G.R. No.

L-36081 April 24, 1989

PROGRESSIVE
DEVELOPMENT
CORPORATION, petitioner
vs.
QUEZON CITY, respondent.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.:
On 24 December 1969, the City Council of respondent Quezon City adopted
Ordinance No. 7997, Series of 1969, otherwise known as the Market Code of
Quezon City, Section 3 of which provided:
Sec. 3. Supervision Fee.- Privately owned and operated public
markets shall submit monthly to the Treasurer's Office, a certified
list of stallholders showing the amount of stall fees or rentals paid
daily by each stallholder, ... and shall pay 10% of the gross
receipts from stall rentals to the City, ... , as supervision fee.
Failure to submit said list and to pay the corresponding amount
within the period herein prescribed shall subject the operator to the
penalties provided in this Code ... includingrevocation of permit to
operate. ... .1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972,
on 23 March 1972, which reads:
SECTION 1. There is hereby imposed a five percent (5 %) tax on
gross receipts on rentals or lease of space in privately-owned
public markets in Quezon City.
xxx xxx xxx
SECTION 3. For the effective implementation of this Ordinance,
owners of privately owned public markets shall submit ... a
monthly certified list of stallholders of lessees of space in their
markets showing ... :
a. name of stallholder or lessee;
b. amount of rental;
c. period of lease, indicating therein whether the same is on a daily,
monthly or yearly basis.
xxx xxx xxx
SECTION 4. ... In case of consistent failure to pay the percentage
tax for the (3) consecutive months, the City shall revoke the permit
of the privately-owned market to operate and/or take any other
appropriate action or remedy allowed by law for the collection of
the overdue percentage tax and surcharge.
xxx xxx xxx 2
On 15 July 1972, petitioner Progressive Development Corporation, owner and
operator of a public market known as the "Farmers Market & Shopping Center" filed
a Petition for Prohibition with Preliminary Injunction against respondent before the
then Court of First Instance of Rizal on the ground that the supervision fee or license
tax imposed by the above-mentioned ordinances is in reality a tax on income which

respondent may not impose, the same being expressly prohibited by Republic Act
No. 2264, as amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to
enact the questioned ordinances, maintaining that the tax on gross receipts imposed
therein is not a tax on income. The Solicitor General also filed an Answer arguing
that petitioner, not having paid the ten percent (10%) supervision fee prescribed by
Ordinance No. 7997, had no personality to question, and was estopped from
questioning, its validity; that the tax on gross receipts was not a tax on income but
one imposed for the enjoyment of the privilege to engage in a particular trade or
business which was within the power of respondent to impose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid
under protest the five percent (5%) tax under Ordinance No. 9236 for the months of
June to September 1972. Two (2) days later, on 25 September 1972, petitioner
moved for judgment on the pleadings, alleging that the material facts had been
admitted by the parties.
On 21 October 1972, the lower court dismissed the petition, ruling 3 that the
questioned imposition is not a tax on income, but rather a privilege tax or license fee
which local governments, like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision, petitioner came to us on the
present Petition for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross
receipts of stall rentals is properly characterized as partaking of the nature of an
income tax or, alternatively, of a license fee.
We begin with the fact that Section 12, Article III of Republic Act No. 537,
otherwise known as the Revised Charter of Quezon City, authorizes the City
Council:
xxx xxx xxx
(b) To provide for the levy and collection of taxes and other city
revenues and apply the same to the payment of city expenses in
accordance with appropriations.
(c) To tax, fix the license fee, and regulate the business of the
following:
... preparation and sale of meat, poultry, fish, game, butter, cheese,
lard vegetables, bread and other provisions. 4
The scope of legislative authority conferred upon the Quezon City Council in respect
of businesses like that of the petitioner, is comprehensive: the grant of authority is
not only" [to] regulate" and "fix the license fee," but also " to tax" 5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the
Local Autonomy Act, provides that:
Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to
impose municipal license taxes or fees upon persons engaged in
any occupation or business, or exercising privileges in chartered
cities, municipalities or municipal districts by requiring them to
secure licenses at rates fixed by the municipal board or city council
of the city, the municipal council of the municipality, or the

municipal district council of the municipal district; to collect fees

and charges for service rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for
services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes just
and uniform taxes licenses or fees: ... 6
It is now settled that Republic Act No. 2264 confers upon local governments broad
taxing authority extending to almost "everything, excepting those which are
mentioned therein," provided that the tax levied is "for public purposes, just and
uniform," does not transgress any constitutional provision and is not repugnant to a
controlling statute. 7 Both the Local Autonomy Act and the Charter of respondent
clearly show that respondent is authorized to fix the license fee collectible from and
regulate the business of petitioner as operator of a privately-owned public market.
Petitioner, however, insist that the "supervision fee" collected from rentals, being a
return from capital invested in the construction of the Farmers Market, practically
operates as a tax on income, one of those expressly excepted from respondent's
taxing authority, and thus beyond the latter's competence. Petitioner cites the same
Section 2 of the Local Autonomy Act which goes on to state: 8
... Provided, however, That no city, municipality or municipal
district may levy or impose any of the following:
xxx xxx xxx
(g) Taxes on income of any kind whatsoever;
The term "tax" frequently applies to all kinds of exactions of monies which become
public funds. It is often loosely used to include levies for revenue as well as levies
for regulatory purposes such that license fees are frequently called taxes
although license fee is a legal concept distinguishable from tax: the former is
imposed in the exercise of police power primarily for purposes of regulation, while
the latter is imposed under the taxing power primarily for purposes of raising
revenues. 9 Thus, if the generating of revenue is the primary purpose and regulation
is merely incidental, the imposition is a tax; but if regulation is the primary purpose,
the fact that incidentally revenue is also obtained does not make the imposition a
tax. 10
To be considered a license fee, the imposition questioned must relate to an
occupation or activity that so engages the public interest in health, morals, safety and
development as to require regulation for the protection and promotion of such public
interest; the imposition must also bear a reasonable relation to the probable expenses
of regulation, taking into account not only the costs of direct regulation but also its
incidental consequences as well.11 When an activity, occupation or profession is of
such a character that inspection or supervision by public officials is reasonably
necessary for the safeguarding and furtherance of public health, morals and safety, or
the general welfare, the legislature may provide that such inspection or supervision
or other form of regulation shall be carried out at the expense of the persons engaged
in such occupation or performing such activity, and that no one shall engage in the
occupation or carry out the activity until a fee or charge sufficient to cover the cost
of the inspection or supervision has been paid. 12Accordingly, a charge of a fixed

sum which bears no relation at all to the cost of inspection and regulation may be
held to be a tax rather than an exercise of the police power. 13
In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of
Resolution No. 7350 passed on 30 January 1967 by respondents's local legislative
body authorizing petitioner to establish and operate a market with a permit to sell
fresh meat, fish, poultry and other foodstuffs. 14 The same resolution imposed upon
petitioner, as a condition for continuous operation, the obligation to "abide by and
comply with the ordinances, rules and regulations prescribed for the establishment,
operation and maintenance of markets in Quezon City." 15
The "Farmers' Market and Shopping Center" being a public market in the' sense of a
market open to and inviting the patronage of the general public, even though
privately owned, petitioner's operation thereof required a license issued by the
respondent City, the issuance of which, applying the standards set forth above, was
done principally in the exercise of the respondent's police power. 16 The operation of
a privately owned market is, as correctly noted by the Solicitor General, equivalent
to or quite the same as the operation of a government-owned market; both are
established for the rendition of service to the general public, which warrants close
supervision and control by the respondent City, 17 for the protection of the health of
the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in
the market, compliance of all food stuffs sold therein with applicable food and drug
and related standards, for the prevention of fraud and imposition upon the buying
public, and so forth.
We believe and so hold that the five percent (5%) tax imposed in Ordinance No.
9236 constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee
for the regulation of the business in which the petitioner is engaged. While it is true
that the amount imposed by the questioned ordinances may be considered in
determining whether the exaction is really one for revenue or prohibition, instead of
one of regulation under the police power, 18 it nevertheless will be presumed to be
reasonable. Local' governments are allowed wide discretion in determining the rates
of imposable license fees even in cases of purely police power measures, in the
absence of proof as to particular municipal conditions and the nature of the business
being taxed as well as other detailed factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates. 19 Thus:
[A]n ordinance carries with it the presumption of validity. The
question of reasonableness though is open to judicial inquiry.
Much should be left thus to the discretion of municipal authorities.
Courts will go slow in writing off an ordinance as unreasonable
unless the amount is so excessive as to be prohibitory, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained
acceptance is that factors relevant to such an inquiry are the
municipal conditions as a whole and the nature of the business
made subject to imposition. 20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably
large and excessive and so grossly disproportionate to the costs of the regulatory

service being performed by the respondent as to compel the Court to characterize the
imposition as a revenue measure exclusively. The lower court correctly held that the
gross receipts from stall rentals have been used only as a basis for computing the fees
or taxes due respondent to cover the latter's administrative expenses, i.e., for
regulation and supervision of the sale of foodstuffs to the public. The use of the gross
amount of stall rentals as basis for determining the collectible amount of license tax,
does not by itself, upon the one hand, convert or render the license tax into a
prohibited city tax on income. Upon the other hand, it has not been suggested that
such basis has no reasonable relationship to the probable costs of regulation and
supervision of the petitioner's kind of business. For, ordinarily, the higher the amount
of stall rentals, the higher the aggregate volume of foodstuffs and related items sold
in petitioner's privately owned market; and the higher the volume of goods sold in
such private market, the greater the extent and frequency of inspection and
supervision that may be reasonably required in the interest of the buying public.
Moreover, what we started with should be recalled here: the authority conferred upon
the respondent's City Council is not merely "to regulate" but also embraces the
power "to tax" the petitioner's business.
Finally, petitioner argues that respondent is without power to impose a gross receipts
tax for revenue purposes absent an express grant from the national government. As a
general rule, there must be a statutory grant for a local government unit to impose
lawfully a gross receipts tax, that unit not having the inherent power of
taxation.21 The rule, however, finds no application in the instant case where what is
involved is an exercise of, principally, the regulatory power of the respondent City
and where that regulatory power is expressly accompanied by the taxing power.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon
City, Branch 18, is hereby AFFIRMED and the Court Resolved to DENY the
Petition for lack of merit.
SO ORDERED.

ROMEO P. GEROCHI, KATULONG NG

BAYAN (KB) and ENVIRONMENTALIST
CONSUMERS NETWORK, INC. (ECN),
Petitioners,
-versusDEPARTMENT
OF
ENERGY
(DOE),
ENERGY REGULATORY COMMISSION
(ERC), NATIONAL POWER CORPORATION
(NPC), POWER SECTOR ASSETS AND
LIABILITIES
MANAGEMENT
GROUP
(PSALM
Corp.),
STRATEGIC
POWER
UTILITIES
GROUP
(SPUG),
and PANAYELECTRIC
COMPANY
INC.
(PECO),
Respondents.

G.R. No. 159796

Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
GARCIA,
VELASCO, JR. and
NACHURA, JJ.
Promulgated:

July 17, 2007

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

DECISION
NACHURA, J.:

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist

Consumers Network, Inc. (ECN) (petitioners), come before this Court in this original
action praying that Section 34 of Republic Act (RA) 9136, otherwise known as the
Electric Power Industry Reform Act of 2001 (EPIRA), imposing the Universal
Charge,[1] and Rule 18 of the Rules and Regulations (IRR)[2] which seeks to
implement the said imposition, be declared unconstitutional. Petitioners also pray
that the Universal Charge imposed upon the consumers be refunded and that a
preliminary injunction and/or temporary restraining order (TRO) be issued directing
the respondents to refrain from implementing, charging, and collecting the said
charge.[3] The assailed provision of law reads:
SECTION 34. Universal Charge. Within one (1) year
from the effectivity of this Act, a universal charge to be
determined, fixed and approved by the ERC, shall be imposed on
all electricity end-users for the following purposes:

(a) Payment for the stranded debts[4] in excess of the amount

assumed by the National Government and stranded contract
costs of NPC[5] and as well as qualified stranded contract
costs of distribution utilities resulting from the restructuring
of the industry;
(b) Missionary electrification;[6]
(c) The equalization of the taxes and royalties applied to
indigenous or renewable sources of energy vis--vis imported
energy fuels;
(d) An environmental charge equivalent to one-fourth of one
centavo per kilowatt-hour (P0.0025/kWh), which shall accrue
to an environmental fund to be used solely for watershed
rehabilitation and management. Said fund shall be managed
by NPC under existing arrangements; and
(e) A charge to account for all forms of cross-subsidies for a
period not exceeding three (3) years.
The universal charge shall be a non-bypassable charge which shall
be passed on and collected from all end-users on a monthly basis
by the distribution utilities. Collections by the distribution utilities
and the TRANSCO in any given month shall be remitted to the
PSALM Corp. on or before the fifteenth (15th) of the succeeding
month, net of any amount due to the distribution utility. Any enduser or self-generating entity not connected to a distribution utility
shall remit its corresponding universal charge directly to the
TRANSCO. The PSALM Corp., as administrator of the fund, shall
create a Special Trust Fund which shall be disbursed only for the
purposes specified herein in an open and transparent manner. All
amount collected for the universal charge shall be distributed to the
respective beneficiaries within a reasonable period to be provided
by the ERC.

