G.R. No.

180006

September 28, 2011

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
FORTUNE TOBACCO CORPORATION, Respondent.
DECISION

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

BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule 45 of
the Rules of Court by petitioner Commissioner of Internal Revenue (CIR),
assailing the decision dated July 12, 20071 and the resolution dated
October 4, 2007,2 both issued by the Court of Tax Appeals (CTA) en banc
in CTA E.B. No. 228.
BACKGROUND FACTS
Under our tax laws, manufacturers of cigarettes are subject to pay excise
taxes on their products. Prior to January 1, 1997, the excises taxes on
these products were in the form of ad valorem taxes, pursuant to Section
142 of the 1977 National Internal Revenue Code (1977 Tax Code).
Beginning January 1, 1997, Republic Act No. (RA) 8240 3 took effect and a
shift from ad valorem to specific taxes was made. Section 142(c) of the
1977 Tax Code, as amended by RA 8240, reads in part:
Sec. 142. Cigars and cigarettes. x x x.
(c) Cigarettes packed by machine. There shall be levied, assessed and
collected on cigarettes packed by machine a tax at the rates prescribed
below:
(1) If the net retail price (excluding the excise tax and the
value-added tax) is above Ten pesos (P10.00) per pack,
the tax shall be Twelve pesos (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the
value-added tax) exceeds Six pesos and fifty centavos
(P6.50) but does not exceed Ten pesos (P10.00) per pack,
the tax shall be Eight pesos (P8.00) per pack;
(3) If the net retail price (excluding the excise tax and the
value-added tax) is Five pesos (P5.00) but does not

The specific tax from any brand of cigarettes within the next three (3)
years of effectivity of this Act shall not be lower than the tax [which] is
due from each brand on October 1, 1996: Provided, however, That in cases
where the specific tax rates imposed in paragraphs (1), (2), (3) and (4)
hereinabove will result in an increase in excise tax of more than seventy
percent (70%), for a brand of cigarette, the increase shall take effect in
two tranches: fifty percent (50%) of the increase shall be effective in 1997
and one hundred percent (100%) of the increase shall be effective in
1998.
xxxx
The rates of specific tax on cigars and cigarettes under paragraphs (1),
(2), (3) and (4) hereof, shall be increased by twelve percent (12%) on
January 1, 2000. [emphases ours]
To implement RA 8240 and pursuant to its rule-making powers, the CIR
issued Revenue Regulation No. (RR) 1-97 whose Section 3(c) and (d)
echoed the above-quoted portion of Section 142 of the 1977 Tax Code, as
amended.4
The 1977 Tax Code was later repealed by RA 8424, or the National Internal
Revenue Code of 1997 (1997 Tax Code), and Section 142, as amended by
RA 8240, was renumbered as Section 145.
This time, to implement the 12% increase in specific taxes mandated
under Section 145 of the 1997 Tax Code and again pursuant to its rulemaking powers, the CIR issued RR 17-99, which reads:
Section 1. New Rates of Specific Tax. The specific tax rates imposed under
the following sections are hereby increased by twelve percent (12%) and
the new rates to be levied, assessed, and collected are as follows:

Section

145

Description of
Articles

Present Specific
Tax Rates (Prior
to January 1,
2000)

New Specific Tax

Rates (Effective
January 1, 2000)

fermented liquors shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000. [emphasis ours]
THE FACTS OF THE CASE

CIGARS and
CIGARETTES

Pursuant to these laws, respondent Fortune Tobacco Corporation (Fortune

Tobacco) paid in advance excise taxes for the year 2003 in the amount of
P11.15 billion, and for the period covering January 1 to May 31, 2004 in
the amount of P4.90 billion.5

B) Cigarettes
Packed by Machine

In June 2004, Fortune Tobacco filed an administrative claim for tax refund
with the CIR for erroneously and/or illegally collected taxes in the amount
of P491 million.6 Without waiting for the CIRs action on its claim, Fortune
Tobacco filed with the CTA a judicial claim for tax refund.7
P12.00/pack

P13.44/pack

P8.00/pack

P8.96/pack

(1) Net Retail Price

(excluding VAT &
Excise) exceeds
P10.00 per pack

(2) Net Retail Price

(excluding VAT &
Excise) is P6.51 up
to P10.00 per pack
P5.00/pack

P5.60/pack

(3) Net Retail Price

(excluding VAT &
Excise) is P5.00 to
P6.50 per pack
P1.00/pack

P1.12/pack

(4) Net Retail Price

(excluding VAT &
Excise) is below
P5.00 per pack

Provided, however, that the new specific tax rate for any existing brand of
cigars [and] cigarettes packed by machine, distilled spirits, wines and

In its decision dated May 26, 2006, the CTA First Division ruled in favor of
Fortune Tobacco and granted its claim for refund.8 The CTA First Divisions
ruling was upheld on appeal by the CTA en banc in its decision dated July
12, 2007.9 The CIRs motion for reconsideration of the CTA en bancs
decision was denied in a resolution dated October 4, 2007. 10
THE ISSUE
Fortune Tobaccos claim for refund of overpaid excise taxes is based
primarily on what it considers as an "unauthorized administrative
legislation" on the part of the CIR. Specifically, it assails the proviso in
Section 1 of RR 17-99 that requires the payment of the "excise tax
actually being paid prior to January 1, 2000" if this amount is higher than
the new specific tax rate, i.e., the rates of specific taxes imposed in 1997
for each category of cigarette, plus 12%. It claimed that by including the
proviso, the CIR went beyond the language of the law and usurped
Congress power. As mentioned, the CTA sided with Fortune Tobacco and
allowed the latter to claim the refund.
The CIR disagrees with the CTAs ruling and assails it before this Court
through the present petition for review on certiorari. The CIR posits that
the inclusion of the proviso in Section 1 of RR 17-99 was made to carry
into effect the laws intent and is well within the scope of his delegated
legislative authority.11 He claims that the CTAs strict interpretation of the
law ignored Congress intent "to increase the collection of excise taxes by
increasing specific tax rates on sin products." 12 He cites portions of the
Senates deliberation on House Bill No. 7198 (the precursor of RA 8240)
that conveyed the legislative intent to increase the excise taxes being
paid.13
The CIR points out that Section 145(c) of the 1997 Tax Code categorically
declares that "[t]he excise tax from any brand of cigarettes within the

[three-year transition period from January 1, 1997 to December 31, 1999]

shall not be lower than the tax, which is due from each brand on October
1, 1996." He posits that there is no plausible reason why the new specific
tax rates due beginning January 1, 2000 should not be subject to the
same rule as those due during the transition period. To the CIR, the
adoption of the "higher tax rule" during the transition period unmistakably
shows the intent of Congress not to lessen the excise tax collection. Thus,
the CTA should have construed the ambiguity or omission in Section
145(c) in a manner that would uphold the laws policy and intent.
Fortune Tobacco argues otherwise. To it, Section 145(c) of the 1997 Tax
Code read and interpreted as it is written; it imposes a 12% increase on
the rates of excise taxes provided under sub-paragraphs (1), (2), (3), and
(4) only; it does not say that the tax due during the transition period shall
continue to be collected if the amount is higher than the new specific tax
rates. It contends that the "higher tax rule" applies only to the three-year
transition period to offset the burden caused by the shift from ad valorem
to specific taxes.
THE COURTS RULING
Except for the tax period and the amounts involved,14 the case at bar
presents the same issue that the Court already resolved in 2008 in CIR v.
Fortune Tobacco Corporation.15 In the 2008 Fortune Tobacco case, the
Court upheld the tax refund claims of Fortune Tobacco after finding invalid
the proviso in Section 1 of RR 17-99. We ruled:
Section 145 states that during the transition period, i.e., within the next
three (3) years from the effectivity of the Tax Code, the excise tax from
any brand of cigarettes shall not be lower than the tax due from each
brand on 1 October 1996. This qualification, however, is conspicuously
absent as regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1 January 2000.
Clearly and unmistakably, Section 145 mandates a new rate of excise tax
for cigarettes packed by machine due to the 12% increase effective on 1
January 2000 without regard to whether the revenue collection starting
from this period may turn out to be lower than that collected prior to this
date.
By adding the qualification that the tax due after the 12% increase
becomes effective shall not be lower than the tax actually paid prior to 1
January 2000, Revenue Regulation No. 17-99 effectively imposes a tax
which is the higher amount between the ad valorem tax being paid at the
end of the three (3)-year transition period and the specific tax under
paragraph C, sub-paragraph (1)-(4), as increased by 12% a situation not
supported by the plain wording of Section 145 of the Tax Code. 16

