
pronouncement was based was omitted.
22
Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts
that the imposition of surcharge and interest for the non-payment of the
excise taxes within the time prescribed was unjustified. Philex posits the
theory that it had no obligation to pay the excise tax liabilities within the
prescribed period since, after all, it still has pending claims for VAT input
credit/refund with BIR.
23

We fail to see the logic of Philex's claim for this is an outright disregard
of the basic principle in tax law that taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance.
24

Evidently, to countenance Philex's whimsical reason would render
ineffective our tax collection system. Too simplistic, it finds no support
in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax
liabilities on the ground that it has a pending tax claim for refund or credit
against the government which has not yet been granted. It must be noted
that a distinguishing feature of a tax is that it is compulsory rather than a
matter of bargain.
25
Hence, a tax does not depend upon the consent of
the taxpayer.
26
If any taxpayer can defer the payment of taxes by raising
the defense that it still has a pending claim for refund or credit, this would
adversely affect the government revenue system. A taxpayer cannot refuse
to pay his taxes when they fall due simply because he has a claim against
the government or that the collection of the tax is contingent on the result
of the lawsuit it filed against the government.
27
Moreover, Philex's theory
that would automatically apply its VAT input credit/refund against its tax
liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and
offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input
claim/refund with the government is immaterial for the imposition of
charges and penalties prescribed under Section 248 and 249 of the Tax
Code of 1977. The payment of the surcharge is mandatory and the BIR is
not vested with any authority to waive the collection thereof.
28
The same
cannot be condoned for flimsy reasons,
29
similar to the one advanced by
Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e)
30
of the
National Internal Revenue Code of 1977, which requires the refund of
input taxes within 60 days,
31
when it took five years for the latter to grant
its tax claim for VAT input credit/refund.
32

In this regard, we agree with Philex. While there is no dispute that a
claimant has the burden of proof to establish the factual basis of his or
her claim for tax credit or refund,
33
however, once the claimant has
submitted all the required documents it is the function of the BIR to assess
these documents with purposeful dispatch. After all, since taxpayers owe
honestly to government it is but just that government render fair service
to the taxpayers.
34

In the instant case, the VAT input taxes were paid between 1989 to 1991
but the refund of these erroneously paid taxes was only granted in 1996.
Obviously, had the BIR been more diligent and judicious with their duty,
it could have granted the refund earlier. We need not remind the BIR that
simple justice requires the speedy refund of wrongly-held taxes.
35
Fair
dealing and nothing less, is expected by the taxpayer from the BIR in the
latter's discharge of its function. As aptly held in Roxas v. Court of Tax
Appeals:
36

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.
Despite our concern with the lethargic manner by which the BIR handled
Philex's tax claim, it is a settled rule that in the performance of
governmental function, the State is not bound by the neglect of its agents
and officers. Nowhere is this more true than in the field of taxation.
37

Again, while we understand Philex's predicament, it must be stressed that
the same is not a valid reason for the non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against
public servants or employees, especially BIR examiners who, in
investigating tax claims are seen to drag their feet needlessly. First, if the
BIR takes time in acting upon the taxpayer's claim for refund, the latter
can seek judicial remedy before the Court of Tax Appeals in the manner
prescribed by law.
38
Second, if the inaction can be characterized as willful
neglect of duty, then recourse under the Civil Code and the Tax Code can
also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a
public servant or employee refuses or neglects, without just
cause, to perform his official duty may file an action for
damages and other relief against the latter, without prejudice
to any disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act
of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for
any sum collected in the performance of duty or wilfully
neglecting to perform, any other duties enjoyed by law.
Simply put, both provisions abhor official inaction, willful neglect and
unreasonable delay in the performance of official duties.
39
In no uncertain
terms must we stress that every public employee or servant must strive to
render service to the people with utmost diligence and efficiency.
Insolence and delay have no place in government service. The BIR, being
the government collecting arm, must and should do no less. It simply
cannot be apathetic and laggard in rendering service to the taxpayer if it
wishes to remain true to its mission of hastening the country's
development. We take judicial notice of the taxpayer's generally negative
perception towards the BIR; hence, it is up to the latter to prove its
detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in
performing its duties, still, the same cannot justify Philex's non-payment
of its tax liabilities. The adage "no one should take the law into his own
hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby
DISMISSED. The assailed decision of the Court of Appeals dated April
8, 1996 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Kapunan and Purisima, JJ., concur.



EN BANC
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and
FIDELINA CRUZ, in her capacity as Acting Municipal Treasurer
of the Municipality of Las Pias, respondents, REALTY OWNERS
ASSOCIATION OF THE PHILIPPINES, INC., petitioner-
intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and
Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners
Association.

MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73
dated November 25, 1986, which We quote in full, as follows (78 O.G.
5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL
PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER
SECTION 21 OF THE REAL PROPERTY TAX CODE,
AS AMENDED
WHEREAS, the collection of real property taxes is still based
on the 1978 revision of property values;
WHEREAS, the latest general revision of real property
assessments completed in 1984 has rendered the 1978 revised
values obsolete;
WHEREAS, the collection of real property taxes based on the
1984 real property values was deferred to take effect on
January 1, 1988 instead of January 1, 1985, thus depriving the
local government units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to
augment their financial resources to meet the rising cost of
rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO,
President of the Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984
as determined by the local assessors during the latest general
revision of assessments shall take effect beginning January 1,
1987 for purposes of real property tax collection.
SEC. 2. The Minister of Finance shall promulgate the
necessary rules and regulations to implement this Executive
Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is
hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations
or parts thereof inconsistent with this Executive Order are
hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending
the implementation of Executive Order No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez,
1
is a taxpayer and an owner of three
parcels of land. He alleges the following: that Executive Order No. 73
accelerated the application of the general revision of assessments to
January 1, 1987 thereby mandating an excessive increase in real property
taxes by 100% to 400% on improvements, and up to 100% on land; that
any increase in the value of real property brought about by the revision of
real property values and assessments would necessarily lead to a
proportionate increase in real property taxes; that sheer oppression is the
result of increasing real property taxes at a period of time when harsh
economic conditions prevail; and that the increase in the market values of
real property as reflected in the schedule of values was brought about only
by inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc.
(ROAP), which is the national association of owners-lessors, joins Chavez
in his petition to declare unconstitutional Executive Order No. 73, but
additionally alleges the following: that Presidential Decree No. 464 is
unconstitutional insofar as it imposes an additional one percent (1%) tax
on all property owners to raise funds for education, as real property tax is
admittedly a local tax for local governments; that the General Revision of
Assessments does not meet the requirements of due process as regards
publication, notice of hearing, opportunity to be heard and insofar as it
authorizes "replacement cost" of buildings (improvements) which is not
provided in Presidential Decree No. 464, but only in an administrative
regulation of the Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86
2
is even more oppressive and
unconstitutional as it imposes successive increase of 150% over the 1986
tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of
Executive Order No. 73 insofar as the revision of the assessments and the
effectivity thereof are concerned. It should be emphasized that Executive
Order No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984
as determined by the local assessors during the latest general
revision of assessments shall take effect beginning January 1,
1987 for purposes of real property tax collection. (emphasis
supplied)
The general revision of assessments completed in 1984 is based on
Section 21 of Presidential Decree No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the
assessor shall make a calendar year 1978, the provincial or city
general revision of real property assessments in the province
or city to take effect January 1, 1979, and once every five years
thereafter: Provided; however, That if property values in a
province or city, or in any municipality, have greatly changed
since the last general revision, the provincial or city assesor
may, with the approval of the Secretary of Finance or upon
bis direction, undertake a general revision of assessments in
the province or city, or in any municipality before the fifth
year from the effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on
Executive Order No. 73 has no legal basis as the general revision of
assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464
which should be challenged as constitutionally infirm. However, Chavez
failed to raise any objection against said decree. It was ROAP which
questioned the constitutionality thereof. Furthermore, Presidential
Decree No. 464 furnishes the procedure by which a tax assessment may
be questioned:
SEC. 30. Local Board of Assessment Appeals. Any owner who
is not satisfied with the action of the provincial or city assessor
in the assessment of his property may, within sixty days from
the date of receipt by him of the written notice of assessment
as provided in this Code, appeal to the Board of Assessment
Appeals of the province or city, by filing with it a petition
under oath using the form prescribed for the purpose,
together with copies of the tax declarations and such affidavit
or documents submitted in support of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. The
Local Board of Assessment Appeals shall decide the appeal
within one hundred and twenty days from the date of receipt
of such appeal. The decision rendered must be based on
substantial evidence presented at the hearing or at least
contained in the record and disclosed to the parties or such
relevant evidence as a reasonable mind might accept as
adequate to support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall
have the power to summon witnesses, administer oaths,
conduct ocular inspection, take depositions, and issue
subpoena and subpoena duces tecum. The proceedings of the
Board shall be conducted solely for the purpose of
ascertaining the truth without-necessarily adhering to
technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner
and the Provincial or City Assessor with a copy each of the
decision of the Board. In case the provincial or city assessor
concurs in the revision or the assessment, it shall be his duty
to notify the property owner of such fact using the form
prescribed for the purpose. The owner or administrator of the
property or the assessor who is not satisfied with the decision
of the Board of Assessment Appeals, may, within thirty days
after receipt of the decision of the local Board, appeal to the
Central Board of Assessment Appeals by filing his appeal
under oath with the Secretary of the proper provincial or city
Board of Assessment Appeals using the prescribed form
stating therein the grounds and the reasons for the appeal, and
attaching thereto any evidence pertinent to the case. A copy
of the appeal should be also furnished the Central Board of
Assessment Appeals, through its Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary
of the Board of Assessment Appeals concerned shall forward
the same and all papers related thereto, to the Central Board
of Assessment Appeals through the Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. The Central Board of
Assessment Appeals shall have jurisdiction over appealed
assessment cases decided by the Local Board of Assessment
Appeals. The said Board shall decide cases brought on appeal
within twelve (12) months from the date of receipt, which
decision shall become final and executory after the lapse of
fifteen (15) days from the date of receipt of a copy of the
decision by the appellant.
In the exercise of its appellate jurisdiction, the Central Board
of Assessment Appeals, or upon express authority, the
Hearing Commissioner, shall have the power to summon
witnesses, administer oaths, take depositions, and issue
subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and
promulgate rules of procedure relative to the conduct of its
business.
Simply stated, within sixty days from the date of receipt of the, written
notice of assessment, any owner who doubts the assessment of his
property, may appeal to the Local Board of Assessment Appeals. In case
the, owner or administrator of the property or the assessor is not satisfied
with the decision of the Local Board of Assessment Appeals, he may,
within thirty days from the receipt of the decision, appeal to the Central
Board of Assessment Appeals. The decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of
fifteen days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes
brought about by Executive Order No. 73 amounts to a confiscation of
property repugnant to the constitutional guarantee of due process,
invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No.
L-24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No.
59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due
process requirement called for therein applies to the "power to tax."
Executive Order No. 73 does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers
that will result from an increase in real property taxes. Hence, Executive
Order No. 1019 was issued on April 18, 1985, deferring the
implementation of the increase in real property taxes resulting from the
revised real property assessments, from January 1, 1985 to January 1,
1988. Section 5 thereof is quoted herein as follows:
SEC. 5. The increase in real property taxes resulting from the
revised real property assessments as provided for under
Section 21 of Presidential Decree No. 464, as amended by
Presidential Decree No. 1621, shall be collected beginning
January 1, 1988 instead of January 1, 1985 in order to enable
the Ministry of Finance and the Ministry of Local
Government to establish the new systems of tax collection
and assessment provided herein and in order to alleviate the
condition of the people, including real property owners, as a result of
temporary economic difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of
implementation of the increase in real property taxes from January 1, 1988
to January 1, 1987 and therefore repealed Executive Order No. 1019, also
finds ample justification in its "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the
1984 real property values was deferred to take effect on
January 1, 1988 instead of January 1, 1985, thus depriving the local
government units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment
their financial resources to meet the rising cost of rendering effective services
to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is
unconstitutional, is not proper to be resolved in the present petition. As
stated at the outset, the issue here is limited to the constitutionality of
Executive Order No. 73. Intervention is not an independent proceeding,
but an ancillary and supplemental one which, in the nature of things,
unless otherwise provided for by legislation (or Rules of Court), must be
in subordination to the main proceeding, and it may be laid down as a
general rule that an intervention is limited to the field of litigation open to
the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67
Phil. 279).
We agree with the observation of the Office of the Solicitor General that
without Executive Order No. 73, the basis for collection of real property
taxes win still be the 1978 revision of property values. Certainly, to
continue collecting real property taxes based on valuations arrived at
several years ago, in disregard of the increases in the value of real
properties that have occurred since then, is not in consonance with a
sound tax system. Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be adequate to
meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are
hereby DISMISSED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano,
Gancayco, Bidin, Sarmiento, Cortes and Regalado, JJ., concur.
Padilla, J., took no part.
Grio-Aquino, J., is on leave.



G.R. No. 122480 April 12, 2000
BPI-FAMILY SAVINGS BANK, Inc., petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and the
COMMISSIONER OF INTERNAL REVENUE, respondents.

PANGANIBAN, J.:
If the State expects its taxpayers to observe fairness and honesty in paying
their taxes, so must it apply the same standard against itself in refunding
excess payments. When it is undisputed that a taxpayer is entitled to a
refund, the State should not invoke technicalities to keep money not
belonging to it. No one, not even the State, should enrich oneself at the
expense of another.
The Case
Before us is a Petition for Review assailing the March 31, 1995 Decision
of the Court of Appeals
1
(CA) in CA-GR SP No. 34240, which affirmed
the December 24, 1993 Decision
2
of the Court of Tax Appeals (CTA).
The CA disposed as follows:
WHEREFORE, foregoing premises considered, the petition is
hereby DISMISSED for lack of merit.
3

On the other hand, the dispositive portion of the CTA Decision affirmed
by the CA reads as follows:
WHEREFORE, in [view of] all the foregoing, Petitioner's claim for
refund is hereby DENIED and this Petition for Review is
DISMISSED for lack of merit.
4

Also assailed is the November 8, 1995 CA Resolution
5
denying
reconsideration.
The Facts
The facts of this case were summarized by the CA in this wise:
This case involves a claim for tax refund in the amount of
P112,491.00 representing petitioner's tax withheld for the year 1989.
In its Corporate Annual Income Tax Return for the year 1989, the
following items are reflected:
Income P1,017,931,831.00
Deductions P1,026,218,791.00
Net Income (Loss) (P8,286,960.00)
Taxable Income (Loss) (P8,286,960.00)
Less:
1988 Tax Credit P185,001.00
1989 Tax Credit P112,491.00
TOTAL AMOUNT P297,492.00
REFUNDABLE
It appears from the foregoing 1989 Income Tax Return that
petitioner had a total refundable amount of P297,492 inclusive
of the P112,491.00 being claimed as tax refund in the present
case. However, petitioner declared in the same 1989 Income
Tax Return that the said total refundable amount of
P297,492.00 will be applied as tax credit to the succeeding
taxable year.
On October 11, 1990, petitioner filed a written claim for
refund in the amount of P112,491.00 with the respondent
Commissioner of Internal Revenue alleging that it did not
apply the 1989 refundable amount of P297,492.00 (including
P112,491.00) to its 1990 Annual Income Tax Return or other
tax liabilities due to the alleged business losses it incurred for
the same year.
Without waiting for respondent Commissioner of Internal
Revenue to act on the claim for refund, petitioner filed a
petition for review with respondent Court of Tax Appeals,
seeking the refund of the amount of P112,491.00.
The respondent Court of Tax Appeals dismissed petitioner's
petition on the ground that petitioner failed to present as
evidence its corporate Annual Income Tax Return for 1990 to
establish the fact that petitioner had not yet credited the
amount of P297,492.00 (inclusive of the amount P112,491.00
which is the subject of the present controversy) to its 1990
income tax liability.
Petitioner filed a motion for reconsideration, however, the
same was denied by respondent court in its Resolution dated
May 6, 1994.
6