The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took
effect.[7]
On April 5, 2002, respondent National Power Corporation-Strategic Power
Utilities Group[8] (NPC-SPUG) filed with respondent Energy Regulatory
Commission (ERC) a petition for the availment from the Universal Charge of its
share for Missionary Electrification, docketed as ERC Case No. 2002-165.[9]

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case
No. 2002-194, praying that the proposed share from the Universal Charge for the
Environmental charge of P0.0025 per kilowatt-hour (/kWh), or a total
of P119,488,847.59, be approved for withdrawal from the Special
Trust Fund (STF) managed by respondent Power Sector Assets and
Liabilities Management Group (PSALM)[10] for the rehabilitation and management
of watershed areas.[11]
On December 20, 2002, the ERC issued an Order [12] in ERC Case No. 2002165 provisionally approving the computed amount of P0.0168/kWh as the share of
the NPC-SPUG from the Universal Charge for Missionary Electrification and
authorizing the National Transmission Corporation (TRANSCO) and Distribution
Utilities to collect the same from its end-users on a monthly basis.
On June 26, 2003, the ERC rendered its Decision[13] (for ERC Case No. 2002165) modifying its Order of December 20, 2002, thus:

SO ORDERED.

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the
ERC, among others,[14] to set aside the above-mentioned Decision, which the ERC
granted in its Order dated October 7, 2003, disposing:
WHEREFORE, the foregoing premises considered, the
Motion for Reconsideration filed by petitioner National Power
Corporation-Small Power Utilities Group (NPC-SPUG) is hereby
GRANTED. Accordingly, the Decision dated June 26, 2003 is
hereby modified accordingly.
Relative thereto, NPC-SPUG is directed to submit a
quarterly report on the following:
1.
Projects for CY 2002 undertaken;
2.
Location
3.
Actual amount utilized to complete the
project;
4.
Period of completion;
5.
Start of Operation; and
6.
Explanation of the reallocation of UC-ME
funds, if any.

WHEREFORE, the foregoing premises considered, the

provisional authority granted to petitioner National Power
Corporation-Strategic Power Utilities Group (NPC-SPUG) in the
Order dated December 20, 2002 is hereby modified to the effect
that an additional amount of P0.0205 per kilowatt-hour should be
added to the P0.0168 per kilowatt-hour provisionally authorized by
the Commission in the said Order. Accordingly, a total amount
of P0.0373 per kilowatt-hour is hereby APPROVED for
withdrawal from the Special Trust Fund managed by PSALM as its
share from the Universal Charge for Missionary Electrification
(UC-ME) effective on the following billing cycles:

SO ORDERED.[15]

June 26-July 25, 2003 for National Transmission

Corporation (TRANSCO); and
July 2003 for Distribution Utilities (Dus).

Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194,

authorizing the NPC to draw up to P70,000,000.00 from PSALM for its 2003
Watershed Rehabilitation Budget subject to the availability of funds for the
Environmental Fund component of the Universal Charge. [16]

Relative thereto, TRANSCO and Dus are directed to

collect the UC-ME in the amount of P0.0373 per kilowatt-hour and
remit the same to PSALM on or before the 15 th day of the
succeeding month.

On the basis of the said ERC decisions, respondent Panay Electric Company,
Inc. (PECO) charged petitioner Romeo P. Gerochi and all other end-users with the
Universal Charge as reflected in their respective electric bills starting from the month
of July 2003.[17]

(a)
(b)

In the meantime, NPC-SPUG is directed to submit, not

later than April 30, 2004, a detailed report to include Audited
Financial Statements and physical status (percentage of
completion) of the projects using the prescribed format.
Let copies of this Order be furnished petitioner NPCSPUG and all distribution utilities (Dus).

Hence, this original action.

Petitioners submit that the assailed provision of law and its IRR which sought
to implement the same are unconstitutional on the following grounds:
1)

The universal charge provided for under Sec. 34 of the

EPIRA and sought to be implemented under Sec. 2, Rule 18 of

the IRR of the said law is a tax which is to be collected from

all electric end-users and self-generating entities. The power to
tax is strictly a legislative function and as such, the delegation
of said power to any executive or administrative agency like
the ERC is unconstitutional, giving the same unlimited
authority. The assailed provision clearly provides that the
Universal Charge is to be determined, fixed and approved by
the ERC, hence leaving to the latter complete discretionary
legislative authority.

would redound to the benefit of the electric power industry and not to the public, and
that its rate is uniformly levied on electricity end-users, unlike a tax which is
imposed based on the individual taxpayer's ability to pay. Moreover, respondents
deny that there is undue delegation of legislative power to the ERC since the EPIRA
sets forth sufficient determinable standards which would guide the ERC in the
exercise of the powers granted to it. Lastly, respondents argue that the imposition of
the Universal Charge is not oppressive and confiscatory since it is an exercise of the
police power of the State and it complies with the requirements of due
process.[23]

2)

The ERC is also empowered to approve and determine where

the funds collected should be used.

3)

The imposition of the Universal Charge on all end-users is

oppressive and confiscatory and amounts to taxation without
representation as the consumers were not given a chance to be
heard and represented.[18]

On its part, respondent PECO argues that it is duty-bound to collect and remit
the amount pertaining to the Missionary Electrification and Environmental Fund
components of the Universal Charge, pursuant to Sec. 34 of the EPIRA and the
Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could be
held liable under Sec. 46[24] of the EPIRA, which imposes fines and penalties for any
violation of its provisions or its IRR.[25]
The Issues

Petitioners contend that the Universal Charge has the characteristics of a tax
and is collected to fund the operations of the NPC. They argue that the
cases[19] invoked by the respondents clearly show the regulatory purpose of the
charges imposed therein, which is not so in the case at bench. In said cases, the
respective funds[20] were created in order to balance and stabilize the prices of oil and
sugar, and to act as buffer to counteract the changes and adjustments in prices, peso
devaluation, and other variables which cannot be adequately and timely monitored
by the legislature. Thus, there was a need to delegate powers to administrative
bodies.[21] Petitioners posit that the Universal Charge is imposed not for a similar
purpose.
On the other hand, respondent PSALM through the Office of the Government
Corporate Counsel (OGCC) contends that unlike a tax which is imposed to provide
income for public purposes, such as support of the government, administration of the
law, or payment of public expenses, the assailed Universal Charge is levied for a
specific regulatory purpose, which is to ensure the viability of the country's electric
power industry. Thus, it is exacted by the State in the exercise of its inherent police
power. On this premise, PSALM submits that there is no undue delegation of
legislative power to the ERC since the latter merely exercises a limited authority or
discretion as to the execution and implementation of the provisions of the EPIRA. [22]
Respondents Department of Energy (DOE), ERC, and NPC, through the Office
of the Solicitor General (OSG), share the same view that the Universal Charge is not
a tax because it is levied for a specific regulatory purpose, which is to ensure the
viability of the country's electric power industry, and is, therefore, an exaction in the
exercise of the State's police power. Respondents further contend that said Universal
Charge does not possess the essential characteristics of a tax, that its imposition

The ultimate issues in the case at bar are:

1)

Whether or not, the Universal Charge imposed under Sec. 34

of the EPIRA is a tax; and

2)

Whether or not there is undue delegation of legislative power

to tax on the part of the ERC.[26]

Before we discuss the issues, the Court shall first deal with an obvious
procedural lapse.
Petitioners filed before us an original action particularly denominated as a
Complaint assailing the constitutionality of Sec. 34 of the EPIRA imposing the
Universal Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus
standi. They impugn the constitutionality of Sec. 34 of the EPIRA because they
sustained a direct injury as a result of the imposition of the Universal Charge as
reflected in their electric bills.
However, petitioners violated the doctrine of hierarchy of courts when they
filed this Complaint directly with us. Furthermore, the Complaint is bereft of any
allegation of grave abuse of discretion on the part of the ERC or any of the public
respondents, in order for the Court to consider it as a petition for certiorari or
prohibition.
Article VIII, Section 5(1) and (2) of the 1987 Constitution [27] categorically
provides that:

SECTION 5. The Supreme Court shall have the following

powers:
1.

2.

Exercise original
jurisdiction
over
cases affecting
ambassadors, other public ministers and consuls, and
over petitions for certiorari, prohibition, mandamus, quo
warranto, and habeas corpus.
Review, revise, reverse, modify, or affirm on appeal or
certiorari, as the law or the rules of court may provide, final
judgments and orders of lower courts in:
(a) All cases in which the constitutionality or
validity of any treaty, international or
executive
agreement, law,
presidential
decree, proclamation, order, instruction,
ordinance, or regulation is in question.

But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo
warranto, and habeas corpus, while concurrent with that of the regional trial courts
and the Court of Appeals, does not give litigants unrestrained freedom of choice of
forum from which to seek such relief.[28] It has long been established that this Court
will not entertain direct resort to it unless the redress desired cannot be obtained in
the appropriate courts, or where exceptional and compelling circumstances justify
availment of a remedy within and call for the exercise of our primary
jurisdiction.[29] This circumstance alone warrants the outright dismissal of the present
action.
This procedural infirmity notwithstanding, we opt to resolve the
constitutional issue raised herein. We are aware that if the constitutionality of Sec.
34 of the EPIRA is not resolved now, the issue will certainly resurface in the near
future, resulting in a repeat of this litigation, and probably involving the same
parties. In the public interest and to avoid unnecessary delay, this Court renders its
ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the States power of
taxation from the police power.
The power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the

constituency that is to pay it.[30] It is based on the principle that taxes are the
lifeblood of the government, and their prompt and certain availability is an imperious
need.[31] Thus, the theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.[32]
On the other hand, police power is the power of the state to promote public
welfare by restraining and regulating the use of liberty and property.[33] It is the most
pervasive, the least limitable, and the most demanding of the three fundamental
powers of the State. The justification is found in the Latin maxims salus populi est
suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut
alienum non laedas (so use your property as not to injure the property of others). As
an inherent attribute of sovereignty which virtually extends to all public needs, police
power grants a wide panoply of instruments through which the State, as parens
patriae, gives effect to a host of its regulatory powers.[34] We have held that the
power to "regulate" means the power to protect, foster, promote, preserve, and
control, with due regard for the interests, first and foremost, of the public, then of the
utility and of its patrons.[35]
The conservative and pivotal distinction between these two powers rests in
the purpose for which the charge is made. If generation of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that revenue is incidentally raised does not make the
imposition a tax.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the
State's police power, particularly its regulatory dimension, is invoked. Such can be
deduced from Sec. 34 which enumerates the purposes for which the Universal
Charge is imposed[37] and which can be amply discerned as regulatory in
character. The EPIRA resonates such regulatory purposes, thus:
SECTION 2. Declaration of Policy. It is hereby declared the
policy of the State:
(a) To ensure and accelerate the total electrification of the
country;
(b) To ensure the quality, reliability, security and affordability of
the supply of electric power;
(c) To ensure transparent and reasonable prices of electricity in a
regime of free and fair competition and full public
accountability to achieve greater operational and economic
efficiency and enhance the competitiveness of Philippine
products in the global market;
(d) To enhance the inflow of private capital and broaden the
ownership base of the power generation, transmission and
distribution sectors;

(e) To ensure fair and non-discriminatory treatment of public and

private sector entities in the process of restructuring the
electric power industry;
(f) To protect the public interest as it is affected by the rates and
services of electric utilities and other providers of electric
power;
(g) To assure socially and environmentally compatible energy
sources and infrastructure;
(h) To promote the utilization of indigenous and new and
renewable energy resources in power generation in order to
reduce dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the
assets and liabilities of the National Power Corporation
(NPC);
(j) To establish a strong and purely independent regulatory body
and system to ensure consumer protection and enhance the
competitive operation of the electricity market; and
(k) To encourage the efficient use of energy and other modalities
of demand side management.