Following the principle of stare decisis, 17 our ruling in the present case
should no longer come as a surprise. The proviso in Section 1 of RR 17-99
clearly went beyond the terms of the law it was supposed to implement,
and therefore entitles Fortune Tobacco to claim a refund of the overpaid
excise taxes collected pursuant to this provision.
The amount involved in the present case and the CIRs firm insistence of
its arguments nonetheless compel us to take a second look at the issue,
but our findings ultimately lead us to the same conclusion. Indeed, we find
more reasons to disagree with the CIRs construction of the law than those
stated in our 2008 Fortune Tobacco ruling, which was largely based on the
application of the rules of statutory construction.
Raising government revenue is not the sole objective of RA 8240
That RA 8240 (incorporated as Section 145 of the 1997 Tax Code) was
enacted to raise government revenues is a given fact, but this is not the
sole and only objective of the law.18 Congressional deliberations show that
the shift from ad valorem to specific taxes introduced by the law was also
intended to curb the corruption that became endemic to the imposition of
ad valorem taxes.19 Since ad valorem taxes were based on the value of the
goods, the prices of the goods were often manipulated to yield lesser
taxes. The imposition of specific taxes, which are based on the volume of
goods produced, would prevent price manipulation and also cure the
unequal tax treatment created by the skewed valuation of similar goods.
Rule of uniformity of taxation violated by the proviso in Section 1, RR 1799
The Constitution requires that taxation should be uniform and equitable. 20
Uniformity in taxation requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and liabilities. 21
This requirement, however, is unwittingly violated when the proviso in
Section 1 of RR 17-99 is applied in certain cases. To illustrate this point,
we consider three brands of cigarettes, all classified as lower-priced
cigarettes under Section 145(c)(4) of the 1997 Tax Code, since their net
retail price is below P5.00 per pack:

Brand22

Net
Retail
Price
per
pack

(A)
Ad
Valorem
Tax Due
prior to
Jan 1997

(B)
Specific
Tax under
Section
145(C)(4)

(C)
Specific
Tax Due
Jan 1997
to Dec
1999

(D)
New
Specific Tax
imposing
12%
increase by
Jan 2000

(E)
New
Specific
Tax Due
by Jan
2000 per
RR 17-99

Camel KS

4.71

5.50

1.00/pack

5.50

1.12/pack

5.50

Champion
M 100

4.56

3.30

1.00/pack

3.30

1.12/pack

3.30

Union
American
Blend

4.64

1.09

1.00/pack

1.09

1.12/pack

1.12

Although the brands all belong to the same category, the proviso in
Section 1, RR 17-99 authorized the imposition of different (and grossly
disproportionate) tax rates (see column [D]). It effectively extended the
qualification stated in the third paragraph of Section 145(c) of the 1997
Tax Code that was supposed to apply only during the transition period:
The excise tax from any brand of cigarettes within the next three (3) years
from the effectivity of R.A. No. 8240 shall not be lower than the tax, which
is due from each brand on October 1, 1996[.]
In the process, the CIR also perpetuated the unequal tax treatment of
similar goods that was supposed to be cured by the shift from ad valorem
to specific taxes.
The omission in the law in fact reveals the legislative intent not to adopt
the "higher tax rule"
The CIR claims that the proviso in Section 1 of RR 17-99 was patterned
after the third paragraph of Section 145(c) of the 1997 Tax Code. Since
the laws intent was to increase revenue, it found no reason not to apply
the same "higher tax rule" to excise taxes due after the transition period
despite the absence of a similar text in the wording of Section 145(c).
What the CIR misses in his argument is that he applied the rule not only
for cigarettes, but also for cigars, distilled spirits, wines and fermented
liquors:

Evidently, the 1997 Tax Codes provisions on excise taxes have omitted the
adoption of certain tax measures. To our mind, these omissions are telling
indications of the intent of Congress not to adopt the omitted tax
measures; they are not simply unintended lapses in the laws wording
that, as the CIR claims, are nevertheless covered by the spirit of the law.
Had the intention of Congress been solely to increase revenue collection, a
provision similar to the third paragraph of Section 145(c) would have been
incorporated in Sections 141 and 142 of the 1997 Tax Code. This, however,
is not the case.
We note that Congress was not unaware that the "higher tax rule" is a
proviso that should ideally apply to the increase after the transition period
(as the CIR embodied in the proviso in Section 1 of RR 17-99). During the
deliberations for the law amending Section 145 of the 1997 Tax Code (RA
9334), Rep. Jesli Lapuz adverted to the "higher tax rule" after December
31, 1999 when he stated:
This bill serves as a catch-up measure as government attempts to collect
additional revenues due it since 2001. Modifications are necessary indeed
to capture the loss proceeds and prevent further erosion in revenue base.
x x x. As it is, it plugs a major loophole in the ambiguity of the law as
evidenced by recent disputes resulting in the government being ordered by
the courts to refund taxpayers.1wphi1 This bill clarifies that the excise
tax due on the products shall not be lower than the tax due as of the date
immediately prior to the effectivity of the act or the excise tax due as of
December 31, 1999.26
This remark notwithstanding, the final version of the bill that became RA
9334 contained no provision similar to the proviso in Section 1 of RR 17-99
that imposed the tax due as of December 31, 1999 if this tax is higher
than the new specific tax rates. Thus, it appears that despite its awareness
of the need to protect the increase of excise taxes to increase government
revenue, Congress ultimately decided against adopting the "higher tax
rule.

Provided, however, that the new specific tax rate for any existing brand of
cigars [and] cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000.

WHEREFORE, in view of the foregoing, the petition is DENIED. The decision

dated July 12, 2007 and the resolution dated October 4, 2007 of the Court
of Tax Appeals in CTA E.B. No. 228 are AFFIRMED. No pronouncement as
to costs.

When the pertinent provisions of the 1997 Tax Code imposing excise taxes
on these products are read, however, there is nothing similar to the third
paragraph of Section 145(c) that can be found in the provisions imposing
excise taxes on distilled spirits (Section 14123 ) and wines (Section 14224 ).
In fact, the rule will also not apply to cigars as these products fall under
Section 145(a).25

SO ORDERED.

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS
and COURT OF APPEALS, respondent.

Subsequently, however, PBCom suffered losses so that when it filed its

Annual Income Tax Returns for the year-ended December 31, 1986, the
petitioner likewise reported a net loss of P14,129,602.00, and thus
declared no tax payable for the year.

QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals
dated September 22, 1993 affirming the Decision 2 and a 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.

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 PBCom's 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.