As earlier noted, the CA affirmed the CTA. Hence, this Petition.
7

Ruling of the Court of Appeals
In affirming the CTA, the Court of Appeals ruled as follows:
It is incumbent upon the petitioner to show proof that it has
not credited to its 1990 Annual income Tax Return, the
amount of P297,492.00 (including P112,491.00), so as to
refute its previous declaration in the 1989 Income Tax Return
that the said amount will be applied as a tax credit in the
succeeding year of 1990. Having failed to submit such
requirement, there is no basis to grant the claim for refund. . .
.
Tax refunds are in the nature of tax exemptions. As such, they
are regarded as in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming
the exemption. In other words, the burden of proof rests
upon the taxpayer to establish by sufficient and competent
evidence its entitlement to the claim for refund.
8

Issue
In their Memorandum, respondents identify the issue in this wise:
The sole issue to be resolved is whether or not petitioner is entitled
to the refund of P112,491.90, representing excess creditable
withholding tax paid for the taxable year 1989.
9

The Court's Ruling
The Petition is meritorious.
Main Issue:
Petitioner Entitled to Refund
It is undisputed that petitioner had excess withholding taxes for the year
1989 and was thus entitled to a refund amounting to P112,491. Pursuant
to Section 69
10
of the 1986 Tax Code which states that a corporation
entitled to a refund may opt either (1) to obtain such refund or (2) to
credit said amount for the succeeding taxable year, petitioner indicated in
its 1989 Income Tax Return that it would apply the said amount as a tax
credit for the succeeding taxable year, 1990. Subsequently, petitioner
informed the Bureau of Internal Revenue (BIR) that it would claim the
amount as a tax refund, instead of applying it as a tax credit. When no
action from the BIR was forthcoming, petitioner filed its claim with the
Court of Tax Appeals.
The CTA and the CA, however, denied the claim for tax refund. Since
petitioner declared in its 1989 Income Tax Return that it would apply the
excess withholding tax as a tax credit for the following year, the Tax Court
held that petitioner was presumed to have done so. The CTA and the CA
ruled that petitioner failed to overcome this presumption because it did
not present its 1990 Return, which would have shown that the amount in
dispute was not applied as a tax credit. Hence, the CA concluded that
petitioner was not entitled to a tax refund.
We disagree with the Court of Appeals. As a rule, the factual findings of
the appellate court are binding on this Court. This rule, however, does not
apply where, inter alia, the judgment is premised on a misapprehension of
facts, or when the appellate court failed to notice certain relevant facts
which if considered would justify a different conclusion.
11
This case is
one such exception.
In the first place, petitioner presented evidence to prove its claim that it
did not apply the amount as a tax credit. During the trial before the CTA,
Ms. Yolanda Esmundo, the manager of petitioner's accounting
department, testified to this fact. It likewise presented its claim for refund
and a certification issued by Mr. Gil Lopez, petitioner's vice-president,
stating that the amount of P112,491 "has not been and/or will not be
automatically credited/offset against any succeeding quarters' income tax
liabilities for the rest of the calendar year ending December 31, 1990."
Also presented were the quarterly returns for the first two quarters of
1990.
The Bureau of Internal Revenue, for its part, failed to controvert
petitioner's claim. In fact, it presented no evidence at all. Because it ought
to know the tax records of all taxpayers, the CIR could have easily
disproved petitioner's claim. To repeat, it did not do so.
More important, a copy of the Final Adjustment Return for 1990 was
attached to petitioner's Motion for Reconsideration filed before the CTA.
12
A final adjustment return shows whether a corporation incurred a loss
or gained a profit during the taxable year. In this case, that Return clearly
showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly,
it could not have applied the amount in dispute as a tax credit.
Again, the BIR did not controvert the veracity of the said return. It did
not even file an opposition to petitioner's Motion and the 1990 Final
Adjustment Return attached thereto. In denying the Motion for
Reconsideration, however, the CTA ignored the said Return. In the same
vein, the CA did not pass upon that significant document.
True, strict procedural rules generally frown upon the submission of the
Return after the trial.1wphi1 The law creating the Court of Tax Appeals,
however, specifically provides that proceedings before it "shall not be
governed strictly by the technical rules of evidence."
13
The paramount
consideration remains the ascertainment of truth. Verily, the quest for
orderly presentation of issues is not an absolute. It should not bar courts
from considering undisputed facts to arrive at a just determination of a
controversy.
In the present case, the Return attached to the Motion for
Reconsideration clearly showed that petitioner suffered a net loss in 1990.
Contrary to the holding of the CA and the CTA, petitioner could not have
applied the amount as a tax credit. In failing to consider the said Return,
as well as the other documentary evidence presented during the trial, the
appellate court committed a reversible error.
It should be stressed that the rationale of the rules of procedure is to
secure a just determination of every action. They are tools designed to
facilitate the attainment of justice.
14
But there can be no just
determination of the present action if we ignore, on grounds of strict
technicality, the Return submitted before the CTA and even before this
Court.
15
To repeat, the undisputed fact is that petitioner suffered a net
loss in 1990; accordingly, it incurred no tax liability to which the tax credit
could be applied. Consequently, there is no reason for the BIR and this
Court to withhold the tax refund which rightfully belongs to the
petitioner.
Public respondents maintain that what was attached to petitioner's
Motion for Reconsideration was not the final adjustment Return, but
petitioner's first two quarterly returns for 1990.
16
This allegation is wrong.
An examination of the records shows that the 1990 Final Adjustment
Return was attached to the Motion for Reconsideration. On the other
hand, the two quarterly returns for 1990 mentioned by respondent were
in fact attached to the Petition for Review filed before the CTA. Indeed,
to rebut respondents' specific contention, petitioner submitted before us
its Surrejoinder, to which was attached the Motion for Reconsideration
and Exhibit "A" thereof, the Final Adjustment Return for 1990.
17

CTA Case No. 4897
Petitioner also calls the attention of this Court, as it had done before the
CTA, to a Decision rendered by the Tax Court in CTA Case No. 4897,
involving its claim for refund for the year 1990. In that case, the Tax Court
held that "petitioner suffered a net loss for the taxable year 1990 . . . ."
18

Respondent, however, urges this Court not to take judicial notice of the
said case.
19