From the aforementioned purposes, it can be gleaned that the assailed

Universal Charge is not a tax, but an exaction in the exercise of the State's police
power. Public welfare is surely promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as
an implement of police power.[38] In Valmonte v. Energy Regulatory Board, et
al.[39] and in Gaston v. Republic Planters Bank,[40] this Court held that the Oil Price
Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions
made in the exercise of the police power. The doctrine was reiterated in Osmea v.
Orbos[41] with respect to the OPSF. Thus, we disagree with petitioners that the
instant case is different from the aforementioned cases. With the Universal Charge,
a Special Trust Fund (STF) is also created under the administration of
PSALM.[42] The STF has some notable characteristics similar to the OPSF and the
SSF, viz.:
1)

In the implementation of stranded cost recovery, the ERC

shall conduct a review to determine whether there is underrecovery or over recovery and adjust (true-up) the level of the
stranded cost recovery charge. In case of an over-recovery, the
ERC shall ensure that any excess amount shall be remitted to
the STF. A separate account shall be created for these amounts
which shall be held in trust for any future claims of
distribution utilities for stranded cost recovery. At the end of
the stranded cost recovery period, any remaining amount in

this account shall be used to reduce the electricity rates to the

end-users.[43]
2)

With respect to the assailed Universal Charge, if the total

amount collected for the same is greater than the actual
availments against it, the PSALM shall retain the balance
within the STF to pay for periods where a shortfall occurs. [44]

3)

Upon expiration of the term of PSALM, the administration of

the STF shall be transferred to the DOF or any of the DOF
attached agencies as designated by the DOF Secretary.[45]

The OSG is in point when it asseverates:

Evidently, the establishment and maintenance of the Special Trust
Fund, under the last paragraph of Section 34, R.A. No. 9136, is
well within the pervasive and non-waivable power and
responsibility of the government to secure the physical and
economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police
power of the State.[46]

This feature of the Universal Charge further boosts the position that the same is
an exaction imposed primarily in pursuit of the State's police objectives. The STF
reasonably serves and assures the attainment and perpetuity of the purposes for
which the Universal Charge is imposed, i.e., to ensure the viability of the country's
electric power industry.
The Second Issue
The principle of separation of powers ordains that each of the three branches
of government has exclusive cognizance of and is supreme in matters falling within
its own constitutionally allocated sphere. A logical corollary to the doctrine of
separation of powers is the principle of non-delegation of powers, as expressed in the
Latin maxim potestas delegata non delegari potest (what has been delegated cannot
be delegated). This is based on the ethical principle that such delegated power
constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of
another. [47]
In the face of the increasing complexity of modern life, delegation of
legislative power to various specialized administrative agencies is allowed as an
exception to this principle.[48] Given the volume and variety of interactions in today's

society, it is doubtful if the legislature can promulgate laws that will deal adequately
with and respond promptly to the minutiae of everyday life. Hence, the need to
delegate to administrative bodies - the principal agencies tasked to execute laws in
their specialized fields - the authority to promulgate rules and regulations to
implement a given statute and effectuate its policies. All that is required for the valid
exercise of this power of subordinate legislation is that the regulation be germane to
the objects and purposes of the law and that the regulation be not in contradiction to,
but in conformity with, the standards prescribed by the law. These requirements are
denominated as the completeness test and the sufficient standard test.
Under the first test, the law must be complete in all its terms and conditions
when it leaves the legislature such that when it reaches the delegate, the only thing
he will have to do is to enforce it. The second test mandates adequate guidelines or
limitations in the law to determine the boundaries of the delegate's authority and
prevent the delegation from running riot.[49]
The Court finds that the EPIRA, read and appreciated in its entirety, in relation
to Sec. 34 thereof, is complete in all its essential terms and conditions, and that it
contains sufficient standards.
Although Sec. 34 of the EPIRA merely provides that within one (1) year from
the effectivity thereof, a Universal Charge to be determined, fixed and approved by
the ERC, shall be imposed on all electricity end-users, and therefore, does not state
the specific amount to be paid as Universal Charge, the amount nevertheless is made
certain by the legislative parameters provided in the law itself. For one, Sec.
43(b)(ii) of the EPIRA provides:
SECTION 43. Functions of the ERC. The ERC shall promote
competition, encourage market development, ensure customer
choice and penalize abuse of market power in the restructured
electricity industry. In appropriate cases, the ERC is authorized to
issue cease and desist order after due notice and hearing. Towards
this end, it shall be responsible for the following key functions in
the restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act,
promulgate and enforce, in accordance with law, a National Grid
Code and a Distribution Code which shall include, but not limited
to the following:
xxxx

(ii) Financial capability standards for the generating

companies, the TRANSCO, distribution utilities and suppliers:
Provided, That in the formulation of the financial capability
standards, the nature and function of the entity shall be considered:
Provided, further, That such standards are set to ensure that the
electric power industry participants meet the minimum financial
standards to protect the public interest. Determine, fix, and
approve, after due notice and public hearings the universal charge,
to be imposed on all electricity end-users pursuant to Section 34
hereof;

Moreover, contrary to the petitioners contention, the ERC does not enjoy a
wide latitude of discretion in the determination of the Universal Charge. Sec. 51(d)
and (e) of the EPIRA[50] clearly provides:
SECTION 51. Powers. The PSALM Corp. shall, in the
performance of its functions and for the attainment of its objective,
have the following powers:
xxxx
(d) To calculate the amount of the stranded debts and stranded
contract costs of NPC which shall form the basis for ERC
in the determination of the universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the
proceeds from sales and other property contributed to it,
including the proceeds from the universal charge.

Thus, the law is complete and passes the first test for valid delegation of
legislative power.
As to the second test, this Court had, in the past, accepted as sufficient
standards the following: "interest of law and order;" [51] "adequate and efficient
instruction;"[52]"public interest;"[53] "justice and equity;"[54] "public convenience and
welfare;"[55] "simplicity, economy and efficiency;"[56] "standardization and regulation
of
medical
education;"[57] and
"fair
and
equitable
employment
[58]
practices."
Provisions of the EPIRA such as, among others, to ensure the total
electrification of the country and the quality, reliability, security and affordability of
the supply of electric power[59] and watershed rehabilitation and

management[60] meet the requirements for valid delegation, as they provide the
limitations on the ERCs power to formulate the IRR. These are sufficient standards.
It may be noted that this is not the first time that the ERC's conferred powers
were challenged. In Freedom from Debt Coalition v. Energy Regulatory
Commission,[61] the Court had occasion to say:
In determining the extent of powers possessed by the ERC,
the provisions of the EPIRA must not be read in separate parts.
Rather, the law must be read in its entirety, because a statute is
passed as a whole, and is animated by one general purpose and
intent. Its meaning cannot to be extracted from any single part
thereof but from a general consideration of the statute as a whole.
Considering the intent of Congress in enacting the EPIRA and
reading the statute in its entirety, it is plain to see that the law has
expanded the jurisdiction of the regulatory body, the ERC in this
case, to enable the latter to implement the reforms sought to be
accomplished by the EPIRA. When the legislators decided to
broaden the jurisdiction of the ERC, they did not intend to abolish
or reduce the powers already conferred upon ERC's predecessors.
To sustain the view that the ERC possesses only the powers and
functions listed under Section 43 of the EPIRA is to frustrate the
objectives of the law.
In his Concurring and Dissenting Opinion[62] in the same case, then Associate
Justice, now Chief Justice, Reynato S. Puno described the immensity of police power
in relation to the delegation of powers to the ERC and its regulatory functions over
electric power as a vital public utility, to wit:
Over the years, however, the range of police power was
no longer limited to the preservation of public health, safety and
morals, which used to be the primary social interests in earlier
times. Police power now requires the State to "assume an
affirmative duty to eliminate the excesses and injustices that are
the concomitants of an unrestrained industrial economy." Police
power is now exerted "to further the public welfare a concept as
vast as the good of society itself." Hence, "police power is but
another name for the governmental authority to further the welfare
of society that is the basic end of all government." When police
power is delegated to administrative bodies with regulatory
functions, its exercise should be given a wide latitude. Police
power takes on an even broader dimension in developing countries
such as ours, where the State must take a more active role in
balancing the many conflicting interests in society. The Questioned
Order was issued by the ERC, acting as an agent of the State in the

exercise of police power. We should have exceptionally good

grounds to curtail its exercise. This approach is more compelling in
the field of rate-regulation of electric power rates. Electric power
generation and distribution is a traditional instrument of economic
growth that affects not only a few but the entire nation. It is an
important factor in encouraging investment and promoting
business. The engines of progress may come to a screeching halt if
the delivery of electric power is impaired. Billions of pesos would
be lost as a result of power outages or unreliable electric power
services. The State thru the ERC should be able to exercise its
police power with great flexibility, when the need arises.
This was reiterated in National Association of Electricity Consumers for
Reforms v. Energy Regulatory Commission[63] where the Court held that the ERC, as
regulator, should have sufficient power to respond in real time to changes wrought
by multifarious factors affecting public utilities.
From the foregoing disquisitions, we therefore hold that there is no undue
delegation of legislative power to the ERC.
Petitioners failed to pursue in their Memorandum the contention in the
Complaint that the imposition of the Universal Charge on all end-users is oppressive
and confiscatory, and amounts to taxation without representation. Hence, such
contention is deemed waived or abandoned per Resolution[64] of August 3,
2004.[65] Moreover, the determination of whether or not a tax is excessive, oppressive
or confiscatory is an issue which essentially involves questions of fact, and thus, this
Court is precluded from reviewing the same.[66]
As a penultimate statement, it may be well to recall what this Court said of
EPIRA:
One of the landmark pieces of legislation enacted by
Congress in recent years is the EPIRA. It established a new policy,
legal structure and regulatory framework for the electric power
industry. The new thrust is to tap private capital for the expansion
and improvement of the industry as the large government debt and
the highly capital-intensive character of the industry itself have
long been acknowledged as the critical constraints to the program.
To attract private investment, largely foreign, the jaded structure of
the industry had to be addressed. While the generation and
transmission sectors were centralized and monopolistic, the
distribution side was fragmented with over 130 utilities, mostly
small and uneconomic. The pervasive flaws have caused a low
utilization of existing generation capacity; extremely high and
uncompetitive power rates; poor quality of service to consumers;
dismal to forgettable performance of the government power sector;

high system losses; and an inability to develop a clear strategy for

overcoming these shortcomings.
Thus, the EPIRA provides a framework for the
restructuring of the industry, including the privatization of the
assets of the National Power Corporation (NPC), the transition to a
competitive structure, and the delineation of the roles of various
government agencies and the private entities. The law ordains the
division
of
the
industry
into
four
(4)
distinct
sectors, namely: generation, transmission, distribution and
supply.
Corollarily, the NPC generating plants have to privatized and its
transmission business spun off and privatized thereafter. [67]

Finally, every law has in its favor the presumption of constitutionality, and to
justify its nullification, there must be a clear and unequivocal breach of the
Constitution
and
not
one
that
is
doubtful,
speculative,
or
argumentative.[68] Indubitably, petitioners failed to overcome this presumption in
favor of the EPIRA. We find no clear violation of the Constitution which would
warrant a pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR are
unconstitutional and void.
WHEREFORE, the instant case is hereby DISMISSED for lack of merit.
SO ORDERED.