The Court of Tax Appeals earlier ruled as follows:

WHEREFORE, Petitioner's claim for refund/tax credits 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.

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 petitioner's claims for
refund and tax credit for 1985 and 1986, filed before the Court of Tax
Appeals, are as follows:
1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

Petitioner, Philippine Bank of Communications (PBCom), a commercial

banking corporation duly organized under Philippine laws, filed its

Tax Due NIL NIL

Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 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 petitioner's 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
CTA's 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 CTA's 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

retroactivity, 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 PBCom's 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 tax-crediting 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 petitioner's 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.
Sec. 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 he 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 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 rules 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 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 petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the
matter, we find that, contrary to the petitioner's 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.
Sec. 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 proceedings shall 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. (Emphasis 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. . . . 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. . . . 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.
It is likewise argued that the Commissioner of Internal Revenue,
after promulgating RMC No. 7-85, is estopped by the principle of
non-retroactively 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 corresponding petition fro 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 petitioner's 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
Art. 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 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
non-retroactivity 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 CTA's decision denying its claim for refund of
P234,077.69 (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 contovert 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.1wphi1.nt
SO ORDERED.

G.R. No. 149110

April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively,
finding petitioner National Power Corporation (NPC) liable to pay franchise
tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under
Commonwealth Act No. 120, as amended.4 It is tasked to undertake the
"development of hydroelectric generations of power and the production of
electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."5 Concomitant to its
mandated duty, petitioner has, among others, the power to construct,
operate and maintain power plants, auxiliary plants, power stations and
substations for the purpose of developing hydraulic power and supplying
such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. 7
Pursuant to section 37 of Ordinance No. 165-92, 8 the respondent assessed
the petitioner a franchise tax amounting to P808,606.41, representing
75% of 1% of the latter's gross receipts for the preceding year.9
Petitioner, whose capital stock was subscribed and paid wholly by the
Philippine Government,10 refused to pay the tax assessment. It argued that
the respondent has no authority to impose tax on government entities.
Petitioner also contended that as a non-profit organization, it is exempted
from the payment of all forms of taxes, charges, duties or fees 11 in
accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from
all Taxes, Duties, Fees, Imposts and Other Charges by
Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return from
its capital investment, as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay its

indebtedness and obligations and in furtherance and effective

implementation of the policy enunciated in Section one of this Act,
the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges,
costs and service fees in any court or administrative proceedings in
which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales
tax, and wharfage fees on import of foreign goods required for its
operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and
instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of
electric power."12
The respondent filed a collection suit in the Regional Trial Court of
Cabanatuan City, demanding that petitioner pay the assessed tax due, plus
a surcharge equivalent to 25% of the amount of tax, and 2% monthly
interest.13 Respondent alleged that petitioner's exemption from local taxes
has been repealed by section 193 of Rep. Act No. 7160, 14 which reads as
follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government owned or controlled corporations,
except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this
Code."

On January 25, 1996, the trial court issued an Order15 dismissing the case.
It ruled that the tax exemption privileges granted to petitioner subsist
despite the passage of Rep. Act No. 7160 for the following reasons: (1)
Rep. Act No. 6395 is a particular law and it may not be repealed by Rep.
Act No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160
is in the nature of an implied repeal which is not favored; and (3) local
governments have no power to tax instrumentalities of the national
government. Pertinent portion of the Order reads:
"The question of whether a particular law has been repealed or not
by a subsequent law is a matter of legislative intent. The
lawmakers may expressly repeal a law by incorporating therein
repealing provisions which expressly and specifically cite(s) the
particular law or laws, and portions thereof, that are intended to
be repealed. A declaration in a statute, usually in its repealing
clause, that a particular and specific law, identified by its number
or title is repealed is an express repeal; all others are implied
repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause
because it fails to identify the act or acts that are intended to be
repealed. It is a well-settled rule of statutory construction that
repeals of statutes by implication are not favored. The
presumption is against inconsistency and repugnancy for the
legislative is presumed to know the existing laws on the subject
and not to have enacted inconsistent or conflicting statutes. It is
also a well-settled rule that, generally, general law does not repeal
a special law unless it clearly appears that the legislative has
intended by the latter general act to modify or repeal the earlier
special law. Thus, despite the passage of R.A. No. 7160 from which
the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the
Supreme Court in the case of Basco vs. Philippine Amusement and
Gaming Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities
of the National Government. PAGCOR is a government
owned or controlled corporation with an original charter,
PD 1869. All of its shares of stocks are owned by the
National Government. xxx Being an instrumentality of the
government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be

burdened, impeded or subjected to control by mere local

government.'
Like PAGCOR, NPC, being a government owned and controlled
corporation with an original charter and its shares of stocks owned
by the National Government, is beyond the taxing power of the
Local Government. Corollary to this, it should be noted here that in
the NPC Charter's declaration of Policy, Congress declared that:
'xxx (2) the total electrification of the Philippines through the
development of power from all services to meet the needs of
industrial development and dispersal and needs of rural
electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.'
(underscoring supplied). To allow plaintiff to subject defendant to
its tax-ordinance would be to impede the avowed goal of this
government instrumentality.
Unlike the State, a city or municipality has no inherent power of
taxation. Its taxing power is limited to that which is provided for in
its charter or other statute. Any grant of taxing power is to be
construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself,
it is very clear that the plaintiff could not impose the subject tax
on the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order 17 on the
ground that section 193, in relation to sections 137 and 151 of the LGC,
expressly withdrew the exemptions granted to the petitioner.18 It ordered
the petitioner to pay the respondent city government the following: (a) the
sum of P808,606.41 representing the franchise tax due based on gross
receipts for the year 1992, (b) the tax due every year thereafter based in
the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of
25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as
litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the
Court of Appeal's Decision. This was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its
arguments reiterated therein that the taxing power of the province

under Art. 137 (sic) of the Local Government Code refers merely
to private persons or corporations in which category it (NPC) does
not belong, and that the LGC (RA 7160) which is a general law
may not impliedly repeal the NPC Charter which is a special law
finds the answer in Section 193 of the LGC to the effect that 'tax
exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned
or controlled corporations except local water districts xxx are
hereby withdrawn.' The repeal is direct and unequivocal, not
implied.

"Sec. 137. Franchise Tax. - Notwithstanding any exemption

granted by any law or other special law, the province may impose
a tax on businesses enjoying a franchise, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.

IN VIEW WHEREOF, the motion for reconsideration is hereby

DENIED.