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

Be that as it may, Section 2, Rule 129 provides that courts may take judicial
notice of matters ought to be known to judges because of their judicial
functions. In this case, the Court notes that a copy of the Decision in CTA
Case No. 4897 was attached to the Petition for Review filed before this
Court. Significantly, respondents do not claim at all that the said Decision
was fraudulent or nonexistent. Indeed, they do not even dispute the
contents of the said Decision, claiming merely that the Court cannot take
judicial notice thereof.
To our mind, respondents' reasoning underscores the weakness of their
case. For if they had really believed that petitioner is not entitled to a tax
refund, they could have easily proved that it did not suffer any loss in
1990. Indeed, it is noteworthy that respondents opted not to assail the
fact appearing therein that petitioner suffered a net loss in 1990 in
the same way that it refused to controvert the same fact established by
petitioner's other documentary exhibits.
In any event, the Decision in CTA Case No. 4897 is not the sole basis of
petitioner's case. It is merely one more bit of information showing the
stark truth: petitioner did not use its 1989 refund to pay its taxes for 1990.
Finally, respondents argue that tax refunds are in the nature of tax
exemptions and are to be construed strictissimi juris against the claimant.
Under the facts of this case, we hold that petitioner has established its
claim. Petitioner may have failed to strictly comply with the rules of
procedure; it may have even been negligent. These circumstances,
however, should not compel the Court to disregard this cold, undisputed
fact: that petitioner suffered a net loss in 1990, and that it could not have
applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of petitioner.
Technicalities and legalisms, however exalted, should not be misused by
the government to keep money not belonging to it and thereby enrich
itself at the expense of its law-abiding citizens. If the State expects its
taxpayers to observe fairness and honesty in paying their taxes, so must it
apply the same standard against itself in refunding excess payments of
such taxes. Indeed, the State must lead by its own example of honor,
dignity and uprightness.
WHEREFORE, the Petition is hereby GRANTED and the assailed
Decision and Resolution of the Court of Appeals REVERSED and SET
ASIDE. The Commissioner of Internal Revenue is ordered to refund to
petitioner the amount of P112,491 as excess creditable taxes paid in 1989.
No costs.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., abroad on official business.




G.R. No. L-60126 September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
Quasha, De Guzman Makalintal & Barot for petitioner.
AQUINO, J.:
This is about the liability of petitioner Cagayan Electric Power & Light
Co., Inc. for income tax amounting to P75,149.73 for the more than
seven-month period of the year 1969 in addition to franchise tax.
The petitioner is the holder of a legislative franchise, Republic Act No.
3247, under which its payment of 3% tax on its gross earnings from the
sale of electric current is "in lieu of all taxes and assessments of whatever
authority upon privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted" (Sec. 3).
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax
Code by making liable for income tax all corporate taxpayers not specifically
exempt under paragraph (c) (1) of said section and section 27 of the Tax
Code notwithstanding the "provisions of existing special or general laws
to the contrary". Thus, franchise companies were subjected to income tax
in addition to franchise tax.
However, in petitioner's case, its franchise was amended by Republic Act
No. 6020, effective August 4, 1969, by authorizing the petitioner to furnish
electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental
in addition to Cagayan de Oro City and the municipalities of Tagoloan
and Opol. The amendment reenacted the tax exemption in its original
charter or neutralized the modification made by Republic Act No. 5431
more than a year before.
By reason of the amendment to section 24 of the Tax Code, the
Commissioner of Internal Revenue in a demand letter dated February 15,
1973 required the petitioner to pay deficiency income taxes for 1968-to
1971. The petitioner contested the assessments. The Commissioner
cancelled the assessments for 1970 and 1971 but insisted on those for
1968 and 1969.
The petitioner filed a petition for review with the Tax Court, which on
February 26, 1982 held the petitioner liable only for the income tax for the
period from January 1 to August 3, 1969 or before the passage of Republic
Act No. 6020 which reiterated its tax exemption. The petitioner appealed
to this Court.
It contends that the Tax Court erred (1) in not holding that the franchise
tax paid by the petitioner is a commutative tax which already includes the
income tax; (2) in holding that Republic Act No. 5431 as amended, altered
or repealed petitioner's franchise; (3) in holding that petitioner's franchise
is a contract which can be impaired by an implied repeal and (4) in not
holding that section 24(d) of the Tax Code should be construed strictly
against the Government.
We hold that Congress could impair petitioner's legislative franchise by
making it liable for income tax from which heretofore it was exempted by
virtue of the exemption provided for in section 3 of its franchise.
The Constitution provides that a franchise is subject to amendment,
alteration or repeal by the Congress when the public interest so requires
(Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that
it is subject to the provisions of the Constitution and to the terms and
conditions established in Act No. 3636 whose section 12 provides that
the franchise is subject to amendment, alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by
subjecting to income tax all corporate taxpayers not expressly exempted
therein and in section 27 of the Code, had the effect of withdrawing
petitioner's exemption from income tax.
The Tax Court acted correctly in holding that the exemption was restored
by the subsequent enactment on August 4, 1969 of Republic Act No. 6020
which reenacted the said tax exemption. Hence, the petitioner is liable
only for the income tax for the period from January 1 to August 3, 1969
when its tax exemption was modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine Long
Distance Telephone Company, have been paying income tax in addition
to the franchise tax.
However, it cannot be denied that the said 1969 assessment appears to be
highly controversial. The Commissioner at the outset was not certain as
to petitioner's income tax liability. It had reason not to pay income tax
because of the tax exemption in its franchise.
For this reason, it should be liable only for tax proper and should not be
held liable for the surcharge and interest. (Advertising Associates, Inc. vs.
Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No.
59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs.
Commissioner of Internal Revenue, 125 Phil. 1024; C.M. Hoskins & Co.,
Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71
SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with the
modification that the petitioner is liable only for the tax proper and that
it should not pay the delinquency penalties. No costs.
SO ORDERED.
Concepcion, Jr., Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.




G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG
MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINES,
INC., respondents.

PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the Young
Men's Christian Association of the Philippines, Inc. (YMCA)
established as "a welfare, educational and charitable non-profit
corporation" subject to income tax under the National Internal
Revenue Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for review on
certiorari challenging two Resolutions issued by the Court of Appeals
1
on
September 28, 1995
2
and February 29, 1996
3
in CA-GR SP No. 32007.
Both Resolutions affirmed the Decision of the Court of Tax Appeals
(CTA) allowing the YMCA to claim tax exemption on the latter's income
from the lease of its real property.
The Facts
The facts are undisputed.
4
Private Respondent YMCA is a non-stock,
non-profit institution, which conducts various programs and activities
that are beneficial to the public, especially the young people, pursuant to
its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of
P676,829.80 from leasing out a portion of its premises to small shop
owners, like restaurants and canteen operators, and P44,259.00 from
parking fees collected from non-members. On July 2, 1984, the
commissioner of internal revenue (CIR) issued an assessment to private
respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes
on rentals and professional fees and deficiency withholding tax on wages.
Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985. In
reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review
at the Court of Tax Appeals (CTA) on March 14, 1989. In due course, the
CTA issued this ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop owners,
to restaurant and canteen operators and the operation of the parking lot
are reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the [private respondents]. It appears
from the testimonies of the witnesses for the [private respondent]
particularly Mr. James C. Delote, former accountant of YMCA, that these
facilities were leased to members and that they have to service the needs
of its members and their guests. The rentals were minimal as for example,
the barbershop was only charged P300 per month. He also testified that
there was actually no lot devoted for parking space but the parking was
done at the sides of the building. The parking was primarily for members
with stickers on the windshields of their cars and they charged P.50 for
non-members. The rentals and parking fees were just enough to cover the
costs of operation and maintenance only. The earning[s] from these
rentals and parking charges including those from lodging and other
charges for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and attainment
of its objectives. As pointed out earlier, the membership dues are very
insufficient to support its program. We find it reasonably necessary
therefore for [private respondent] to make [the] most out [of] its existing
facilities to earn some income. It would have been different if under the
circumstances, [private respondent] will purchase a lot and convert it to a
parking lot to cater to the needs of the general public for a fee, or
construct a building and lease it out to the highest bidder or at the market
rate for commercial purposes, or should it invest its funds in the buy and
sell of properties, real or personal. Under these circumstances, we could
conclude that the activities are already profit oriented, not incidental and
reasonably necessary to the pursuit of the objectives of the association
and therefore, will fall under the last paragraph of Section 27 of the Tax
Code and any income derived therefrom shall be taxable.
Considering our findings that [private respondent] was not engaged in the
business of operating or contracting [a] parking lot, we find no legal basis
also for the imposition of [a] deficiency fixed tax and [a] contractor's tax
in the amount[s] of P353.15 and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following assessments
are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractor's Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax P1,798.93;
1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984 until
fully paid but not to exceed three (3) years pursuant to Section 51(e)(2) &
(3) of the National Internal Revenue Code effective as of 1984.
5