G.R. No. L-67649 June 28, 1988

ENGRACIO
FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the questioned decision
of the Intermediate Appellate Court, to set aside the auction sale of his property
which took place on December 5, 1977, and to allow him to recover a 203 square
meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the
latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house
built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City,
Metro Manila. The lot, with an area of about 328 square meters, is described and
covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds
of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00
representing the estimated amount equivalent to the assessed value of the aforesaid
portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public auction by the City Treasurer of
Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez
was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that
time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In
re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the
cancellation of TCT No. 4739 (37795) and the issuance in his name of a new
certificate of title. Upon verification through his lawyer, Francia discovered that a
Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on
December 11, 1978. The auction sale and the final bill of sale were both annotated at
the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later
amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue
a new Transfer Certificate of Title in favor of the
defendant Ho Fernandez over the parcel of land
including the improvements thereon, subject to
whatever encumbrances appearing at the back of

TCT No. 4739 (37795) and ordering the same

TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez
the sum of P1,000.00 as attorney's fees. (p. 30,
Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of
law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A
GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION
TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY
THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO
THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A
GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS
NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS
PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN
ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT
INTERMEDIATE
APPELLATE
COURT
FURTHER
COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO
FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S
CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF
PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY,
THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's
allegations that his property was sold at public auction without notice to him and that
the price paid for the property was shockingly inadequate, amounting to fraud and
deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the
problems raised in his petition upon himself. While we commiserate with him at the
loss of his property, the law and the facts militate against the grant of his petition.
We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by
legal compensation. He claims that the government owed him P4,116.00 when a
portion of his land was expropriated on October 15, 1977. Hence, his tax obligation
had been set-off by operation of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other,
are extinguished (Art. 1278, Civil Code). The circumstances of the case do not
satisfy the requirements provided by Article 1279, to wit:

(1) that each one of the obligors be bound principally and that he
be at the same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled
that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled
that Internal Revenue Taxes can not be the subject of set-off or compensation. We
stated that:
A claim for taxes is not such a debt, demand, contract or judgment
as is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they
do not arise out of the contract or transaction sued on. ... (80 C.J.S.,
7374). "The general rule based on grounds of public policy is wellsettled that no set-off admissible against demands for taxes levied
for general or local governmental purposes. The reason on which
the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of duty to, and
are the positive acts of the government to the making and
enforcing of which, the personal consent of individual taxpayers is
not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the
collector because he has a claim against the governmental body not included in the
tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we
stated that: "... internal revenue taxes can not be the subject of compensation:
Reason: government and taxpayer are not mutually creditors and debtors of each
other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was
due to the city government while the expropriation was effected by the national
government. Moreover, the amount of P4,116.00 paid by the national government for
the 125 square meter portion of his lot was deposited with the Philippine National
Bank long before the sale at public auction of his remaining property. Notice of the
deposit dated September 28, 1977 was received by the petitioner on September 30,
1977. The petitioner admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have been an easy
matter to withdraw P2,400.00 from the deposit so that he could pay the tax
obligation thus aborting the sale at public auction.

Petitioner had one year within which to redeem his property although, as well be
shown later, he claimed that he pocketed the notice of the auction sale without
reading it.
Petitioner contends that "the auction sale in question was made without complying
with the mandatory provisions of the statute governing tax sale. No evidence, oral or
otherwise, was presented that the procedure outlined by law on sales of property for
tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative
of this issue, the burden of proof therefore rests upon him to show that plaintiff was
duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction
sale, has the burden of proof to show that there was compliance with all the
prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be
established by proof and thegeneral rule is that the purchaser of a
tax title is bound to take upon himself the burden of showing the
regularity of all proceedings leading up to the sale. (emphasis
supplied)
There is no presumption of the regularity of any administrative action which results
in depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29
Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an
exception to the rule that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal
prerequisites have been complied with, the petitioner can not, however, deny that he
did receive the notice for the auction sale. The records sustain the lower court's
finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted
that he was not properly notified of the auction sale. Surprisingly,
however, he admitted in his testimony that he received the letter
dated November 21, 1977 (Exhibit "I") as shown by his signature
(Exhibit "I-A") thereof. He claimed further that he was not present
on December 5, 1977 the date of the auction sale because he went
to Iligan City. As long as there was substantial compliance with the
requirements of the notice, the validity of the auction sale can not
be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as
Exhibit I for Ho Fernandez notified you that the
property in question shall be sold at public
auction to the highest bidder on December 5,
1977 pursuant to Sec. 74 of PD 464. Will you
tell the Court whether you received the original
of this letter?
A. I just signed it because I was not able to read
the same. It was just sent by mail carrier.

Q. So you admit that you received the original of

Exhibit I and you signed upon receipt thereof but
you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you
place it?
A. I placed it in the usual place where I place my
mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his
part when he ignored such notice. By his very own admission that he received the
notice, his now coming to court assailing the validity of the auction sale loses its
force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule,
gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce
de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili,
91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109
SCRA 388) we held that "alleged gross inadequacy of price is not material when the
law gives the owner the right to redeem as when a sale is made at public auction,
upon the theory that the lesser the price, the easier it is for the owner to effect
redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the
lands were sold are unconscionable considering the wide
divergence between their assessed values and the amounts for
which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on the
ground of inadequacy of price, or when such inadequacy shocks
one's conscience as to justify the courts to interfere, such does not
follow when the law gives to the owner the right to redeem, as
when a sale is made at public auction, upon the theory that the
lesser the price the easier it is for the owner to effect the
redemption. And so it was aptly said: "When there is the right to
redeem, inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his right to
redeem and thus recover the loss he claims to have suffered by
reason of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v.
De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale
for taxes, the collection of taxes in this manner would be greatly
embarrassed, if not rendered altogether impracticable. In Black on
Tax Titles (2nd Ed.) 238, the correct rule is stated as follows:
"where land is sold for taxes, the inadequacy of the price given is
not a valid objection to the sale." This rule arises from necessity,
for, if a fair price for the land were essential to the sale, it would be
useless to offer the property. Indeed, it is notorious that the prices
habitually paid by purchasers at tax sales are grossly out of

proportion to the value of the land. (Rothchild Bros. v. Rollinger,

32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean,
et al. (267 P. 555):
Like most cases of this character there is here a certain element of
hardship from which we would be glad to relieve, but do so would
unsettle long-established rules and lead to uncertainty and
difficulty in the collection of taxes which are the life blood of the
state. We are convinced that the present rules are just, and that they
bring hardship only to those who have invited it by their own
neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly
appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay
City, which necessitated the expropriation of adjoining areas, real estate values have
gone up in the area. However, the price quoted by the petitioner for a 203 square
meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer
the petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable
grounds, there are no strong considerations of substantial justice in his favor. Mr.
Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction
sale. He claims to have pocketed the notice of sale without reading it which, if true,
is still an act of inexplicable negligence. He did not withdraw from the expropriation
payment deposited with the Philippine National Bank an amount sufficient to pay for
the back taxes. The petitioner did not pay attention to another notice sent by the City
Treasurer on November 3, 1978, during the period of redemption, regarding his tax
delinquency. There is furthermore no showing of bad faith or collusion in the
purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke
equity in his attempt to regain the property by belatedly asking for the annulment of
the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is
DISMISSED. The decision of the respondent court is affirmed.
SO ORDERED.

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF

INTERNAL REVENUE, COURT OF APPEALS, and THE COURT
OF TAX APPEALS,respondents.
DECISION
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
E
2nd
1991
3rd
1991
4th
1991

Qtr.,
12,911,124.60

3,227,781.15 3,378,116.16 19,517,021.91

14,994,749.21

3,748,687.30 2,978,409.09 21,721,845.60

Qtr.,
Qtr.,
19,406,480.13
4,851,620.03 2,631,837.72 26,889,937.88
----------------------------------- ----------------- -------

-------------47,312,353.94
9
1st
1992
2nd
1992

11,828,088.48 8,988,362.97 68,128,805.3

Qtr.,

23,341,849.94

5,835,462.49 1,710,669.82 30,887,982.25

Qtr.,
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 55,693,177.1

3
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 inCommissioner 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
Philexs position. Since these pending claims have not yet been established or

determined with certainty, it follows that no legal compensation can take

place. Hence, he BIR reiterated its demand that Philex settle the amount plus interest
within 30 days from the receipt of the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input
credit/refund against its exercise 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 a 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 latters tax obligation of 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 setoff 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-G.R. CV No. 36975.[11] Nonetheless, on April 8, 1996, the
Court of Appeals 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 By
Tax Credit Certificate
Date Of
Issue
Amount
Claims For Vat
Number
refund/credit
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 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:
x x x 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, Philexs 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 Philexs 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 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 Philexs 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
Philexs 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 payer 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 honesty 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 collectot kill
the 'hen that lays the golden egg.' And, in the 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 valid reason for the nonpayment of its tax liabilities.
To be sure, this is not 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 claims 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.
Article 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 enjoined
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.

PHILIPPINE
BANK
OF
COMMUNICATIONS, petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX
APPEALS and COURT OF APPEALS, respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Resolution[1] of the Court of Appeals dated
September 22, 1993, affirming the Decision[2] and Resolution[3] of the Court of Tax
Appeals which denied the claims of the petitioner for tax refund and tax credits,
and disposing as follows:
IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED
due course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its
resolution dated July 20, 1993, are hereby AFFIRMED in toto.
SO ORDERED.[4]
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for
1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond
the reglementary period. The 1986 claim for refund amounting to P234,077.69 is
likewise denied since petitioner has opted and in all likelihood automatically credited
the same to the succeeding year. The petition for review is dismissed for lack of
merit.
SO ORDERED.[5]
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial
banking corporation duly organized under Philippine laws, filed its quarterly income
tax returns for the first and second quarters of 1985, reported profits, and paid the
total income tax of P5,016,954.00. The taxes due were settled by applying PBComs
tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax
Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1, 615,253.00,
respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual
Income Tax Returns for the year-ended December 31, 1985, it declared a net loss
of P25,317,228.00, thereby showing no income tax liability. For the succeeding
year, ending December 31, 1986, the petitioner likewise reported a net loss
of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding creditable
taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue,
among others, for a tax credit of P5,016,954.00 representing the overpayment of
taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable
taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in
1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue,
petitioner instituted a Petition for Review on November 18, 1988 before the Court of
Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309

entitled: Philippine Bank of Communications vs. Commissioner of Internal

Revenue.
The losses petitioner incurred as per the summary of petitioners claims for
refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are
as follows:
1985
1986
Net
(P25,317,228.00)
(P14,129,602.00)
Income
(Loss)
Tax Due NIL
NIL
Quarterl
y tax
Payment
5,016,954.00
--s Made
Tax
282,795.50
234,077.69
Withhel
d
at
Source
Exc
P5,299,749.50*
=========
P234,077.69 =========
ess Tax =====
=====
Payment
s
*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five
centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset,
denied the request of petitioner for a tax refund or credit in the sum amount
of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary
period provided for by law. The petitioners claim for refund in 1986 amounting
to P234,077.69 was likewise denied on the assumption that it was automatically
credited by PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTAs
decision but the same was denied due course for lack of merit. [6]
Thereafter, PBCom filed a petition for review of said decision and resolution of
the CTA with the Court of Appeals. However on September 22, 1993, the Court of
Appeals affirmed in toto the CTAs resolution dated July 20, 1993. Hence this
petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in good faith on the formal
assurances of BIR in RMC No. 7-85 and did not immediately file with
the CTA a petition for review asking for the refund/tax credit of its
1985-86 excess quarterly income tax payments -- can be prejudiced by
the subsequent BIR rejection, applied retroactively, of its assurances in
RMC No. 7-85 that the prescriptive period for the refund/tax credit of
excess quarterly income tax payments is not two years but ten (10). [7]
II. Whether the Court of Appeals seriously erred in affirming the CTA
decision which denied PBComs claim for the refund of P234,077.69

income tax overpaid in 1986 on the mere speculation, without proof,

that there were taxes due in 1987 and that PBCom availed of taxcrediting that year.[8]
Simply stated, the main question is: Whether or not the Court of Appeals erred
in denying the plea for tax refund or tax credits on the ground of prescription, despite
petitioners reliance on RMC No. 7-85, changing the prescriptive period of two years
to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by
prescription relying on the applicability of Revenue Memorandum Circular No. 7-85
issued on April 1, 1985. The circular states that overpaid income taxes are not
covered by the two-year prescriptive period under the tax Code and that taxpayers
may claim refund or tax credits for the excess quarterly income tax with the BIR
within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of
the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT:
PROCESSING OF REFUND OR TAX CREDIT OF
EXCESS CORPORATE INCOME TAX RESULTING
FROM THE FILING OF THE FINAL ADJUSTMENT
RETURN
TO:
All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code provide:
xxx
xxx
xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations
Nos. 10-77 which provide:
xxx
xxx
xxx
It has been observed, however, that because of the excess tax payments, corporations
file claims for recovery of overpaid income tax with the Court of Tax Appeals within
the two-year period from the date of payment, in accordance with Sections 292 and
295 of the National Internal Revenue Code. It is obvious that the filing of the case in
court is to preserve the judicial right of the corporation to claim the refund or tax
credit.
It should be noted, however, that this is not a case of erroneously or illegally paid tax
under the provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund
of the overpaid income tax or claim for automatic tax credit. To insure prompt
action on corporate annual income tax returns showing refundable amounts arising
from overpaid quarterly income taxes, this Office has promulgated Revenue
Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in
processing said returns. Under these procedures, the returns are merely pre-audited
which consist mainly of checking mathematical accuracy of the figures of the
return. After which, the refund or tax credit is granted, and, this procedure was
adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court
of Tax Appeals in order to preserve the right to claim refund or tax credit
within the two-year period. As already stated, actions hereon by the Bureau are
immediate after only a cursory pre-audit of the income tax returns. Moreover, a