In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or any fraction
thereof, as provided herein." (emphasis supplied)

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
NPC, A PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A
FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137
OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131
APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
NPC'S EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN
REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE
AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A
GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT
CONSIDERING THAT AN EXERCISE OF POLICE POWER THROUGH
TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL
GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the authority
to issue Ordinance No. 165-92 and impose an annual tax on "businesses
enjoying a franchise," pursuant to section 151 in relation to section 137 of
the LGC, viz:

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided

in this Code, the city, may levy the taxes, fees, and charges which
the province or municipality may impose: Provided, however, That
the taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue to them
and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not
more than fifty percent (50%) except the rates of professional and
amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise
tax to the respondent city government. It contends that sections 137 and
151 of the LGC in relation to section 131, limit the taxing power of the
respondent city government to private entities that are engaged in trade
or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege,
affected with public interest which is conferred upon private persons or
corporations, under such terms and conditions as the government and its
political subdivisions may impose in the interest of the public welfare,
security and safety." From the phraseology of this provision, the petitioner
claims that the word "private" modifies the terms "persons" and
"corporations." Hence, when the LGC uses the term "franchise," petitioner
submits that it should refer specifically to franchises granted to private

natural persons and to private corporations.23 Ergo, its charter should not
be considered a "franchise" for the purpose of imposing the franchise tax
in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade
or commercial activity regularly engaged in as means of livelihood or with
a view to profit." Petitioner claims that it is not engaged in an activity for
profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of
profit is merely incidental to its operation; all these profits are required by
law to be channeled for expansion and improvement of its facilities and
services.24
Petitioner also alleges that it is an instrumentality of the National
Government,25 and as such, may not be taxed by the respondent city
government. It cites the doctrine in Basco vs. Philippine Amusement and
Gaming Corporation26 where this Court held that local governments have
no power to tax instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the
National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos.
The latter role is governmental, which places it in the category of
an agency or instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might
be burdened, impeded or subjected to control by a mere local
government.
'The states have no power by taxation or otherwise, to
retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L
Ed. 579)'
This doctrine emanates from the 'supremacy' of the National
Government over local governments.
'Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the

States to touch, in that way (taxation) at least, the

instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even seriously
burden it from accomplishment of them.' (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as ' a
tool regulation' (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the
'power to destroy' (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the
tax privileges of government-owned or controlled corporations, is in the
nature of an implied repeal. A special law, its charter cannot be amended
or modified impliedly by the local government code which is a general law.
Consequently, petitioner claims that its exemption from all taxes, fees or
charges under its charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of
statutes by implication are not favored and as much as possible,
effect must be given to all enactments of the legislature. Moreover,
it has to be conceded that the charter of the NPC constitutes a
special law. Republic Act No. 7160, is a general law. It is a basic
rule in statutory construction that the enactment of a later
legislation which is a general law cannot be construed to have
repealed a special law. Where there is a conflict between a general
law and a special statute, the special statute should prevail since it
evinces the legislative intent more clearly than the general
statute."28
Finally, petitioner submits that the charter of the NPC, being a valid
exercise of police power, should prevail over the LGC. It alleges that the
power of the local government to impose franchise tax is subordinate to
petitioner's exemption from taxation; "police power being the most

pervasive, the least limitable and most demanding of all powers, including
the power of taxation."29

enact a local government code that will, consistent with the basic policy of
local autonomy, set the guidelines and limitations to this grant of taxing
powers, viz:

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty,31 the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise
of the power to tax emanates from necessity;32 without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being
of the people.
In recent years, the increasing social challenges of the times expanded the
scope of state activity, and taxation has become a tool to realize social
justice and the equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax is no
longer vested exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other charges 34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to
create its own sources of revenue, to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that genuine development
can be achieved only by strengthening local autonomy and promoting
decentralization of governance. For a long time, the country's highly
centralized government structure has bred a culture of dependence among
local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in
matters of local development on the part of local government leaders." 35
The only way to shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer them sufficient
powers to generate their own sources for the purpose. To achieve this
goal, section 3 of Article X of the 1987 Constitution mandates Congress to

"Section 3. The Congress shall enact a local government code

which shall provide for a more responsive and accountable local
government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units
their powers, responsibilities, and resources, and provide for the
qualifications, election, appointment and removal, term, salaries,
powers and functions and duties of local officials, and all other
matters relating to the organization and operation of the local
units."
To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as
the Local Government Code of 1991 (LGC), various measures have been
enacted to promote local autonomy. These include the Barrio Charter of
1959,37 the Local Autonomy Act of 1959, 38 the Decentralization Act of
196739 and the Local Government Code of 1983.40 Despite these initiatives,
however, the shackles of dependence on the national government
remained. Local government units were faced with the same problems that
hamper their capabilities to participate effectively in the national
development efforts, among which are: (a) inadequate tax base, (b) lack
of fiscal control over external sources of income, (c) limited authority to
prioritize and approve development projects, (d) heavy dependence on
external sources of income, and (e) limited supervisory control over
personnel of national line agencies.41
Considered as the most revolutionary piece of legislation on local
autonomy,42 the LGC effectively deals with the fiscal constraints faced by
LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations, and
the like. The LGC likewise provides enough flexibility to impose tax rates in
accordance with their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum and maximum tax
rates and leaves the determination of the actual rates to the respective
sanggunian.43
One of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national

government from the coverage of local taxation. Although as a general

rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule now
admits an exception, i.e., when specific provisions of the LGC authorize the
LGUs to impose taxes, fees or charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the
Local Government Units.- Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
x

(o) Taxes, fees, or charges of any kind on the National

Government, its agencies and instrumentalities, and local
government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs.
Philippine Amusement and Gaming Corporation44 relied upon by the
petitioner to support its claim no longer applies. To emphasize, the Basco
case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the
National Government was in effect. However, as this Court ruled in the
case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,45
nothing prevents Congress from decreeing that even instrumentalities or
agencies of the government performing governmental functions may be
subject to tax.46 In enacting the LGC, Congress exercised its prerogative to
tax instrumentalities and agencies of government as it sees fit. Thus, after
reviewing the specific provisions of the LGC, this Court held that MCIAA,
although an instrumentality of the national government, was subject to
real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we
conclude that as a general rule, as laid down in section 133, the
taxing power of local governments cannot extend to the levy of
inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local
government units'; however, pursuant to section 232, provinces,
cities and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, 'real property
owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise, to a taxable person as

provided in the item (a) of the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly
authorizes the respondent city government to impose on the petitioner the
franchise tax in question.
In its general signification, a franchise is a privilege conferred by
government authority, which does not belong to citizens of the country
generally as a matter of common right.48 In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pursuant to a
special law creating the corporation.49 The right under a primary or general
franchise is vested in the individuals who compose the corporation and not
in the corporation itself.50 On the other hand, the latter refers to the right
or privileges conferred upon an existing corporation such as the right to
use the streets of a municipality to lay pipes of tracks, erect poles or string
wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general
power granted to a corporation to dispose of its property, except such
special or secondary franchises as are charged with a public use. 52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise
in the sense of a secondary or special franchise. This is to avoid any
confusion when the word franchise is used in the context of taxation. As
commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the
state."53 It is not levied on the corporation simply for existing as a
corporation, upon its property54 or its income,55 but on its exercise of the
rights or privileges granted to it by the government. Hence, a corporation
need not pay franchise tax from the time it ceased to do business and
exercise its franchise.56 It is within this context that the phrase "tax on
businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following requisites should
concur: (1) that petitioner has a "franchise" in the sense of a secondary or
special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as
amended by Rep. Act No. 7395, constitutes petitioner's primary and

secondary franchises. It serves as the petitioner's charter, defining its

composition, capitalization, the appointment and the specific duties of its
corporate officers, and its corporate life span.57 As its secondary franchise,
Commonwealth Act No. 120, as amended, vests the petitioner the
following powers which are not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of
water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring
or waterfall in the Philippines, for the purposes specified in this
Act; to intercept and divert the flow of waters from lands of
riparian owners and from persons owning or interested in waters
which are or may be necessary for said purposes, upon payment of
just compensation therefor; to alter, straighten, obstruct or
increase the flow of water in streams or water channels
intersecting or connecting therewith or contiguous to its works or
any part thereof: Provided, That just compensation shall be paid to
any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary
plants, dams, reservoirs, pipes, mains, transmission lines, power
stations and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring and
waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain,
operate, and improve gas, oil, or steam engines, and/or other
prime movers, generators and machinery in plants and/or auxiliary
plants for the production of electric power; to establish, develop,
operate, maintain and administer power and lighting systems for
the transmission and utilization of its power generation; to sell
electric power in bulk to (1) industrial enterprises, (2) city,
municipal or provincial systems and other government institutions,
(3) electric cooperatives, (4) franchise holders, and (5) real estate
subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage,
encumber and otherwise dispose of property incident to, or
necessary, convenient or proper to carry out the purposes for

which the Corporation was created: Provided, That in case a right

of way is necessary for its transmission lines, easement of right of
way shall only be sought: Provided, however, That in case the
property itself shall be acquired by purchase, the cost thereof shall
be the fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream,
watercourse, canal, ditch, flume, street, avenue, highway or
railway of private and public ownership, as the location of said
works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this
Act in the manner provided by law for instituting condemnation
proceedings by the national, provincial and municipal
governments;
x