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court
of Appeals (CA). In its Decision of February 16, 1994, the CA
6
initially
decided in favor of the CIR and disposed of the appeal in the following
manner:
Following the ruling in the afore-cited cases of Province of Abra vs. Hernando
and Abra Valley College Inc. vs. Aquino, the ruling of the respondent Court
of Tax Appeals that "the leasing of petitioner's (herein respondent's)
facilities to small shop owners, to restaurant and canteen operators and
the operation of the parking lot are reasonably incidental to and
reasonably necessary for the accomplishment of the objectives of the
petitioners, and the income derived therefrom are tax exempt, must be
reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far as
it dismissed the assessment for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &
1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect.
7

Aggrieved, the YMCA asked for reconsideration based on the following
grounds:
I
The findings of facts of the Public Respondent Court of Tax Appeals
being supported by substantial evidence [are] final and conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate
[r]espondent from the income on rentals of small shops and parking fees
[are] in accord with the applicable law and jurisprudence.
8

Finding merit in the Motion for Reconsideration filed by the YMCA, the
CA reversed itself and promulgated on September 28, 1995 its first
assailed Resolution which, in part, reads:
The Court cannot depart from the CTA's findings of fact, as they are
supported by evidence beyond what is considered as substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err in saying
that the rental from small shops and parking fees do not result in the loss
of the exemption. Not even the petitioner would hazard the suggestion
that YMCA is designed for profit. Consequently, the little income from
small shops and parking fees help[s] to keep its head above the water, so
to speak, and allow it to continue with its laudable work.
The Court, therefore, finds the second ground of the motion to be
meritorious and in accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the
respondent CTA's decision is AFFIRMED in toto.
9

The internal revenue commissioner's own Motion for Reconsideration
was denied by Respondent Court in its second assailed Resolution of
February 29, 1996. Hence, this petition for review under Rule 45 of the
Rules of Court.
10

The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I
In holding that it had departed from the findings of fact of Respondent
Court of Tax Appeals when it rendered its Decision dated February 16,
1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals that the
income of private respondent from rentals of small shops and parking
fees [is] exempt from taxation.
11

This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision
reversed the factual findings of the CTA. On the other hand, petitioner
argues that the CA merely reversed the "ruling of the CTA that the leasing
of private respondent's facilities to small shop owners, to restaurant and
canteen operators and the operation of parking lots are reasonably
incidental to and reasonably necessary for the accomplishment of the
objectives of the private respondent and that the income derived
therefrom are tax exempt."
12
Petitioner insists that what the appellate
court reversed was the legal conclusion, not the factual finding, of the CTA.
13
The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA,
when supported by substantial evidence, will be disturbed on appeal
unless it is shown that the said court committed gross error in the
appreciation of facts.
14
In the present case, this Court finds that the
February 16, 1994 Decision of the CA did not deviate from this rule. The
latter merely applied the law to the facts as found by the CTA and ruled
on the issue raised by the CIR: "Whether or not the collection or earnings
of rental income from the lease of certain premises and income earned
from parking fees shall fall under the last paragraph of Section 27 of the
National Internal Revenue Code of 1977, as amended."
15

Clearly, the CA did not alter any fact or evidence. It merely resolved the
aforementioned issue, as indeed it was expected to. That it did so in a
manner different from that of the CTA did not necessarily imply a reversal
of factual findings.
The distinction between a question of law and a question of fact is clear-
cut. It has been held that "[t]here is a question of law in a given case when
the doubt or difference arises as to what the law is on a certain state of
facts; there is a question of fact when the doubt or difference arises as to
the truth or falsehood of alleged facts."
16
In the present case, the CA did
not doubt, much less change, the facts narrated by the CTA. It merely
applied the law to the facts. That its interpretation or conclusion is
different from that of the CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA
from its real estate subject to tax? At the outset, we set forth the relevant
provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. The following organizations
shall not be taxed under this Title in respect to income received by them
as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and
other non-profitable purposes, no part of the net income of which inures
to the benefit of any private stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income
of whatever kind and character of the foregoing organizations from any
of their properties, real or personal, or from any of their activities
conducted for profit, regardless of the disposition made of such income,
shall be subject to the tax imposed under this Code. (as amended by Pres.
Decree No. 1457)
Petitioner argues that while the income received by the organizations
enumerated in Section 27 (now Section 26) of the NIRC is, as a rule,
exempted from the payment of tax "in respect to income received by them
as such," the exemption does not apply to income derived ". . . from any
of their properties, real or personal, or from any of their activities
conducted for profit, regardless of the disposition made of such income .
. . ."
Petitioner adds that "rental income derived by a tax-exempt organization
from the lease of its properties, real or personal, [is] not, therefore, exempt
from income taxation, even if such income [is] exclusively used for the
accomplishment of its objectives."
17
We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied
the doctrine of strict in interpretation in construing tax exemptions.
18

Furthermore, a claim of statutory exemption from taxation should be
manifest. and unmistakable from the language of the law on which it is
based. Thus, the claimed exemption "must expressly be granted in a
statute stated in a language too clear to be mistaken."
19

In the instant case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Section 27
of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be
subject to the tax imposed by the same Code. Because the last paragraph
of said section unequivocally subjects to tax the rent income of the YMCA
from its real property,
20
the Court is duty-bound to abide strictly by its
literal meaning and to refrain from resorting to any convoluted attempt at
construction.
It is axiomatic that where the language of the law is clear and
unambiguous, its express terms must be applied.
21
Parenthetically, a
consideration of the question of construction must not even begin,
particularly when such question is on whether to apply a strict
construction or a liberal one on statutes that grant tax exemptions to
"religious, charitable and educational propert[ies] or institutions."
22

The last paragraph of Section 27, the YMCA argues, should be "subject
to the qualification that the income from the properties must arise from
activities 'conducted for profit' before it may be considered taxable."
23

This argument is erroneous. As previously stated, a reading of said
paragraph ineludibly shows that the income from any property of exempt
organizations, as well as that arising from any activity it conducts for
profit, is taxable. The phrase "any of their activities conducted for profit"
does not qualify the word "properties." This makes from the property of
the organization taxable, regardless of how that income is used
whether for profit or for lofty non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals
committed reversible error when it allowed, on reconsideration, the tax
exemption claimed by YMCA on income it derived from renting out its
real property, on the solitary but unconvincing ground that the said
income is not collected for profit but is merely incidental to its operation.
The law does not make a distinction. The rental income is taxable
regardless of whence such income is derived and how it is used or
disposed of. Where the law does not distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private
respondent submits that Article VI, Section 28 of par. 3 of the 1987
Constitution,
24
exempts "charitable institutions" from the payment not
only of property taxes but also of income tax from any source.
25
In
support of its novel theory, it compares the use of the words "charitable
institutions," "actually" and "directly" in the 1973 and the 1987
Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of
the 1935 Constitution, on the other hand.
26

Private respondent enunciates three points. First, the present provision is
divisible into two categories: (1) "[c]haritable institutions, churches and
parsonages or convents appurtenant thereto, mosques and non-profit
cemeteries," the incomes of which are, from whatever source, all tax-
exempt;
27
and (2) "[a]ll lands, buildings and improvements actually and
directly used for religious, charitable or educational purposes," which are
exempt only from property taxes.
28
Second, Lladoc v. Commissioner of Internal
Revenue,
29
which limited the exemption only to the payment of property
taxes, referred to the provision of the 1935 Constitution and not to its
counterparts in the 1973 and the 1987 Constitutions.
30
Third, the phrase
"actually, directly and exclusively used for religious, charitable or
educational purposes" refers not only to "all lands, buildings and
improvements," but also to the above-quoted first category which
includes charitable institutions like the private respondent.
31