taxpayer may recover from the Bureau of Internal Revenue excess income tax paid
under the provisions of Section 86 of the Tax Code within 10 years from the date of
payment considering that it is an obligation created by law (Article 1144 of the Civil
Code).[9] (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position
contrary to its declared circular if it would result to injustice to
taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court of Tax
Appeals[10] petitioner claims that rulings or circulars promulgated by the
Commissioner of Internal Revenue have no retroactive effect if it would be
prejudicial to taxpayers. In ABS-CBN case, the Court held that the government is
precluded from adopting a position inconsistent with one previously taken where
injustice would result therefrom or where there has been a misrepresentation to the
taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code
explicitly provides for this rule as follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal of
any of the rules and regulations promulgated in accordance with the preceding
section or any of the rulings or circulars promulgated by the Commissioner shall not
be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayers except in the following cases:
a)
where the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal Revenue;
b)
where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based;
c)
where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through the Solicitor General,
argues that the two-year prescriptive period for filing tax cases in court concerning
income tax payments of Corporations is reckoned from the date of filing the Final
Adjusted Income Tax Return, which is generally done on April 15 following the
close of the calendar year. As precedents, respondent Commissioner cited cases
which adhered to this principle, to wit: ACCRA Investments Corp. vs. Court of
Appeals, et al.,[11] and Commissioner of Internal Revenue vs. TMX Sales, Inc., et
al..[12] Respondent Commissioner also states that since the Final Adjusted Income
Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on
April 15, 1986, the latter had only until April 15, 1988 to seek relief from the
court. Further, respondent Commissioner stresses that when the petitioner filed the
case before the CTA on November 18, 1988, the same was filed beyond the time
fixed by law, and such failure is fatal to petitioners cause of action.
After a careful study of the records and applicable jurisprudence on the matter,
we find that, contrary to the petitioners contention, the relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive
period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The primary
purpose is to generate funds for the State to finance the needs of the citizenry and to
advance the common weal.[13] Due process of law under the Constitution does not
require judicial proceedings in tax cases. This must necessarily be so because it is

upon taxation that the government chiefly relies to obtain the means to carry on its
operations and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little as
possible.[14]
From the same perspective, claims for refund or tax credit should be exercised
within the time fixed by law because the BIR being an administrative body enforced
to collect taxes, its functions should not be unduly delayed or hampered by incidental
matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec.
229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding
for the recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit or
proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of
any sum alleged to have been 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. (Italics supplied)
The rule states that the taxpayer may file a claim for refund or credit with the
Commissioner of Internal Revenue, within two (2) years after payment of tax, before
any suit in CTA is commenced. The two-year prescriptive period provided, should
be computed from the time of filing the Adjustment Return and final payment of the
tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance
Co.,[15] this Court explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the
time that the refund is ascertained, which can only be determined after a final
adjustment return is accomplished. In the present case, this date is April 16, 1984,
and two years from this date would be April 16, 1986. x x x As we have earlier said
in the TMX Sales case, Sections 68,[16] 69,[17] and 70[18] on Quarterly Corporate
Income Tax Payment and Section 321 should be considered in conjunction with
it.[19]
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess
quarterly income tax payments, such circular created a clear inconsistency with the
provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret
the law; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general interpretations

of tax laws) which are issued from time to time by the Commissioner of Internal
Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the
courts. Nevertheless, such interpretation is not conclusive and will be ignored if
judicially found to be erroneous.[20] Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony with, the law
they seek to apply and implement.[21]
In the case of People vs. Lim,[22] it was held that rules and regulations issued by
administrative officials to implement a law cannot go beyond the terms and
provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only
inconsistent with but is contrary to the provisions and spirit of Act. No. 4003 as
amended, because whereas the prohibition prescribed in said Fisheries Act was for
any single period of time not exceeding five years duration, FAO No. 37-1 fixed no
period, that is to say, it establishes an absolute ban for all time. This discrepancy
between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the
part of Secretary of Agriculture and Natural Resources. Of course, in case of
discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to
implement a law cannot go beyond the terms and provisions of the latter. x x x In
this connection, the attention of the technical men in the offices of Department
Heads who draft rules and regulation is called to the importance and necessity of
closely following the terms and provisions of the law which they intended to
implement, this to avoid any possible misunderstanding or confusion as in the
present case.[23]
Further, fundamental is the rule that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents.[24] As pointed out by the respondent
courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative interpretation which is not in harmony with
Sec. 230 of 1977 NIRC, for being contrary to the express provision of a
statute. Hence, his interpretation could not be given weight for to do so would, in
effect, amend the statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal Revenue, after promulgating
RMC No. 7-85, is estopped by the principle of non-retroactivity of BIR
rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer
may recover the excess income tax paid within 10 years from date of payment
because this is an obligation created by law, was issued by the Acting Commissioner
of Internal Revenue. On the other hand, the decision, stating that the taxpayer should
still file a claim for a refund or tax credit and the corresponding petition for review
within the two-year prescription period, and that the lengthening of the period of
limitation on refund from two to ten years would be adverse to public policy and run
counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial
interpretation of the Court of Tax Appeals. Estoppel has no application in the case at
bar because it was not the Commissioner of Internal Revenue who denied
petitioners claim of refund or tax credit. Rather, it was the Court of Tax Appeals
who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85

issued by the Commissioner of Internal Revenue is an administrative interpretation

which is out of harmony with or contrary to the express provision of a statute
(specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in
effect amend the statute.[25]
Article 8 of the Civil Code[26] recognizes judicial decisions, applying or
interpreting statutes as part of the legal system of the country. But administrative
decisions do not enjoy that level of recognition. A memorandum-circular of a bureau
head could not operate to vest a taxpayer with a shield against judicial action. For
there are no vested rights to speak of respecting a wrong construction of the law by
the administrative officials and such wrong interpretation could not place the
Government in estoppel to correct or overrule the same. [27] Moreover, the nonretroactivity of rulings by the Commissioner of Internal Revenue is not applicable in
this case because the nullity of RMC No. 7-85 was declared by respondent courts
and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as
repeatedly held by this Court, a claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi juris against the taxpayer.[28]
On the second issue, the petitioner alleges that the Court of Appeals seriously
erred in affirming CTAs decision denying its claim for refund of P 234,077.69 (tax
overpaid in 1986), based on mere speculation, without proof, that PBCom availed of
the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any
excess of the total quarterly payments over the actual income tax computed in the
adjustment or final corporate income tax return, shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by
marking the option box provided in the BIR form) its intention, whether to request
for a refund or claim for an automatic tax credit for the succeeding taxable year. To
ease the administration of tax collection, these remedies are in the alternative, and
the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 - the Court of Tax
Appeals, after examining the adjusted final corporate annual income tax return for
taxable year 1986, found out that petitioner opted to apply for automatic tax
credit. This was the basis used (vis-avis the fact that the 1987 annual corporate tax
return was not offered by the petitioner as evidence) by the CTA in concluding that
petitioner had indeed availed of and applied the automatic tax credit to the
succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of
refund and tax credit are alternative.[30]
That the petitioner opted for an automatic tax credit in accordance with Sec. 69
of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a
finding of fact which we must respect. Moreover, the 1987 annual corporate tax
return of the petitioner was not offered as evidence to controvert said fact. Thus, we
are bound by the findings of fact by respondent courts, there being no showing of
gross error or abuse on their part to disturb our reliance thereon. [31]

WHEREFORE, the petition is hereby DENIED. The decision of the Court of

Appeals appealed from is AFFIRMED, with COSTS against the petitioner.
SO ORDERED.

THE
CITY
OF MANILA,LIBERTY M. TOLEDO, in her
capacity
as
THE
TREASURER
OF MANILA and JOSEPHSANTIAGO, in
his capacity as the CHIEF OF THE
LICENSE DIVISION OF CITY OFMANILA,
Petitioners,

- versus -

COCA-COLA BOTTLERS PHILIPPINES,

INC.,
Respondent.

G.R. No. 181845

Present:
YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:

August 4, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

Prior to 25 February 2000, respondent had been paying the City

of Manila local business tax only under Section 14 of Tax Ordinance No.
7794,[6] being expressly exempted from the business tax under Section 21 of the
same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:
Section 14. Tax on Manufacturers, Assemblers and
Other Processors. There is hereby imposed a graduated tax on
manufacturers, assemblers, repackers, processors, brewers,
distillers, rectifiers, and compounders of liquors, distilled spirits,
and wines or manufacturers of any article of commerce of
whatever kind or nature, in accordance with any of the following
schedule:
xxxx
over P6,500,000.00 up to
P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus
50% of 1%
in
excess
of P6,500,000.00
xxxx

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the

Revised Rules of Civil Procedure seeking to review and reverse the Decision [1] dated
18 January 2008 and Resolution[2] dated 18 February 2008 of the Court of Tax
Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the
CTA en banc dismissed the Petition for Review of herein petitioners City of Manila,
Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago); and affirmed the
Resolutions dated 24 May 2007,[3] 8 June 2007,[4] and 26 July 2007,[5] of the CTA
First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for
Review of petitioners in said case for being filed out of time. In its questioned
Resolution, the CTA en banc denied the Motion for Reconsideration of
petitioners.
Petitioner City of Manila is a public corporation empowered to collect and
assess business taxes, revenue fees, and permit fees, through its officers,
petitioners Toledo andSantiago, in their capacities as City Treasurer and Chief of the
Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers
Philippines, Inc. is a corporation engaged in the business of manufacturing and
selling beverages, and which maintains a sales office in the City of Manila.

Section 21. Tax on Businesses Subject to the Excise,

Value-Added or Percentage Taxes under the NIRC. On any of
the following businesses and articles of commerce subject to
excise, value-added or percentage taxes under the National Internal
Revenue Code hereinafter referred to as NIRC, as amended, a tax
of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum
on the gross sales or receipts of the preceding calendar year is
hereby imposed:
(A)
On persons who sell goods and services in the
course of trade or business; and those who import goods whether
for business or otherwise; as provided for in Sections 100 to 103 of
the NIRC as administered and determined by the Bureau of
Internal Revenue pursuant to the pertinent provisions of the said
Code.
xxxx
(D)

Excisable goods subject to VAT

(1)
Distilled spirits
(2)
Wines

The case stemmed from the following facts:

xxxx

(8)
Coal and coke
(9)
Fermented liquor, brewers wholesale price,
excluding the ad valorem tax
xxxx
PROVIDED, that all registered businesses in the City
of Manila that are already paying the aforementioned tax shall be
exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax

Ordinance No. 7988,[7] amending certain sections of Tax Ordinance No. 7794,
particularly: (1) Section 14, by increasing the tax rates applicable to certain
establishments operating within the territorial jurisdiction of the City of Manila; and
(2) Section 21, by deleting theproviso found therein, which stated that all registered
businesses in the City of Manila that are already paying the aforementioned tax shall
be exempted from payment thereof. Petitioner City of Manila approved only after a
year, on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court
null and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila [8] (CocaCola case) for the following reasons: (1) Tax Ordinance No. 7988 was enacted in
contravention of the provisions of the Local Government Code (LGC) of 1991 and
its implementing rules and regulations; and (2) Tax Ordinance No. 8011 could not
cure the defects of Tax Ordinance No. 7988, which did not legally exist.
However, before the Court could declare Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 null and void, petitioner City of Manila assessed respondent on
the basis of Section 21 of Tax Ordinance No. 7794, as amended by the
aforementioned tax ordinances, for deficiency local business taxes, penalties, and
interest, in the total amount ofP18,583,932.04, for the third and fourth quarters of the
year 2000. Respondent filed a protest with petitioner Toledo on the ground that the
said assessment amounted to double taxation, as respondent was taxed twice, i.e.,
under Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax
Ordinances No. 7988 and No. 8011. Petitioner Toledo did not respond to the protest
of respondent.