(m) To cooperate with, and to coordinate its operations with those

of the National Electrification Administration and public service
entities;
(n) To exercise complete jurisdiction and control over watersheds
surrounding the reservoirs of plants and/or projects constructed or
proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for
watersheds for a specific project, the Bureau of Forestry, the
Reforestation Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith surrender jurisdiction
to the Corporation of all areas embraced within the watersheds,
subject to existing private rights, the needs of waterworks
systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the
Corporation shall adopt measures to prevent environmental
pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the
generation and distribution of electricity. This monopoly was strengthened
with the issuance of Pres. Decree No. 40,59 nationalizing the electric power
industry. Although Exec. Order No. 21560 thereafter allowed private sector

participation in the generation of electricity, the transmission of electricity

remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the
respondent city government's territorial jurisdiction pursuant to the powers
granted to it by Commonwealth Act No. 120, as amended. From its
operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and
ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the
franchise tax simply because its stocks are wholly owned by the National
Government, and its charter characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on
the exercise by the corporation of a privilege to do business. The taxable
entity is the corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and
be sued under its own name,61 and can exercise all the powers of a
corporation under the Corporation Code.62
To be sure, the ownership by the National Government of its entire capital
stock does not necessarily imply that petitioner is not engaged in business.
Section 2 of Pres. Decree No. 202963 classifies government-owned or
controlled corporations (GOCCs) into those performing governmental
functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a
non-stock corporation, whether performing governmental or
proprietary functions, which is directly chartered by special law or
if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a
parent corporation or subsidiary corporation, to the extent of at
least a majority of its outstanding voting capital stock x x x."
(emphases supplied)
Governmental functions are those pertaining to the administration of
government, and as such, are treated as absolute obligation on the part of
the state to perform while proprietary functions are those that are

undertaken only by way of advancing the general interest of society, and

are merely optional on the government. 64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the
National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service
Insurance System (GSIS), and the National Water Sewerage Authority
(NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric
generation of power and the production of electricity from nuclear,
geothermal and other sources, as well as the transmission of electric
power on a nationwide basis."66 Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly, these activities do
not partake of the sovereign functions of the government. They are purely
private and commercial undertakings, albeit imbued with public interest.
The public interest involved in its activities, however, does not distract
from the true nature of the petitioner as a commercial enterprise, in the
same league with similar public utilities like telephone and telegraph
companies, railroad companies, water supply and irrigation companies,
gas, coal or light companies, power plants, ice plant among others; all of
which are declared by this Court as ministrant or proprietary functions of
government aimed at advancing the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the
character of the petitioner's enterprise as a "business," although it limits
petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate
affairs or necessary for the proper transaction of its business or to
carry out the purposes for which it was organized, to contract
indebtedness and issue bonds subject to approval of the President
upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be
reasonably necessary to carry out the business and purposes for
which it was organized, or which, from time to time, may be
declared by the Board to be necessary, useful, incidental or
auxiliary to accomplish the said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at
least sixty percent (60%) of its electricity requirement from the petitioner
are likewise imposed the cap of twelve percent (12%) on profits. 69 The

main difference is that the petitioner is mandated to devote "all its returns
from its capital investment, as well as excess revenues from its operation,
for expansion"70 while other franchise holders have the option to distribute
their profits to its stockholders by declaring dividends. We do not see why
this fact can be a source of difference in tax treatment. In both instances,
the taxable entity is the corporation, which exercises the franchise, and
not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax
exemptions under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant.
Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provisions.71 In the case at bar, the petitioner's
sole refuge is section 13 of Rep. Act No. 6395 exempting from, among
others, "all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities." However, section 193 of the
LGC withdrew, subject to limited exceptions, the sweeping tax privileges
previously enjoyed by private and public corporations. Contrary to the
contention of petitioner, section 193 of the LGC is an express, albeit
general, repeal of all statutes granting tax exemptions from local taxes. 72
It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in
the familiar maxim expressio unius est exclusio alterius. 73 Not being a local
water district, a cooperative registered under R.A. No. 6938, or a nonstock and non-profit hospital or educational institution, petitioner clearly
does not belong to the exception. It is therefore incumbent upon the
petitioner to point to some provisions of the LGC that expressly grant it
exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly
states that the LGUs can impose franchise tax "notwithstanding any
exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. In City Government of
San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of
franchise taxes was brought as an issue before this Court. The same issue
was involved in the subsequent case of Manila Electric Company v.
Province of Laguna.75 Ruling in favor of the local government in both
instances, we ruled that the franchise tax in question is imposable despite
any exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of
Sections 137 and 193 of the LGC to support their position that
MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose
franchise tax 'notwithstanding any exemption granted by any law
or other special law' is all-encompassing and clear. The franchise
tax is imposable despite any exemption enjoyed under special
laws.
Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that unless otherwise provided in this Code,
tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including government-owned
or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and
non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the
exemptions to the three enumerated entities. It is a basic precept
of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the
familiar maxim expressio unius est exclusio alterius. In the
absence of any provision of the Code to the contrary, and we find
no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude
that under the LGC the local government unit may now impose a
local tax at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to

withdraw tax privileges enjoyed under existing law or charter is

clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could
have been used."76 (emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs,
through ordinances duly approved, to grant tax exemptions, initiatives or
reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which
imposes an annual franchise tax "notwithstanding any exemption granted
by law or other special law," the respondent city government clearly did
not intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. As this Court observed in the Mactan case,
"the original reasons for the withdrawal of tax exemption privileges
granted to government-owned or controlled corporations and all other
units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated
enterprises."78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due
from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed
Decision and Resolution of the Court of Appeals dated March 12, 2001 and
July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED.

G.R. No. 156278

March 29, 2004

PLANTERS PRODUCTS, INC., petitioner,

vs.
FERTIPHIL CORPORATION, respondent.
DECISION
PUNO, J.:
Before us is a petition for review under Rule 45 assailing the Decision
dated July 19, 20021 of the Court of Appeals in CA-G.R. SP No. 67434, and
its Resolution dated December 4, 2002 denying petitioners motion for
reconsideration.
Petitioner Planters Products, Inc. ("PPI") and respondent Fertiphil
Corporation ("Fertiphil") are domestic corporations engaged in the
importation and distribution of fertilizers, pesticides and agricultural
chemicals. On the strength of Letter of Instruction No. 1465 issued by then
President Ferdinand E. Marcos on June 3, 1985, Fertiphil and other
domestic corporations engaged in the fertilizer business paid P10.00 for
every bag of fertilizer sold in the country to the Fertilizer and Pesticide
Authority (FPA), the government agency governing the fertilizer industry.
FPA in turn remitted the amount to PPI for its rehabilitation, according to
the express mandate of LOI No. 1465.2
After the EDSA I revolution in 1986, the imposition of P10.00 by the FPA
on every bag of fertilizer sold was voluntarily stopped. Fertiphil demanded
from PPI the refund of P6,698,144.00 which it paid under LOI No. 1465.
PPI refused. Hence, on September 14, 1987, Fertiphil filed a collection and
damage suit against FPA and PPI before the Regional Trial Court of Makati
City docketed as Civil Case No. 17835 demanding refund of the
P6,698,144.00. Fertiphil contended that LOI No. 1465 was void and
unconstitutional for being a glaring example of crony capitalism as it
favored PPI only. PPI filed its answer but for failure to attend the pre-trial
conference, it was declared in default and Fertiphil was allowed to present
evidence ex-parte.
On November 20, 1991, the RTC of Makati City, Branch 147, decided in
favor of Fertiphil declaring LOI No. 1465 void and unconstitutional. It
ordered PPI to return the amount which Fertiphil paid thereunder, with
twelve percent (12%) interest from the time of judicial demand. PPIs