The Court is not persuaded. The debates, interpellations and expressions
of opinion of the framers of the Constitution reveal their intent which, in
turn, may have guided the people in ratifying the Charter.
32
Such intent
must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional
commissioner, who is now a member of this Court, stressed during the
Concom debates that ". . . what is exempted is not the institution itself . .
.; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious,
charitable or educational
purposes."
33
Father Joaquin G. Bernas, an eminent authority on the
Constitution and also a member of the Concom, adhered to the same view
that the exemption created by said provision pertained only to property
taxes.
34

In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that
"[t]he tax exemption covers property taxes only."
35
Indeed, the income tax
exemption claimed by private respondent finds no basis in Article VI,
Section 26, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the
Character,
36
claiming that the YMCA "is a non-stock, non-profit
educational institution whose revenues and assets are used actually,
directly and exclusively for educational purposes so it is exempt from
taxes on its properties and income."
37
We reiterate that private
respondent is exempt from the payment of property tax, but not income
tax on the rentals from its property. The bare allegation alone that it is a
non-stock, non-profit educational institution is insufficient to justify its
exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are construed
strictissimi juris. Hence, for the YMCA to be granted the exemption it
claims under the aforecited provision, it must prove with substantial
evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from
taxation is used actually, directly, and exclusively for educational purposes.
However, the Court notes that not a scintilla of evidence was submitted
by private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV,
Section 4, par. 3 of the Constitution? We rule that it is not. The term
"educational institution" or "institution of learning" has acquired a well-
known technical meaning, of which the members of the Constitutional
Commission are deemed cognizant.
38
Under the Education Act of 1982,
such term refers to schools.
39
The school system is synonymous with
formal education,
40
which "refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal
school system and for which certification is required in order for the
learner to progress through the grades or move to the higher levels."
41

The Court has examined the "Amended Articles of Incorporation" and
"By-Laws"
43
of the YMCA, but found nothing in them that even hints
that it is a school or an educational institution.
44

Furthermore, under the Education Act of 1982, even non-formal
education is understood to be school-based and "private auspices such as
foundations and civic-spirited organizations" are ruled out.
45
It is settled
that the term "educational institution," when used in laws granting tax
exemptions, refers to a ". . . school seminary, college or educational
establishment . . . ."
46
Therefore, the private respondent cannot be
deemed one of the educational institutions covered by the constitutional
provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education embraces all
forms and phases of instruction, improvement and development of mind
and body, and as well of religious and moral sentiments, yet in the
common understanding and application it means a place where systematic
instruction in any or all of the useful branches of learning is given by
methods common to schools and institutions of learning. That we
conceive to be the true intent and scope of the term [educational
institutions,] as used in the
Constitution.
47

Moreover, without conceding that Private Respondent YMCA is an
educational institution, the Court also notes that the former did not
submit proof of the proportionate amount of the subject income that was
actually, directly and exclusively used for educational purposes. Article
XIII, Section 5 of the YMCA by-laws, which formed part of the evidence
submitted, is patently insufficient, since the same merely signified that
"[t]he net income derived from the rentals of the commercial buildings
shall be apportioned to the Federation and Member Associations as the
National Board may decide."
48
In sum, we find no basis for granting the
YMCA exemption from income tax under the constitutional provision
invoked.
Cases Cited by Private
Respondent Inapplicable
The cases
49
relied on by private respondent do not support its cause.
YMCA of Manila v. Collector of Internal Revenue
50
and Abra Valley College, Inc.
v. Aquino
51
are not applicable, because the controversy in both cases
involved exemption from the payment of property tax, not income tax.
Hospital de San Juan de Dios, Inc. v. Pasay City
52
is not in point either, because
it involves a claim for exemption from the payment of regulatory fees,
specifically electrical inspection fees, imposed by an ordinance of Pasay
City an issue not at all related to that involved in a claimed exemption
from the payment of income taxes imposed on property leases. In Jesus
Sacred Heart College v. Com. of Internal Revenue,
53
the party therein, which
claimed an exemption from the payment of income tax, was an
educational institution which submitted substantial evidence that the
income subject of the controversy had been devoted or used solely for
educational purposes. On the other hand, the private respondent in the
present case has not given any proof that it is an educational institution,
or that part of its rent income is actually, directly and exclusively used for
educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy with
private respondent. It appreciates the nobility of its cause. However, the
Court's power and function are limited merely to applying the law fairly
and objectively. It cannot change the law or bend it to suit its sympathies
and appreciations. Otherwise, it would be overspilling its role and
invading the realm of legislation.
We concede that private respondent deserves the help and the
encouragement of the government. It needs laws that can facilitate, and
not frustrate, its humanitarian tasks. But the Court regrets that, given its
limited constitutional authority, it cannot rule on the wisdom or propriety
of legislation. That prerogative belongs to the political departments of
government. Indeed, some of the members of the Court may even believe
in the wisdom and prudence of granting more tax exemptions to private
respondent. But such belief, however well-meaning and sincere, cannot
bestow upon the Court the power to change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the
Court of Appeals dated September 28, 1995 and February 29, 1996 are
hereby REVERSED and SET ASIDE. The Decision of the Court of
Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled
that the income derived by petitioner from rentals of its real property is
subject to income tax. No pronouncement as to costs.
SO ORDERED.
Davide, Jr., Vitug and Quisumbing, JJ., concur.
Bellosillo, J., Please see Dissenting Opinion.




G.R. No. 88291 June 8, 1993

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.



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

. . . 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:

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 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:

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. 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
national objectives, strategies and plans. The budget shall be supportive
of and consistent with the socio-economic 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 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;

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.

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 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 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 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 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 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 sub-delegating 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 respondents-
oil 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
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 eighty-seven. (Emphasis supplied)

The oil companies can now deliver bunker fuel oil to NPC without having
to worry about who is going to bear the economic burden of the ad
valorem taxes. What this Court will now dispose of are petitioner's
complaints that some indirect tax money has been illegally refunded by
the Bureau of Internal Revenue to the NPC and that more claims for
refunds by the NPC are being processed for payment by the BIR.

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 certiorari of a suit for its collection
before Us. At any rate, at this point in time, NPC can no longer file any
suit to collect said amount EVEN IF lt has previously filed a claim with
the BIR because it is time-barred under Section 230 of the National
Internal Revenue Code of 1977. as amended, which states:

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

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

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.

Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo and Melo,
JJ., concur.

Padilla and Quiason, JJ. took no part.



G.R. No. 119786 September 22, 1998

ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX
APPEALS and COURT OF APPEALS, respondents.



PANGANIBAN, J.:

In Davao Gulf Lumber Corporation v. Commissioner of Internal
Revenue and Court of Appeals, 1 the Court en banc unequivocally held
that the tax refund under Republic Act No. 1435 is computed on the basis
of the specific tax deemed paid under Sections 1 and 2 thereof, not on the
increased rates actually paid under the 1977 NIRC. We adhere to such
ruling.

The Case

Petitioner challenges, under Rule 45 of the Rules of Court, the March 30,
1995 Decision of the Court of Appeals 2 in CA-GR SP No. 34081, which
affirmed the December 24, 1991 Decision 3 of the Court of Tax Appeals
(CTA), which in turn denied the claim of the petitioner for refund/tax
credit of 25 percent of the specific tax it actually paid for the petroleum
products purchased for its mining operations.