under Sections 14 and 21 of Tax Ordinance No. 7988, as amended, were not of the
same kind or character; therefore, there was no double taxation. The RTC, though,
in an Order[10]dated 16 November 2006, granted the Motion for Reconsideration of
respondent, decreed the cancellation and withdrawal of the assessment against the
latter, and barred petitioners from further imposing/assessing local business taxes
against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax
Ordinance No. 7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision
of the RTC was in conformity with the ruling of this Court in the Coca-Cola case, in
which Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were declared null and
void. The Motion for Reconsideration of petitioners was denied by the RTC in an
Order[11] dated 4 April 2007. Petitioners received a copy of the 4 April 2007 Order
of the RTC, denying their Motion for Reconsideration of the 16 November
2006 Order of the same court, on 20 April 2007.
On 4 May 2007, petitioners filed with the CTA a Motion for Extension of
Time to File Petition for Review, praying for a 15-day extension or until 20 May
2007 within which to file their Petition. The Motion for Extension of petitioners was
docketed as C.T.A. AC No. 31, raffled to the CTA First Division.
Again, on 18 May 2007, petitioners filed, through registered mail, a Second
Motion for Extension of Time to File a Petition for Review, praying for another 10day extension, or until 30 May 2007, within which to file their Petition.
On 24 May 2007, however, the CTA First Division already issued a
Resolution dismissing C.T.A. AC No. 31 for failure of petitioners to timely file their
Petition for Review on 20 May 2007.
Unaware of the 24 May 2007 Resolution of the CTA First Division,
petitioners filed their Petition for Review therewith on 30 May 2007 via registered
mail. On 8 June 2007, the CTA First Division issued another Resolution, reiterating
the dismissal of the Petition for Review of petitioners.
Petitioners moved for the reconsideration of the foregoing Resolutions
dated 24 May 2007 and 8 June 2007, but their motion was denied by the CTA
First Division in a Resolution dated 26 July 2007. The CTA First Division reasoned
that the Petition for Review of petitioners was not only filed out of time -- it also
failed to comply with the provisions of Section 4, Rule 5; and Sections 2 and 3, Rule
6, of the Revised Rules of the CTA.

Consequently, respondent filed with the Regional Trial Court (RTC)

of Manila, Branch 47, an action for the cancellation of the assessment against
respondent for business taxes, which was docketed as Civil Case No. 03-107088.

Petitioners thereafter filed a Petition for Review before the CTA en banc,
docketed as C.T.A. EB No. 307, arguing that the CTA First Division erred in
dismissing their Petition for Review in C.T.A. AC No. 31 for being filed out of time,
without considering the merits of their Petition.

On 14 July 2006, the RTC rendered a Decision[9] dismissing Civil Case No.
03-107088. The RTC ruled that the business taxes imposed upon the respondent

The CTA en banc rendered its Decision on 18 January 2008, dismissing the
Petition for Review of petitioners and affirming the Resolutions dated 24 May

2007, 8 June 2007, and 26 July 2007 of the CTA First Division. The CTA en
banc similarly denied the Motion for Reconsideration of petitioners in a Resolution
dated 18 February 2008.
Hence, the present Petition, where petitioners raise the following issues:
I.

II.

WHETHER
OR
NOT
PETITIONERS
SUBSTANTIALLY
COMPLIED
WITH
THE
REGLEMENTARY PERIOD TO TIMELY APPEAL
THE CASE FOR REVIEW BEFORE THE [CTA
DIVISION].
WHETHER OR NOT THE RULING OF THIS
COURT IN THE EARLIER [COCA-COLA CASE] IS
DOCTRINAL AND CONTROLLING IN THE
INSTANT CASE.

III.

WHETHER OR NOT PETITIONER CITY

OF MANILA CAN STILL ASSESS TAXES UNDER
[SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO.
7794, AS AMENDED].

IV.

WHETHER OR NOT THE ENFORCEMENT

OF [SECTION] 21 OF THE [TAX ORDINANCE NO.
7794, AS AMENDED] CONSTITUTES DOUBLE
TAXATION.

Petitioners assert that Section 1, Rule 7[12] of the Revised Rules of the CTA
refers to certain provisions of the Rules of Court, such as Rule 42 of the latter, and
makes them applicable to the tax court. Petitioners then cannot be faulted in relying
on the provisions of Section 1, Rule 42[13] of the Rules of Court as regards the period
for filing a Petition for Review with the CTA in division. Section 1, Rule 42 of the
Rules of Court provides for a 15-day period, reckoned from receipt of the adverse
decision of the trial court, within which to file a Petition for Review with the Court
of Appeals. The same rule allows an additional 15-day period within which to file
such a Petition; and, only for the most compelling reasons, another extension period
not to exceed 15 days. Petitioners received on 20 April 2007 a copy of the 4 April
2007 Order of the RTC, denying their Motion for Reconsideration of the 16
November 2006 Order of the same court. On 4 May 2007, believing that they only
had 15 days to file a Petition for Review with the CTA in division, petitioners moved
for a 15-day extension, or until 20 May 2007, within which to file said
Petition. Prior to the lapse of their first extension period, or on 18 May 2007,
petitioners again moved for a 10-day extension, or until 30 May 2007, within which
to file their Petition for Review. Thus, when petitioners filed their Petition for

Review with the CTA First Division on 30 May 2007, the same was filed well within
the reglementary period for doing so.
Petitioners argue in the alternative that even assuming that Section 3(a),
Rule 8[14] of the Revised Rules of the CTA governs the period for filing a Petition for
Review with the CTA in division, still, their Petition for Review was filed within the
reglementary period. Petitioners call attention to the fact that prior to the lapse of the
30-day period for filing a Petition for Review under Section 3(a), Rule 8 of the
Revised Rules of the CTA, they had already moved for a 10-day extension, or until
30 May 2007, within which to file their Petition. Petitioners claim that there was
sufficient justification in equity for the grant of the 10-day extension they requested,
as the primordial consideration should be the substantive, and not the procedural,
aspect of the case. Moreover, Section 3(a), Rule 8 of the Revised Rules of the CTA,
is silent as to whether the 30-day period for filing a Petition for Review with the
CTA in division may be extended or not.
Petitioners also contend that the Coca-Cola case is not determinative of the
issues in the present case because the issue of nullity of Tax Ordinance No. 7988 and
Tax Ordinance No. 8011 is not the lis mota herein. The Coca-Cola case is not
doctrinal and cannot be considered as the law of the case.
Petitioners further insist that notwithstanding the declaration of nullity of
Tax Ordinance No. 7988 and Tax Ordinance No. 8011, Tax Ordinance No. 7794
remains a valid piece of local legislation. The nullity of Tax Ordinance No. 7988
and Tax Ordinance No. 8011 does not effectively bar petitioners from imposing local
business taxes upon respondent under Sections 14 and 21 of Tax Ordinance No.
7794, as they were read prior to their being amended by the foregoing null and void
tax ordinances.
Petitioners finally maintain that imposing upon respondent local business
taxes under both Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute
direct double taxation. Section 143 of the LGC gives municipal, as well as city
governments, the power to impose business taxes, to wit:
SECTION 143. Tax on Business. The municipality
may impose taxes on the following businesses:
(a)
On manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers, and compounders of
liquors, distilled spirits, and wines or manufacturers of any article
of commerce of whatever kind or nature, in accordance with the
following schedule:
xxxx

(b)
On wholesalers, distributors, or dealers in any
article of commerce of whatever kind or nature in accordance with
the following schedule:
xxxx
(c)
On exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or retailers of essential
commodities enumerated hereunder at a rate not exceeding onehalf (1/2) of the rates prescribed under subsections (a), (b) and (d)
of this Section:

Section 14 of Tax Ordinance No. 7794 imposes local business tax on

manufacturers, etc. of liquors, distilled spirits, wines, and any other article of
commerce, pursuant to Section 143(a) of the LGC. On the other hand, the local
business tax under Section 21 of Tax Ordinance No. 7794 is imposed upon persons
selling goods and services in the course of trade or business, and those importing
goods for business or otherwise, who, pursuant to Section 143(h) of the LGC, are
subject to excise tax, value-added tax (VAT), or percentage tax under the National
Internal Revenue Code (NIRC). Thus, there can be no double taxation when
respondent is being taxed under both Sections 14 and 21 of Tax Ordinance No. 7794,
for under the first, it is being taxed as a manufacturer; while under the second, it is
being taxed as a person selling goods in the course of trade or business subject to
excise, VAT, or percentage tax.

xxxx
Provided, however, That barangays shall have the
exclusive power to levy taxes, as provided under Section 152
hereof, on gross sales or receipts of the preceding calendar year of
Fifty thousand pesos (P50,000.00) or less, in the case of cities, and
Thirty thousand pesos (P30,000) or less, in the case of
municipalities.
(e)
On contractors and other independent contractors,
in accordance with the following schedule:
xxxx
(f)
On banks and other financial institutions, at a rate
not exceeding fifty percent (50%) of one percent (1%) on the gross
receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property and profit from
exchange or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or
article of commerce, at a rate not exceeding Fifty pesos (P50.00)
per peddler annually.
(h)
On any business, not otherwise specified in the
preceding paragraphs, which the sanggunian concerned may deem
proper to tax: Provided, That on any business subject to the excise,
value-added or percentage tax under the National Internal Revenue
Code, as amended, the rate of tax shall not exceed two percent
(2%) of gross sales or receipts of the preceding calendar year.

The Court first addresses the issue raised by petitioners concerning the
period within which to file with the CTA a Petition for Review from an adverse
decision or ruling of the RTC.
The period to appeal the decision or ruling of the RTC to the CTA via a
Petition for Review is specifically governed by Section 11 of Republic Act No.
9282,[15] and Section 3(a), Rule 8 of the Revised Rules of the CTA.
Section 11 of Republic Act No. 9282 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of
Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary
of Trade and Industry or the Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial Courts may
file an Appeal with the CTA within thirty (30) days after the
receipt of such decision or ruling or after the expiration of the
period fixed by law for action as referred to in Section 7(a)(2)
herein.
Appeal shall be made by filing a petition for review
under a procedure analogous to that provided for under Rule
42 of the 1997 Rules of Civil Procedure with the CTA
withinthirty (30) days from the receipt of the decision or ruling or
in the case of inaction as herein provided, from the expiration of
the period fixed by law to act thereon. x x x. (Emphasis supplied.)

Section 3(a), Rule 8 of the Revised Rules of the CTA states:

SEC 3. Who may appeal; period to file petition. (a) A
party adversely affected by a decision, ruling or the inaction of the

Commissioner of Internal Revenue on disputed assessments or

claims for refund of internal revenue taxes, or by a decision or
ruling of the Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry, the Secretary of Agriculture,
or a Regional Trial Court in the exercise of its original
jurisdiction may appeal to the Court by petition for review filed
within thirty days after receipt of a copy of such decision or
ruling, or expiration of the period fixed by law for the
Commissioner of Internal Revenue to act on the disputed
assessments. x x x. (Emphasis supplied.)