motion for reconsideration was denied in an Order dated February 13,

1992. Hence, it filed notice of appeal on February 20, 1992. At the same
time, Fertiphil moved for execution of the decision pending appeal. The
trial court granted the motion and a writ of execution pending appeal was
issued upon the posting of a surety bond by Fertiphil in the amount of
P6,698,000.00. PPI assailed the propriety of the execution pending appeal
before the Court of Appeals and, thereafter, to this Court. We resolved the
case in its favor in our Decision dated October 22, 1999 in G.R. No.
106052.3 Fertiphil was ordered to return all the properties of PPI taken in
the course of execution pending appeal or the value thereof, if return is no
longer possible. After the decision became final and executory, PPI moved
for execution before the trial court and Fertiphils bank deposits were
accordingly garnished.
On January 5, 2001, Fertiphil moved to dismiss PPIs appeal from the trial
courts Decision dated November 20, 1991 citing as grounds the nonpayment of the appellate docket fee and alleged failure of PPI to prosecute
the appeal within a reasonable time. The trial court denied the motion in
an Order dated April 3, 2001 ruling that the payment of the appellate
docket fee within the period for taking an appeal is a new requirement
under the 1997 Rules of Civil Procedure which was not yet applicable when
PPI filed its appeal in 1992. Moreover, the court found that PPI did not fail
to prosecute the appeal within a reasonable time.
On April 5, 2001, the court issued another order, upon PPIs motion,
directing Fertiphils banks to deliver to the Deputy Sheriff the garnished
deposits maintained with them and for the levying upon of the surety bond
posted by Fertiphil.
Fertiphil moved to reconsider the Orders dated April 3 and 5, 2001, to no
avail. Hence, on October 30, 2001, it filed a special civil action for
certiorari with the Court of Appeals imputing grave abuse of discretion on
the part of the trial court in issuing the two orders. 4 The Court of Appeals
partially granted the petition and set aside the Order dated April 3, 2001.
It ruled that although PPI filed its appeal in 1992, the 1997 Rules of Civil
Procedure should nevertheless be followed since it applies to actions
pending and undetermined at the time of its passage. Due to PPIs failure
to pay the appellate docket fee for three (3) years from the time the 1997
Rules of Civil Procedure took effect on July 1, 1997 until Fertiphil moved to
dismiss the appeal in 2001, the trial courts decision became final and
executory. The Court of Appeals thus disposed of the petition, viz:

WHEREFORE, the instant petition is PARTIALLY GRANTED and the Order of

03 April 2001 of the Regional Trial Court of Makati City, Branch 147, is SET
ASIDE. The decision of 20 November 1991 of the said court is hereby
declared final and executory.
The Clerk of Court is directed to return to the Regional Trial Court of
Makati City, Branch 147, the record of Civil Case No. 17385 (sic) entitled
"Fertiphil Corporation vs. Planters Product(s) Inc., and Fertilizer and
Pesticide Authority," for the computation of the amount due the petitioner
Fertiphil Corporation pursuant to the 20 November 1991 decision.
SO ORDERED.5
Hence, this petition by PPI.
As a general rule, rules of procedure apply to actions pending and
undetermined at the time of their passage, hence, retrospective in nature.
However, the general rule is not without an exception. Retrospective
application is allowed if no vested rights are impaired.6 Thus, in Land Bank
of the Philippines v. de Leon7 our ruling that the appropriate mode of
review from decisions of Special Agrarian Courts is a petition for review
under Sec. 60 of R.A. No. 6657 and not an ordinary appeal as Sec. 61
thereof seems to imply, was not given retroactive application. We held that
to give our ruling a retrospective application would prejudice petitioners
pending appeals brought under said Sec. 61 before the Court of Appeals at
a time when there was yet no clear pronouncement as to the proper
interpretation of the seemingly conflicting Secs. 60 and 61. In fine, to
apply the Courts ruling retroactively would prejudice LBPs right to appeal
because its pending appeals would then be dismissed outright on a mere
technicality thereby sacrificing the substantial merits of the cases.
In the instant case, at the time PPI filed its appeal in 1992, all that the
rules required for the perfection of its appeal was the filing of a notice of
appeal with the court which rendered the judgment or order appealed
from, within fifteen (15) days from notice thereof.8 PPI complied with this
requirement when it filed a notice of appeal on February 20, 1992 with the
RTC of Makati City, Branch 147, after receiving copy of its Order dated
February 13, 1992 denying its motion for reconsideration of the adverse
Decision dated November 20, 1991 rendered in Civil Case No. 17835. PPIs
appeal was therefore already perfected at that time.

Thus, the 1997 Rules of Civil Procedure which took effect on July 1, 1997
and which required that appellate docket and other lawful fees should be
paid within the same period for taking an appeal,9 can not affect PPIs
appeal which was already perfected in 1992. Much less could it be
considered a ground for dismissal thereof since PPIs period for taking an
appeal, likewise the period for payment of the appellate docket fee as now
required by the rules, has long lapsed in 1992. While the right to appeal is
statutory, the mode or manner by which this right may be exercised is a
question of procedure which may be altered and modified only when
vested rights are not impaired.10 Thus, failure to pay the appellate docket
fee when the 1997 Rules of Procedure took effect cannot operate to
deprive PPI of its right, already perfected in 1992, to have its case
reviewed on appeal. In fact the Court of Appeals recognized such fact
when it gave PPI a fresh period to pay the appellate docket fee in an Order
dated April 9, 2002 issued in UDK-CV-No. 030411 directing it to pay the fee
within fifteen (15) days from receipt thereof.
This is not all. We have also previously ruled that failure to pay the
appellate docket fee does not automatically result in the dismissal of an
appeal, dismissal being discretionary on the part of the appellate court. 12
And in determining whether or not to dismiss an appeal on such ground,
courts have always been guided by the peculiar legal and equitable
circumstances attendant to each case. Thus, in Pedrosa v. Hill 13 and
Gegare v. Court of Appeals,14 the appeals were dismissed because
appellants failed to pay the appellate docket fees despite timely notice
given them by the Court of Appeals and despite its admonitions that the
appeals would be dismissed in case of non-compliance. On the other hand,
the appeal in Mactan Cebu International Airport Authority v. Mangubat 15
was not dismissed because we took into account the fact that the 1997
Rules of Civil Procedure had only been in effect for fourteen (14) days
when the Office of the Solicitor General appealed from the decision of the
RTC of Lapu-Lapu City on July 14, 1997 without paying the appellate court
docket fees as required by the new rules. Considering the recency of the
changes and appellants immediate payment of the fees when required to
do so, the appeal was not dismissed. We can do no less in the instant case
where PPI was not even required under the rules in 1992 to pay the
appellate docket fees at the time it filed its appeal. We note moreover that
PPI, like the appellant in Mactan, promptly paid the fees when required to
do so for the first time by the RTC of Makati in its Order dated April 3,
2001, and informed the Court of Appeals of such compliance when it in
turn notified PPI that the fees were due, in an Order dated April 9, 2002.
The remedy of appeal being an essential part of our judicial system,
caution must always be observed so that every party-litigant is not