The Facts

The antecedent facts are summarized by the Court of Appeals as
follows: 4

(1) Petitioner is a domestic corporation engaged in the business of mining
copper from its mineral land and concessions in Toledo City, Cebu.
During the periods under review, beginning from September 1974
through July 1983, petitioner purchased from its suppliers, Petrophil
Corporation and Mobil Oil Philippines, referred to hereinafter
respectively as Petrophil and Mobil Oil, quantities of manufactured oil
and other fuels, like diesel and coco-diesel. It actually used these oils and
fuels in its mining operations to run various items of machinery and
equipment, motors and vehicles;

(2) Petrophil and Mobil Oil paid the specific taxes imposed by Sections
153 and 156 (formerly Section 142 and 145) of the 1977 National Internal
Revenue Code (NIRC) on all the oils and fuels they manufactured from
which was drawn the quantity sold to the petitioner for use in its
operations;

(3) On June 14, 1956 Republic Act No. 1435, [An Act to Provide Means
for Increasing the Highway Discretionary Funds], granted in Section 5
thereof, a refund of 25% of the specific taxes paid on oil products used
by miners and forest concessionaires in their operations, to wit:

The proceeds of the additional tax on manufactured oils shall accure to
the road and bridges funds of the political subdivision for whose benefit
the tax is collected; provided, however, that whenever any oils mentioned
above are used by miners or forest concessionaires in their operations,
twenty-five percentum (25%) of the specific tax paid thereon shall be
refunded by the Collector of Internal Revenue upon submission of proof
of actual use of oils under similar conditions enumerated in subparagraphs
one and two of Section one hereof, amending section one hundred forty-
two of the Internal Revenue Code; Provided, further, that no new road
shall be constructed unless the routes or location thereof shall have been
approved by the Commissioner of Public Works and Highways after a
determination that such road can be made part of an integral and
articulated route in the Philippine Highway System, as required in section
twenty-six of the Philippine Highway Act of 1953.

(4) Invoking Section 5 of Republic Act 1435, petitioner filed with the
Court of Tax Appeals several petitions seeking the refund of 15% of
specific taxes paid on oil products which it purchased and used in its
mining operations at various times in the following amounts:

C.T.A. Case No. Amount Claimed Period Covered

2840 P3,928,614.19 Sept. 1974 June 1976

3091 10,311,887.34 May 1978 Feb. 1980

3426 8,972,165.34 March 1980 Dec. 1981

3696 11,220,895.07 Jan. 1982 July 1983



Total P34,433,563.94

(5) The aforecited cases were consolidated. On December 24, 1991, the
Tax Court rendered a Decision denying the claims for refund on the basis
of the Decision of the Supreme Court in Commissianer of Internal
Revenue vs. Rio Tuba Nickel Mining Corporation and Court of Tax
Appeals, G.R. Nos. 83583-84, September 30, 1991, wherein it was held
that the refund privilege granted by Section 5 of R.A. 1435 was impliedly
repealed with the issuance of Presidential Decree No. 711, which took
effect on July 1, 1975, abolishing all special and fiduciary funds;

(6) Petitioner appealed the Tax Court's Decision to this Court under CA-
G.R. Sp. No. 27676, entitled "Atlas Consolidated Mining and
Development Corp. vs. Commissioner of Internal Revenue and Court of
Tax Appeals." On March 31, 1993, the Eleventh Division of this Court
rendered a Decision setting aside the Tax Court's Decision and remanding
the cases to the Tax Court for proper determination of the total amount
of specific taxes paid and the corresponding tax refund or credit to which
petitioner is entitled;

(7) The decision of this Court was based on a Supreme Court Resolution
dated March 25, 1992 and a Resolution dated June 15, 1992 modifying the
Decision in Rio Tuba (supra), in that the refund privilege granted under
Section 5 of R.A. 1435 was available up to 1985 since the Highway Special
Fund was abolished only in 1986. Furthermore, said Resolutions ruled
that the amount of specific taxes refundable should be computed on the
basis of the rates of specific tax prescribed under Sections 1 and 2 of R.A.
1435 and not on the increased rates mandated under Sections 153 and 156
of the Tax Code:

(8) Thus, this Court said:

Thus, the respondent court's decision of December 24, 1991 should be
SET ASIDE. The instant tax cases should be remanded to the respondent
court for proper evaluation of the petitioner's evidence to determine the
total amount of specific taxes and the 25% refund or tax credit based on
the specific tax rates prescribed in Sections 1 and 2 of RA 1435 in view of
the allegation of the petitioner in the instant petition that the respondent
court failed to consider certain exhibits or cited wrong exhibits. (emphasis
ours)

(9) On April 29, 1993, an Entry of Judgment was issued in CA - G.R. SP
No. 27676 stating that the Decision therein had already become final and
executory;

(10) On April 18, 1994, after hearing, the Tax Court issued a Resolution
computing the 25% specific tax refund based on the rates of specific tax
prescribed in Sections 1 and 2 of RA 1435 and came out with the
following amounts refundable:

1) CTA Case No. 2840 P208,129.57

2) CTA Case No. 3091 358,864.83

3) CTA Case No. 3426 270,369.02

4) CTA Case No. 3696 264,315.46



Total P1,101,678.88

As earlier noted, the Court of Appeals affirmed the CTA Decision. Hence,
this petition for review. 5

The Ruling of the Court of Appeals

In affirming the Decision of the Court of Tax Appeals, Respondent Court
relied on the Supreme Court ruling in CIR v. Rio Tuba 6 that the refund
should be computed on the basis of the rates deemed paid under RA 1435,
not on the increased rates actually paid under the NIRC. Respondent
Court ruled:

Moreover, the latest ruling of the Supreme Court on the matter is its
Decision dated May 10, 1994 in Commissioner of Internal Revenue vs.
Hon. Court of Appeals and Atlas Consolidated Mining and Development
Corporation, G.R. No. 106913. This case also involves petitioner's claim
for refund of 25% of specific taxes paid on oil products used in its mining
operations for the periods July-December 1976, January-December 1977
and January-May 1978, pursuant to Section 5 of R.A. 1435. The Supreme
Court, applying Rio Tuba, held:

We rule, therefore, that since [Atlas'] claims for refund cover specific taxes
paid before 1985, it should be granted the refund based on the rates
specified by Sections 1 and 2 of R.A. No. 1435 and not on the increased
rates under Sections 153 and 156 of the Tax Code of 1977, provided the
claims are not yet barred by prescription.

The case at bar is no different from Rio Tuba and the aforecited G.R. No.
106913. Hence, the instant petition is devoid of merit.

Notably, therefore, the decision of the Supreme Court in Insular Lumber
Co. vs. CTA (G.R. No. L-31057, 29 May 1981) and in Commissioner of
Internal Revenue vs. Atlas Consolidated Mining and Development
Corporation, et al. (G.R. No. 93631, 12 November 1990) have been
superseded by the decision of the Supreme [C]ourt in Commissioner of
Internal Revenue vs. Rio Tuba Nickel Mining Corp. and the Court of Tax
Appeals and Atlas Consolidated Mining and Development Corp. (G.R.
No. 106913, dated May 10, 1994). 7

The Issues

Petitioner argues that Respondent Court of Appeals committed the
following errors:

I

Upholding the Tax Court decision and failing to apply the Supreme
Court's En Banc decision in insular Lumber Co. vs. CTA, thereby making
as basis for its decision the Supreme Court's decision sitting in a division,
in the Rio Tuba case.

II

Failing to apply the increase in rates imposed by succeeding amendatory
laws, under which petitioner paid the specific taxes on manufactured oils
and other fuels.

III

Unnecessarily interpreting Section 5 of Republic Act No. 1435, contrary
to established legal principles.