It is crystal clear from the afore-quoted provisions that to appeal an adverse

decision or ruling of the RTC to the CTA, the taxpayer must file a Petition for
Review with the CTA within 30 days from receipt of said adverse decision or ruling
of the RTC.
It is also true that the same provisions are silent as to whether such 30-day
period can be extended or not. However, Section 11 of Republic Act No. 9282 does
state that the Petition for Review shall be filed with the CTA following the
procedure analogous to Rule 42 of the Revised Rules of Civil
Procedure. Section 1, Rule 42[16] of the Revised Rules of Civil Procedure provides
that the Petition for Review of an adverse judgment or final order of the RTC must
be filed with the Court of Appeals within: (1) the original 15-day period from receipt
of the judgment or final order to be appealed; (2) an extended period of 15 days from
the lapse of the original period; and (3) only for the most compelling
reasons, another extended period not to exceed 15 days from the lapse of the first
extended period.
Following by analogy Section 1, Rule 42 of the Revised Rules of Civil
Procedure, the 30-day original period for filing a Petition for Review with the CTA
under Section 11 of Republic Act No. 9282, as implemented by Section 3(a), Rule 8
of the Revised Rules of the CTA, may be extended for a period of 15 days. No
further extension shall be allowed thereafter, except only for the most compelling
reasons, in which case the extended period shall not exceed 15 days.
Even the CTA en banc, in its Decision dated 18 January 2008, recognizes
that the 30-day period within which to file the Petition for Review with the CTA
may, indeed, be extended, thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil
Procedure allow an additional period of fifteen (15) days for the
movant to file a Petition for Review, upon Motion, and payment of
the full amount of the docket fees. A further extension of fifteen
(15) days may be granted on compelling reasons in accordance

with the provision of Section 1, Rule 42 of the 1997 Rules of Civil

Procedure x x x.[17]

In this case, the CTA First Division did indeed err in finding that petitioners
failed to file their Petition for Review in C.T.A. AC No. 31 within the reglementary
period.
From 20 April 2007, the date petitioners received a copy of the 4 April
2007 Order of the RTC, denying their Motion for Reconsideration of the 16
November 2006 Order, petitioners had 30 days, or until 20 May 2007, within which
to file their Petition for Review with the CTA. Hence, the Motion for Extension
filed by petitioners on 4 May 2007 grounded on their belief that the reglementary
period for filing their Petition for Review with the CTA was to expire on 5 May
2007, thus, compelling them to seek an extension of 15 days, or until 20 May 2007,
to file said Petition was unnecessary and superfluous. Even without said Motion
for Extension, petitioners could file their Petition for Review until 20 May 2007, as it
was still within the 30-day reglementary period provided for under Section 11 of
Republic Act No. 9282; and implemented by Section 3(a), Rule 8 of the Revised
Rules of the CTA.
The Motion for Extension filed by the petitioners on 18 May 2007, prior to
the lapse of the 30-day reglementary period on 20 May 2007, in which they prayed
for another extended period of 10 days, or until 30 May 2007, to file their Petition
for Review was, in reality, only the first Motion for Extension of petitioners. The
CTA First Division should have granted the same, as it was sanctioned by the rules
of procedure. In fact, petitioners were only praying for a 10-day extension, five days
less than the 15-day extended period allowed by the rules. Thus, when petitioners
filed via registered mail their Petition for Review in C.T.A. AC No. 31 on 30 May
2007, they were able to comply with the reglementary period for filing such a
petition.
Nevertheless, there were other reasons for which the CTA First Division
dismissed the Petition for Review of petitioners in C.T.A. AC No. 31; i.e., petitioners
failed to conform to Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised
Rules of the CTA. The Court sustains the CTA First Division in this regard.
Section 4, Rule 5 of the Revised Rules of the CTA requires that:
SEC. 4. Number of copies. The parties shall file eleven
signed copies of every paper for cases before the Court en
banc and six signed copies for cases before a Division of the
Court in addition to the signed original copy, except as
otherwise directed by the Court. Papers to be filed in more than
one case shall include one additional copy for each additional
case. (Emphasis supplied.)

petition shall be sufficient ground for the dismissalthereof.

(Emphasis supplied.)
Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:
SEC. 2. Petition for review; contents. The petition for
review shall contain allegations showing the jurisdiction of the
Court, a concise statement of the complete facts and a summary
statement of the issues involved in the case, as well as the reasons
relied upon for the review of the challenged decision. The petition
shall be verified and must contain a certification against forum
shopping as provided in Section 3, Rule 46 of the Rules of
Court. A clearly legible duplicate original or certified true copy
of the decision appealed from shall be attached to the
petition. (Emphasis supplied.)

The aforesaid provisions should be read in conjunction with Section 1, Rule

7 of the Revised Rules of the CTA, which provides:
SECTION 1. Applicability of the Rules of Court on
procedure in the Court of Appeals, exception. The procedure in
the Court en banc or in Divisions in original or in appealed cases
shall be the same as those in petitions for review and appeals
before the Court of Appeals pursuant to the applicable provisions
of Rules 42, 43, 44, and 46 of the Rules of Court, except as
otherwise provided for in these Rules. (Emphasis supplied.)

As found by the CTA First Division and affirmed by the CTA en banc, the
Petition for Review filed by petitioners via registered mail on 30 May 2007 consisted
only of one copy and all the attachments thereto, including the Decision dated 14
July 2006; and that the assailed Orders dated 16 November 2006 and 4 April 2007 of
the RTC in Civil Case No. 03-107088 were mere machine copies. Evidently,
petitioners did not comply at all with the requirements set forth under Section 4, Rule
5; or with Section 2, Rule 6 of the Revised Rules of the CTA. Although the Revised
Rules of the CTA do not provide for the consequence of such non-compliance,
Section 3, Rule 42 of the Rules of Court may be applied suppletorily, as allowed by
Section 1, Rule 7 of the Revised Rules of the CTA. Section 3, Rule 42 of the Rules
of Court reads:
SEC. 3. Effect of failure to comply with requirements.
The failure of the petitioner to comply with any of the foregoing
requirements regarding the payment of the docket and other lawful
fees, the deposit for costs, proof of service of the petition, and the
contents of and the documents which should accompany the

True, petitioners subsequently submitted certified copies of the Decision

dated 14 July 2006 and assailed Orders dated 16 November 2006 and 4 April 2007 of
the RTC in Civil Case No. 03-107088, but a closer examination of the stamp on said
documents reveals that they were prepared and certified only on 14 August 2007,
about two months and a half after the filing of the Petition for Review by petitioners.
Petitioners never offered an explanation for their non-compliance with
Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the
CTA. Hence, although the Court had, in previous instances, relaxed the application
of rules of procedure, it cannot do so in this case for lack of any justification.
Even assuming arguendo that the Petition for Review of petitioners in
C.T.A. AC No. 31 should have been given due course by the CTA First Division, it
is still dismissible for lack of merit.
Contrary to the assertions of petitioners, the Coca-Cola case is indeed
applicable to the instant case. The pivotal issue raised therein was whether Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void, which this
Court resolved in the affirmative. Tax Ordinance No. 7988 was declared by the
Secretary of the Department of Justice (DOJ) as null and void and without legal
effect due to the failure of herein petitioner City of Manila to satisfy the requirement
under the law that said ordinance be published for three consecutive
days. Petitioner City of Manila never appealed said declaration of the DOJ Secretary;
thus, it attained finality after the lapse of the period for appeal of the same. The
passage of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988, did not
cure the defects of the latter, which, in any way, did not legally exist.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 are null and void and without any legal effect. Therefore,
respondent cannot be taxed and assessed under the amendatory laws--Tax Ordinance
No. 7988 and Tax Ordinance No. 8011.
Petitioners insist that even with the declaration of nullity of Tax Ordinance
No. 7988 and Tax Ordinance No. 8011, respondent could still be made liable for
local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as
they were originally read, without the amendment by the null and void tax
ordinances.
Emphasis must be given to the fact that prior to the passage of Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 by petitioner City of Manila,
petitioners subjected and assessed respondent only for the local business tax under
Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This

was due to the clear and unambiguous proviso in Section 21 of Tax Ordinance No.
7794, which stated that all registered business in the City of Manila that are already
paying the aforementioned tax shall be exempted from payment thereof. The
aforementioned tax referred to in said proviso refers to local business tax. Stated
differently, Section 21 of Tax Ordinance No. 7794 exempts from the payment of the
local business tax imposed by said section, businesses that are already paying such
tax under other sections of the same tax ordinance. The said proviso, however, was
deleted from Section 21 of Tax Ordinance No. 7794 by Tax Ordinances No. 7988
and No. 8011. Following this deletion, petitioners began assessing respondent for
the local business tax under Section 21 of Tax Ordinance No. 7794, as amended.
The Court easily infers from the foregoing circumstances that petitioners
themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No.
8011, respondent was exempt from the local business tax under Section 21 of Tax
Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the
exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No.
7988 and Tax Ordinance No. 8011 before they assessed respondent for the local
business tax under said section. Yet, with the pronouncement by this Court in
the Coca-Cola case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were
null and void and without legal effect, then Section 21 of Tax Ordinance No. 7794,
as it has been previously worded, with its exempting proviso, is back in
effect. Accordingly, respondent should not have been subjected to the local business
tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of
2000, given its exemption therefrom since it was already paying the local business
tax under Section 14 of the same ordinance.
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax
Ordinance No. 7794, to their own detriment. Said exempting proviso was precisely
included in said section so as to avoid double taxation.
Double taxation means taxing the same property twice when it should be
taxed only once; that is, taxing the same person twice by the same jurisdiction for
the same thing. It is obnoxious when the taxpayer is taxed twice, when it should be
but once. Otherwise described as direct duplicate taxation, the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same taxing period; and the
taxes must be of the same kind or character.[18]
Using the aforementioned test, the Court finds that there is indeed double
taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax
Ordinance No. 7794, since these are being imposed: (1) on the same subject matter
the privilege of doing business in the City of Manila; (2) for the same purpose to
make persons conducting business within the City of Manila contribute to city
revenues; (3) by the same taxing authority petitioner City of Manila; (4) within the
same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5)

for the same taxing periods per calendar year; and (6) of the same kind or character
a local business tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections
14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of
the LGC, the very source of the power of municipalities and cities to impose a local
business tax, and to which any local business tax imposed
by petitioner City of Manila must conform. It is apparent from a perusal thereof that
when a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of
commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no
longer subject the same manufacturers, etc. to a business tax under Section 143(h) of
the same Code. Section 143(h) may be imposed only on businesses that are subject
to excise tax, VAT, or percentage tax under the NIRC, and that are not otherwise
specified in preceding paragraphs. In the same way, businesses such as
respondents, already subject to a local business tax under Section 14 of Tax
Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer
be made liable for local business tax under Section 21 of the same Tax Ordinance
[which is based on Section 143(h) of the LGC].
WHEREFORE, premises considered, the instant Petition for Review
on Certiorari is hereby DENIED. No costs.
SO ORDERED.

G.R. No. L-26521

December 28, 1968
EUSEBIO
VILLANUEVA,
ET
AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
Pelaez,
Jalandoni
and
Jamir
for
plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First
Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An
Ordinance Imposing Municipal License Tax On Persons Engaged In The Business
Of Operating Tenement Houses," and ordering the City to refund to the plaintiffsappellees the sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86,
imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00
annually; (2) tenement house, partly or wholly engaged in or dedicated to business in
the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement
house, partly or wholly engaged in business in any other streets, P12.00 per
apartment. The validity and constitutionality of this ordinance were challenged by
the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four
tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios
Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the
ordinance ultra vires, "it not appearing that the power to tax owners of tenement
houses is one among those clearly and expressly granted to the City of Iloilo by its
Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that
with the passage of Republic Act 2264, otherwise known as the Local Autonomy
Act, it had acquired the authority or power to enact an ordinance similar to that
previously declared by this Court as ultra vires, enacted Ordinance 11, series of
1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS
ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the
provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of
Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement houses in
accordance with the schedule of payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall mean any
building or dwelling for renting space divided into separate apartments or
accessorias.
Section 3. The municipal license tax provided in Section 1 hereof shall be as
follows:
I. Tenement houses:
(a) Apartment house made of strong
materials

P20.00 per door p.a.

(b) Apartment house made of mixed

materials

P10.00 per door p.a.

II Rooming house of strong materials

P10.00 per door p.a.

Rooming house of mixed materials

P5.00 per door p.a.

III. Tenement house partly or wholly

engaged in or dedicated to business in
the following streets: J.M. Basa,
Iznart,
Aldeguer,
Guanco
and
Ledesma from Plazoleto Gay to
Valeria. St.

P30.00 per door p.a.

IV. Tenement house partly or wholly

engaged in or dedicated to business in
any other street

P12.00 per door p.a.