deprived of its right to appeal, but rather, given amplest opportunity for
the proper and just disposition of his cause, freed from the constraints of
technicalities.16
Having so ruled, we shall refrain from delving into the merits of petitioners
other contentions, discussion of one being the proper subject of the appeal
before the Court of Appeals,17 and the other, being premature at this
point.18
IN VIEW WHEREOF, the petition is GRANTED. The questioned Decision
dated July 19, 2002 of the Court of Appeals in CA-G.R. SP No. 67434 and
its Resolution dated December 4, 2002 denying petitioners motion for
reconsideration are SET ASIDE.
The Order dated April 3, 2001 of the Regional Trial Court of Makati City,
Branch 147, in Civil Case No. 17835 is reinstated, and the Court of Appeals
is ordered to proceed with the resolution of petitioners appeal docketed as
CA-G.R. CV No. 75501 entitled "Fertiphil Corporation v. Planters Products,
Inc."
SO ORDERED.

G.R. No. 158540

July 8, 2004

SOUTHERN CROSS CEMENT CORPORATION, petitioner,

vs.
THE PHILIPPINE CEMENT MANUFACTURERS CORP.,
"Good fences make good neighbors," so observed Robert Frost, the
archetype of traditional New England detachment. The Frost ethos has
been heeded by nations adjusting to the effects of the liberalized global
market.1 The Philippines, for one, enacted Republic Act (Rep. Act) No.
8751 (on the imposition of countervailing duties), Rep. Act No. 8752 (on
the imposition of anti-dumping duties) and, finally, Rep. Act No. 8800, also
known as the Safeguard Measures Act ("SMA")2 soon after it joined the
General Agreement on Tariff and Trade (GATT) and the World Trade
Organization (WTO) Agreement.3
The SMA provides the structure and mechanics for the imposition of
emergency measures, including tariffs, to protect domestic industries and
producers from increased imports which inflict or could inflict serious injury
on them.4 The wisdom of the policies behind the SMA, however, is not put
into question by the petition at bar. The questions submitted to the Court
relate to the means and the procedures ordained in the law to ensure that
the determination of the imposition or non-imposition of a safeguard
measure is proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation ("Southern Cross") is a
domestic corporation engaged in the business of cement manufacturing,
production, importation and exportation. Its principal stockholders are
Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the
largest cement manufacturers in Japan.5
Private respondent Philippine Cement Manufacturers Corporation 6
("Philcemcor") is an association of domestic cement manufacturers. It has
eighteen (18) members,7 per Record. While Philcemcor heralds itself to be
an association of domestic cement manufacturers, it appears that
considerable equity holdings, if not controlling interests in at least twelve
(12) of its member-corporations, were acquired by the three largest
cement manufacturers in the world, namely Financiere Lafarge S.A. of
France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland
(formerly Holderbank Financiere Glaris, Ltd., then Holderfin B.V.). 8
On 22 May 2001, respondent Department of Trade and Industry ("DTI")
accepted an application from Philcemcor, alleging that the importation of
gray Portland cement9 in increased quantities has caused declines in
domestic production, capacity utilization, market share, sales and

employment; as well as caused depressed local prices. Accordingly,

Philcemcor sought the imposition at first of provisional, then later,
definitive safeguard measures on the import of cement pursuant to the
SMA. Philcemcor filed the application in behalf of twelve (12) of its
member-companies.10
After preliminary investigation, the Bureau of Import Services of the DTI,
determined that critical circumstances existed justifying the imposition of
provisional measures.11 On 7 November 2001, the DTI issued an Order,
imposing a provisional measure equivalent to Twenty Pesos and Sixty
Centavos (P20.60) per forty (40) kilogram bag on all importations of gray
Portland cement for a period not exceeding two hundred (200) days from
the date of issuance by the Bureau of Customs (BOC) of the implementing
Customs Memorandum Order.12 The corresponding Customs Memorandum
Order was issued on 10 December 2001, to take effect that same day and
to remain in force for two hundred (200) days. 13
In the meantime, the Tariff Commission, on 19 November 2001, received a
request from the DTI for a formal investigation to determine whether or
not to impose a definitive safeguard measure on imports of gray Portland
cement, pursuant to Section 9 of the SMA and its Implementing Rules and
Regulations. A notice of commencement of formal investigation was
published in the newspapers on 21 November 2001. Individual notices
were likewise sent to concerned parties, such as Philcemcor, various
importers and exporters, the Embassies of Indonesia, Japan and Taiwan,
contractors/builders associations, industry associations, cement workers'
groups, consumer groups, non-government organizations and concerned
government agencies.14 A preliminary conference was held on 27
November 2001, attended by several concerned parties, including
Southern Cross.15 Subsequently, the Tariff Commission received several
position papers both in support and against Philcemcor's application. 16 The
Tariff Commission also visited the corporate offices and manufacturing
facilities of each of the applicant companies, as well as that of Southern
Cross and two other cement importers.17
On 13 March 2002, the Tariff Commission issued its Formal Investigation
Report ("Report"). Among the factors studied by the Tariff Commission in
its Report were the market share of the domestic industry,18 production
and sales,19 capacity utilization,20 financial performance and profitability,21
and return on sales.22 The Tariff Commission arrived at the following
conclusions:
1. The circumstances provided in Article XIX of GATT 1994 need
not be demonstrated since the product under consideration (gray
Portland cement) is not the subject of any Philippine obligation or
tariff concession under the WTO Agreement. Nonetheless, such
inquiry is governed by the national legislation (R.A. 8800) and the
terms and conditions of the Agreement on Safeguards.

2. The collective output of the twelve (12) applicant companies

constitutes a major proportion of the total domestic production of
gray Portland cement and blended Portland cement.
3. Locally produced gray Portland cement and blended Portland
cement (Pozzolan) are "like" to imported gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in
increased quantities, both in absolute terms and relative to
domestic production, starting in 2000. The increase in volume of
imports is recent, sudden, sharp and significant.
5. The industry has not suffered and is not suffering significant
overall impairment in its condition, i.e., serious injury.
6. There is no threat of serious injury that is imminent from
imports of gray Portland cement.
7. Causation has become moot and academic in view of the
negative determination of the elements of serious injury and
imminent threat of serious injury.23
Accordingly, the Tariff Commission made the following recommendation, to
wit:
The elements of serious injury and imminent threat of serious
injury not having been established, it is hereby recommended that
no definitive general safeguard measure be imposed on the
importation of gray Portland cement.24
The DTI received the Report on 14 March 2002. After reviewing the report,
then DTI Secretary Manuel Roxas II ("DTI Secretary") disagreed with the
conclusion of the Tariff Commission that there was no serious injury to the
local cement industry caused by the surge of imports. 25 In view of this
disagreement, the DTI requested an opinion from the Department of
Justice ("DOJ") on the DTI Secretary's scope of options in acting on the
Commission's recommendations. Subsequently, then DOJ Secretary
Hernando Perez rendered an opinion stating that Section 13 of the SMA
precluded a review by the DTI Secretary of the Tariff Commission's
negative finding, or finding that a definitive safeguard measure should not
be imposed.26
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting
the conclusions of the Tariff Commission, the DTI Secretary noted the
DTI's disagreement with the conclusions. However, he also cited the DOJ