IV

Failing to apply Sections 142 and 145 of the National Internal Revenue
Code, as amended, making the decision contrary to existing law and
jurisprudence, resulting [in] unfair, erroneous, arbitrary, inequitable and
oppressive consequences.

In sum, the main issue here is whether petitioner is entitled to the refund
of 25 percent of specific taxes it actually paid on various refined and
manufactured mineral oils and other oil products taxed under Sections
153 and 156 of the 1977 National Internal Revenue Code (Sections 142
and 145, respectively, of the 1939 NIRC).

The Court's Ruling

The petition is devoid of merit.

Issue: Computation of Tax Refund

Petitioner is a duly licensed domestic corporation engaged in the business
of mining copper from its concessions. Because the petroleum products
it had purchased were used in its mining operations, it is entitled to claim
a tax refund pursuant to RA 1435. The petroleum products were originally
subject to specific tax under Sections 142 and 145 of the 1939 NIRC,
which were amended by Sections 1 and 2 of RA 1435, respectively. At the
time of the purchase of the petroleum products, Sections 142 and 145
were respectively renumbered Sections 153 and 156 of the 1977 NIRC,
which imposed the higher rate of taxes petitioner paid.

It is undisputed that the refund privilege existed at the date the entitlement
was being availed of Commissioner of Intemal Revenue v. Rio Tuba
Nickel Mining Corpordtion 8 held that the Highway Special Fund retained
its status as a special fund up to 1985 or for 10 years after the effectivity
of Presidential Decree 711, which mandated that all funds that had
accrued from various special funds would be channeled to the general
fund.

PD 711, which took effect on July 1, 1975, was invoked in previous cases
as having impliedly repealed RA 1435, thereby abolishing the refund
privilege accorded to miners and loggers. Rio Tuba, however, ruled that
the privilege existed until 1985.

The only question in the present case, therefore, is the computation of the
tax refund. As stated earlier, petitioner contends that the 25 percent
refund should be based on the increased rates of specific tax it had actually
paid under the 1977 NIRC, not on the prescribed rates under RA 1435.

The issue presented before us is already settled. In Davao Gulf Lumber
Corporation v. Commissioner of Internal Revenue and Court of Appeals,
9 the Court en banc unanimourly reiterated Rio Tuba and categorically
held that the tax refund must be computed on the basis of the specific tax
deemed paid under Sections 1 and 2 of RA 1435, not on the increased
rates actually paid by the petitioners pursuant to Sections 153 and 156 of
the NIRC. The Court held:

A tax cannot be imposed unless it is supported by the clear and express
language of a statute[;] on the other hand, once the tax is unquestionably
imposed, "[a] claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken." Since
the partial refund authorized under Section 5, RA 1435, is in the nature of
a tax exemption, it must be construed strictissimi juris against the grantee.
Hence, petitioner's claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a language
too clear to be mistaken.

We have carefully scrutinized RA 1435 and the subsequent pertinent
statutes and found no expression of a legislative will authorizing a refund
based on the higher rates claimed by petitioner. The mere fact that the
privilege of refund was included in Section 5, and not in Section 1, is
insufficient to support petitioner's claim. When the law itself does not
explicitly provide that a refund under RA 1435 may be based on higher
rates which were nonexistent at the time of its enactment, this Court
cannot presume otherwise. A legislative lacuna cannot be filled by judicial
fiat.

The issue is not really novel. In Commissioner of Internal Revenue vs.
Court of Appeals and Atlas Consolidated Mining and Development
Corporation (the second Atlas case), the CIR contended that the refund
should be based on Sections 1 and 2 of RA 1435, not Sections 153 and
156 of the NIRC of 1977. In categorically ruling that Private Respondent
Atlas Consolidated Mining and Development Corporation was entitled to
a refund based on Sections 1 and 2 of RA 1435, the Court, through Mr.
Justice Hilario G. Davide, Jr., reiterated our pronouncement in
Commissioner of Internal Revenue vs. Rio Tuba Nickel and Mining
Corporation:

Our Resolution of 25 March 1992 modifying our 30 September 1991
Decision in the Rio Tuba case sets forth the controlling doctrine. In that
Resolution, we stated:

Since the private respondent's claim for refund covers specific taxes paid
from 1980 to July 1983 then we find that the private respondent is entitled
to a refund. It should be made clear, however, that Rio Tuba is not entitled
to the whole amount it claims as refund.

The specific taxes on oils which Rio Tuba paid for the aforesaid period
were no longer based on the rates specified by Sections 1 and 2 of R.A.
No. 1435 but on the increased rates mandated under Sections 153 and
156 of the National Internal Revenue Code of 1977. We note however,
that the latter law does not specifically provide for a refund to these
mining and lumber companies of specific taxes paid on manufactured and
diesel fuel oils.

In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]),
the Court held that the authorized partial refund under Section 5 of R.A.
No. 1435 partakes of the nature of a tax exemption and therefore cannot
be allowed unless granted in the most explicit and categorical language.
Since the grant of refund privileges must be strictly construed against the
taxpayer, the basis for the refund shall be the amounts deemed paid under
Sections 1 and 2 of R.A. No. 1435.

ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby
MODIFIED. The private respondent's CLAIM for REFUND is
GRANTED, computed on the basis of the amounts deemed paid under
Sections 1 and 2 of R.A. No. 1435, without interest.

We rule, therefore, that since Atlas's claims for refund cover specific taxes
paid before 1985, it should be granted the refund based on the rates
specified by Sections 1 and 2 of R.A. No. 1435 and not on the increased
rates under Sections 153 and 156 of the Tax Code of 1977, provided the
claims are not yet barred by prescription. (Emphasis supplied.) 10

Petitioner also calls attention to the apparent conflict between Insular
Lumber v. Court of Appeals 11 and Commissioner of Internal Revenue
v. Atlas Consolidated Mining and Development Corporation 12 (First
Atlas Case), on the one hand, and Rio Tuba and the Second Atlas Case,
on the other. This issue has been laid to rest by the Court in Davao Gulf:

. . . . Neither Insular Lumber Co. nor the first Atlas case ruled on the issue
of whether the refund privilege under Section 5 should be computed
based on the specific tax deemed paid under Sections 1 and 2 of RA 1435,
regardless of what was actually paid under the increased rates. Rio Tuba
and the second Atlas case did.

Insular Lumber Co. decided a claim for refund on specific tax paid on
petroleum products purchased in the year 1963, when the increased rates
under the NIRC of 1977 were not yet in effect. Thus, the issue now before
us did not exist at the time, since the applicable rates were still those
prescribed under Sections 1 and 2 of RA 1435.

On the other hand, the issue raised in the first Atlas case was whether the
claimant was entitled to the refund under Section 5, notwithstanding its
failure to pay any additional tax under municipal or city ordinance.
Although Atlas purchased petroleum products in the years 1976 to 1978
when the rates had already been changed, the Court did not decide or
make any pronouncement on the issue in that case.

Clearly, it is impossible for these two decisions to clash with our
pronouncement in Rio Tuba and second Atlas case, in which we ruled
that the refund granted be computed on the basis of the amounts deemed
paid under Sections 1 and 2 of RA 1435. In this light, we find no basis for
petitioner's invocation of the constitutional proscription that "no doctrine
or principle of law laid down by the Court in a decision rendered en banc
or in a division may be modified or reversed except by the Court sitting
en banc.

Likewise, Davao Gulf has already debunked petitioner's argument that not
applying Sections 142 and 145 of the NIRC rendered the CTA Decision
unfair and arbitrary. The Court ruled:

Finally, petitioner asserts that "equity and justice demand that the
computation of the tax refunds be based on actual amounts paid under
Sections 153 and 156 of the NIRC." We disagree. According to an
eminent authority on taxation, "there is no tax exemption solely on the
ground of equity."

WHEREFORE, the petition is hereby DENIED and the assailed
Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.