V. Tenement houses at the streets

surrounding the super market as soon
as said place is declared commercial

P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are

hereby amended.
Section 5. Any person found violating this ordinance shall be punished
with a fine note exceeding Two Hundred Pesos (P200.00) or an
imprisonment of not more than six (6) months or both at the discretion of
the Court.
Section 6 This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are
owners of five tenement houses, aggregately containing 43 apartments, while the
other appellees and the same Remedios S. Villanueva are owners of ten apartments.
Each of the appellees' apartments has a door leading to a street and is rented by either
a Filipino or Chinese merchant. The first floor is utilized as a store, while the second
floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns,
likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and
Quezon City, which cities, according to him, do not impose tenement or apartment
taxes.
By virtue of the ordinance in question, the appellant City collected from spouses
Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum
of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and
Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio
Villanueva has likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and
an amended complaint, respectively, against the City of Iloilo, in the aforementioned

court, praying that Ordinance 11, series of 1960, be declared "invalid for being
beyond the powers of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to uniformity of taxation and for
depriving said plaintiffs of the equal protection clause of the Constitution," and that
the City be ordered to refund the amounts collected from them under the said
ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance
illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose
apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it
penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not
only double taxation, but treble at that and (d) it violates the rule of uniformity of
taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it
imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose
tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it
carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of
taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder
quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licences at rates fixed by the
municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to
collect fees and charges for services rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for services
rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise
to levy for public purposes, just and uniform taxes, licenses or
fees; Provided, That municipalities and municipal districts shall, in no case,
impose any percentage tax on sales or other taxes in any form based thereon
nor impose taxes on articles subject to specific tax, except gasoline, under
the provisions of the National Internal Revenue Code;Provided, however,
That no city, municipality or municipal district may levy or impose any of
the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication
of any newspaper, magazine, review or bulletin appearing at regular

intervals and having fixed prices for for subscription and sale, and which is
not published primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public
utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other
acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the
national government, tonnage, and all other kinds of customs fees, charges
and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying
franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance
directly with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage,
unless the ordinance shall provide otherwise: Provided, however, That the
Secretary of Finance shall have authority to suspend the effectivity of any
ordinance within one hundred and twenty days after its passage, if, in his
opinion, the tax or fee therein levied or imposed is unjust, excessive,
oppressive, or confiscatory, and when the said Secretary exercises this
authority the effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and
the municipal council or municipal district council in the case of
municipalities or municipal districts may appeal the decision of the
Secretary of Finance to the court during the pendency of which case the tax
levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local
governments broad taxing authority which extends to almost "everything, excepting
those which are mentioned therein," provided that the tax so levied is "for public
purposes, just and uniform," and does not transgress any constitutional provision or
is not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority
of a city or municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general rule, pursuant to the
rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus
non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions
provided for in section 2 of the Local Autonomy Act? For this purpose, it is
necessary to determine the true nature of the tax. The appellees strongly maintain
that it is a "property tax" or "real estate tax," 3 and not a "tax on persons engaged in
any occupation or business or exercising privileges," or a license tax, or a privilege
tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a
"municipal license tax on persons engaged in the business of operating tenement
houses," while section 1 thereof states that a "municipal license tax is

hereby imposed on tenement houses." It is the phraseology of section 1 on which the

appellees base their contention that the tax involved is a real estate tax which,
according to them, makes the ordinance ultra vires as it imposes a levy "in excess of
the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter,
Com. Act 158."5.
It is our view, contrary to the appellees' contention, that the tax in question is not a
real estate tax. Obviously, the appellees confuse the tax with the real estate tax
within the meaning of the Assessment Law,6 which, although not applicable to the
City of Iloilo, has counterpart provisions in the Iloilo City Charter. 7 A real estate tax
is a direct tax on the ownership of lands and buildings or other improvements
thereon, not specially exempted,8 and is payable regardless of whether the property is
used or not, although the value may vary in accordance with such factor. 9 The tax is
usually single or indivisible, although the land and building or improvements erected
thereon are assessed separately, except when the land and building or improvements
belong to separate owners.10 It is a fixed proportion11 of the assessed value of the
property taxed, and requires, therefore, the intervention of assessors.12 It is collected
or payable at appointed times,13 and it constitutes a superior lien on and is
enforceable against the property14 subject to such taxation, and not by imprisonment
of the owner.
The tax imposed by the ordinance in question does not possess the aforestated
attributes. It is not a tax on the land on which the tenement houses are erected,
although both land and tenement houses may belong to the same owner. The tax is
not a fixed proportion of the assessed value of the tenement houses, and does not
require the intervention of assessors or appraisers. It is not payable at a designated
time or date, and is not enforceable against the tenement houses either by sale or
distraint. Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction
thereof, and the court looks less to its words and more to the context, subject-matter,
consequence and effect. Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in the letter, although
not within the spirit, is not within the ordinance." 15 It is within neither the letter nor
the spirit of the ordinance that an additional real estate tax is being imposed,
otherwise the subject-matter would have been not merely tenement houses. On the
contrary, it is plain from the context of the ordinance that the intention is to impose a
license tax on the operation of tenement houses, which is a form of business or
calling. The ordinance, in both its title and body, particularly sections 1 and 3
thereof, designates the tax imposed as a "municipal license tax" which, by itself,
means an "imposition or exaction on the right to use or dispose of property, to pursue
a business, occupation, or calling, or to exercise a privilege." 16.
"The character of a tax is not to be fixed by any isolated words that may
beemployed in the statute creating it, but such words must be taken in the
connection in which they are used and the true character is to be deduced
from the nature and essence of the subject." 17 The subject-matter of the
ordinance is tenement houses whose nature and essence are expressly set
forth in section 2 which defines a tenement house as "any building or
dwelling for renting space divided into separate apartments or accessorias."

The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L12695, March 23, 1959, adopted the definition of a tenement house18 as
"any house or building, or portion thereof, which is rented, leased, or hired
out to be occupied, or is occupied, as the home or residence of three
families or more living independently of each other and doing their cooking
in the premises or by more than two families upon any floor, so living and
cooking, but having a common right in the halls, stairways, yards, waterclosets, or privies, or some of them." Tenement houses, being necessarily
offered for rent or lease by their very nature and essence, therefore
constitute a distinct form of business or calling, similar to the hotel or motel
business, or the operation of lodging houses or boarding houses. This is
precisely one of the reasons why this Court, in the said case of City of Iloilo
vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra
vires, because, although the municipal board of Iloilo City is empowered,
under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and
regulate hotels, restaurants, refreshment parlors, cafes, lodging houses,
boarding houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs," tenement houses, which constitute a different business
enterprise,19 are not mentioned in the aforestated section of the City Charter
of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is
one among those clearly and expressly granted to the City of Iloilo by its
Charter, the exercise of such power cannot be assumed and hence the
ordinance in question is ultra vires insofar as it taxes a tenement house such
as those belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a tenement
tax or an apartment tax. Called by either name, it is not among the exceptions listed
in section 2 of the Local Autonomy Act. On the other hand, the imposition by the
ordinance of a license tax on persons engaged in the business of operating tenement
houses finds authority in section 2 of the Local Autonomy Act which provides that
chartered cities have the authority to impose municipal license taxes or fees upon
persons engaged in any occupation or business, or exercising privileges within their
respective territories, and "otherwise to levy for public purposes, just and uniform
taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation
but treble at that," because "buildings pay real estate taxes and also income taxes as
provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides
the tenement tax under the said ordinance." Obviously, what the trial court refers to
as "income taxes" are the fixed taxes on business and occupation provided for in
section 182, Title V, of the National Internal Revenue Code, by virtue of which
persons engaged in "leasing or renting property, whether on their account as
principals or as owners of rental property or properties," are considered "real estate
dealers" and are taxed according to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions
of the National Internal Revenue Code as real estate dealers, and still taxable under
the ordinance in question, the argument against double taxation may not be invoked.

The same tax may be imposed by the national government as well as by the local
government. There is nothing inherently obnoxious in the exaction of license fees or
taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying
the real estate taxes and the tenement tax imposed by the ordinance in question, is
also devoid of merit. It is a well-settled rule that a license tax may be levied upon a
business or occupation although the land or property used in connection therewith is
subject to property tax. The State may collect an ad valorem tax on property used in
a calling, and at the same time impose a license tax on that calling, the imposition of
the latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited
sense the same property must be taxed twice when it should be taxed but
once; both taxes must be imposed on the same property or subject-matter,
for the same purpose, by the same State, Government, or taxing authority,
within the same jurisdiction or taxing district, during the same taxing
period, and they must be the same kind or character of tax." 23 It has been
shown that a real estate tax and the tenement tax imposed by the ordinance,
although imposed by the sametaxing authority, are not of the same kind or
character.
At all events, there is no constitutional prohibition against double taxation in the
Philippines.24 It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that taxes
must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the
ordinance is not only oppressive because it "carries a penal clause of a fine of
P200.00 or imprisonment of 6 months or both, if the owner or owners of the
tenement buildings divided into apartments do not pay the tenement or apartment tax
fixed in said ordinance," but also unconstitutional as it subjects the owners of
tenement houses to criminal prosecution for non-payment of an obligation which is
purely sum of money." The lower court apparently had in mind, when it made the
above ruling, the provision of the Constitution that "no person shall be imprisoned
for a debt or non-payment of a poll tax."26 It is elementary, however, that "a tax is
not a debt in the sense of an obligation incurred by contract, express or implied, and
therefore is not within the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a statute or ordinance which
punishes the non-payment thereof by fine or imprisonment is not, in conflict with
that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a
fixed amount upon all persons, or upon all persons of a certain class, resident within
a specified territory, without regard to their property or the occupations in which
they may be engaged.28 Therefore, the tax in question is not oppressive in the manner
the lower court puts it. On the other hand, the charter of Iloilo City29 empowers its
municipal board to "fix penalties for violations of ordinances, which shall not exceed
a fine of two hundred pesos or six months' imprisonment, or both such fine and
imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra,
this Court overruled the pronouncement of the lower court declaring illegal and void

an ordinance imposing an occupation tax on persons exercising various professions

in the City of Manilabecause it imposed a penalty of fine and imprisonment for its
violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of
taxation.
"... because while the owners of the other buildings only pay real estate tax
and income taxes the ordinance imposes aside from these two taxes an
apartment or tenement tax. It should be noted that in the assessment of real
estate tax all parts of the building or buildings are included so that the
corresponding real estate tax could be properly imposed. If aside from the
real estate tax the owner or owners of the tenement buildings should pay
apartment taxes as required in the ordinance then it will violate the rule of
uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is
"lack of uniformity" and "relative inequality," because "only the taxpayers of the
City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of
other cities, where their councils do not enact a similar tax ordinance, are permitted
to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court
has already ruled that tenement houses constitute a distinct class of property. It has
likewise ruled that "taxes are uniform and equal when imposed upon all property of
the same class or character within the taxing authority."31 The fact, therefore, that the
owners of other classes of buildings in the City of Iloilo do not pay the taxes
imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated
by the fact that tenement taxesare not imposed in other cities, for the same rule does
not require that taxes for the same purpose should be imposed in different territorial
subdivisions at the same time.32So long as the burden of the tax falls equally and
impartially on all owners or operators of tenement houses similarly classified or
situated, equality and uniformity of taxation is accomplished. 33 The plaintiffsappellees, as owners of tenement houses in the City of Iloilo, have not shown that the
tax burden is not equally or uniformly distributed among them, to overthrow the
presumption that tax statutes are intended to operate uniformly and equally. 34.
5. The last important issue posed by the appellees is that since the ordinance in the
case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was
declared by this Court in L-12695, supra, as ultra vires, the decision in that case
should be accorded the effect of res judicata in the present case or should constitute
estoppel by judgment. To dispose of this contention, it suffices to say that there is no
identity of subject-matter in that case andthis case because the subject-matter in L12695 was an ordinance which dealt not only with tenement houses but also
warehouses, and the said ordinance was enacted pursuant to the provisions of the
City charter, while the ordinance in the case at bar was enacted pursuant to the
provisions of the Local Autonomy Act. There is likewise no identity of cause of
action in the two cases because the main issue in L-12695 was whether the City of
Iloilo had the power under its charter to impose the tax levied by Ordinance 11,
series of 1960, under the Local Autonomy Act which took effect on June 19, 1959,

and therefore was not available for consideration in the decision in L-12695 which
was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of
the Local Autonomy Act, local governments may now tax any taxable subject-matter
or object not included in the enumeration of matters removed from the taxing power
of local governments.Prior to the enactment of the Local Autonomy Act the taxes
that could be legally levied by local governments were only those specifically
authorized by law, and their power to tax was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in
questionbeing valid, the complaint is hereby dismissed. No pronouncement as to
costs..