Opinion advising the DTI that it was bound by the negative finding of the
Tariff Commission. Thus, he ruled as follows:
The DTI has no alternative but to abide by the [Tariff]
Commission's recommendations.
IN VIEW OF THE FOREGOING, and in accordance with Section
13 of RA 8800 which states:
"In the event of a negative final determination; or if the cash
bond is in excess of the definitive safeguard duty assessed, the
Secretary shall immediately issue, through the Secretary of
Finance, a written instruction to the Commissioner of Customs,
authorizing the return of the cash bond or the remainder thereof,
as the case may be, previously collected as provisional general
safeguard measure within ten (10) days from the date a final
decision has been made; Provided, that the government shall not
be liable for any interest on the amount to be returned. The
Secretary shall not accept for consideration another petition from
the same industry, with respect to the same imports of the
product under consideration within one (1) year after the date of
rendering such a decision."
The DTI hereby issues the following:
The application for safeguard measures against the importation of
gray Portland cement filed by PHILCEMCOR (Case No. 02-2001) is
hereby denied.27 (Emphasis in the original)
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days
later, it filed with the Court of Appeals a Petition for Certiorari, Prohibition
and Mandamus28 seeking to set aside the DTI Decision, as well as the Tariff
Commission's Report. Philcemcor likewise applied for a Temporary
Restraining Order/Injunction to enjoin the DTI and the BOC from
implementing the questioned Decision and Report. It prayed that the Court
of Appeals direct the DTI Secretary to disregard the Report and to render
judgment independently of the Report. Philcemcor argued that the DTI
Secretary, vested as he is under the law with the power of review, is not
bound to adopt the recommendations of the Tariff Commission; and, that
the Report is void, as it is predicated on a flawed framework, inconsistent
inferences and erroneous methodology.29
On 10 June 2002, Southern Cross filed its Comment.30 It argued that the
Court of Appeals had no jurisdiction over Philcemcor's Petition, for it is on
the Court of Tax Appeals ("CTA") that the SMA conferred jurisdiction to
review rulings of the Secretary in connection with the imposition of a
safeguard measure. It likewise argued that Philcemcor's resort to the

special civil action of certiorari is improper, considering that what

Philcemcor sought to rectify is an error of judgment and not an error of
jurisdiction or grave abuse of discretion, and that a petition for review with
the CTA was available as a plain, speedy and adequate remedy. Finally,
Southern Cross echoed the DOJ Opinion that Section 13 of the SMA
precludes a review by the DTI Secretary of a negative finding of the Tariff
Commission.
After conducting a hearing on 19 June 2002 on Philcemcor's application for
preliminary injunction, the Court of Appeals' Twelfth Division 31 granted the
writ sought in its Resolution dated 21 June 2002.32 Seven days later, on 28
June 2002, the two-hundred (200)-day period for the imposition of the
provisional measure expired. Despite the lapse of the period, the BOC
continued to impose the provisional measure on all importations of
Portland cement made by Southern Cross. The uninterrupted assessment
of the tariff, according to Southern Cross, worked to its detriment to the
point that the continued imposition would eventually lead to its closure. 33
Southern Cross timely filed a Motion for Reconsideration of the Resolution
on 9 September 2002. Alleging that Philcemcor was not entitled to
provisional relief, Southern Cross likewise sought a clarificatory order as to
whether the grant of the writ of preliminary injunction could extend the
earlier imposition of the provisional measure beyond the two hundred
(200)-day limit imposed by law. The appeals' court failed to take
immediate action on Southern Cross's motion despite the four (4) motions
for early resolution the latter filed between September of 2002 and
February of 2003. After six (6) months, on 19 February 2003, the Court of
Appeals directed Philcemcor to comment on Southern Cross's Motion for
Reconsideration.34 After Philcemcor filed its Opposition35 on 13 March 2003,
Southern Cross filed another set of four (4) motions for early resolution.
Despite the efforts of Southern Cross, the Court of Appeals failed to
directly resolve the Motion for Reconsideration. Instead, on 5 June 2003, it
rendered a Decision,36 granting in part Philcemcor's petition. The appellate
court ruled that it had jurisdiction over the petition for certiorari since it
alleged grave abuse of discretion. It refused to annul the findings of the
Tariff Commission, citing the rule that factual findings of administrative
agencies are binding upon the courts and its corollary, that courts should
not interfere in matters addressed to the sound discretion and coming
under the special technical knowledge and training of such agencies. 37
Nevertheless, it held that the DTI Secretary is not bound by the factual
findings of the Tariff Commission since such findings are merely
recommendatory and they fall within the ambit of the Secretary's
discretionary review. It determined that the legislative intent is to grant
the DTI Secretary the power to make a final decision on the Tariff
Commission's recommendation.38 The dispositive portion of the Decision
reads:

WHEREFORE, based on the foregoing premises, petitioner's

prayer to set aside the findings of the Tariff Commission in its
assailed Report dated March 13, 2002 is DENIED. On the other
hand, the assailed April 5, 2002 Decision of the Secretary of the
Department of Trade and Industry is hereby SET ASIDE.
Consequently, the case is REMANDED to the public respondent
Secretary of Department of Trade and Industry for a final decision
in accordance with RA 8800 and its Implementing Rules and
Regulations.
SO ORDERED.39
On 23 June 2003, Southern Cross filed the present petition, assailing the
appellate court's Decision for departing from the accepted and usual
course of judicial proceedings, and not deciding the substantial questions
in accordance with law and jurisprudence. The petition argues in the main
that the Court of Appeals has no jurisdiction over Philcemcor's petition, the
proper remedy being a petition for review with the CTA conformably with
the SMA, and; that the factual findings of the Tariff Commission on the
existence or non-existence conditions warranting the imposition of general
safeguard measures are binding upon the DTI Secretary.
The timely filing of Southern Cross's petition before this Court necessarily
prevented the Court of Appeals Decision from becoming final.40 Yet on 25
June 2003, the DTI Secretary issued a new Decision, ruling this time that
that in light of the appellate court's Decision there was no longer any legal
impediment to his deciding Philcemcor's application for definitive safeguard
measures.41 He made a determination that, contrary to the findings of the
Tariff Commission, the local cement industry had suffered serious injury as
a result of the import surges.42 Accordingly, he imposed a definitive
safeguard measure on the importation of gray Portland cement, in the
form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for
three years on imported gray Portland Cement.43
On 7 July 2003, Southern Cross filed with the Court a "Very Urgent
Application for a Temporary Restraining Order and/or A Writ of Preliminary
Injunction" ("TRO Application"), seeking to enjoin the DTI Secretary from
enforcing his Decision of 25 June 2003 in view of the pending petition
before this Court. Philcemcor filed an opposition, claiming, among others,
that it is not this Court but the CTA that has jurisdiction over the
application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review,
assailing the DTI Secretary's 25 June 2003 Decision which imposed the
definite safeguard measure. Prescinding from this action, Philcemcor filed
with this Court a Manifestation and Motion to Dismiss in regard to
Southern Cross's petition, alleging that it deliberately and willfully resorted

to forum-shopping. It points out that Southern Cross's TRO Application

seeks to enjoin the DTI Secretary's second decision, while its Petition
before the CTA prays for the annulment of the same decision. 44
Reiterating its Comment on Southern Cross's Petition for Review,
Philcemcor also argues that the CTA, being a special court of limited
jurisdiction, could only review the ruling of the DTI Secretary when a
safeguard measure is imposed, and that the factual findings of the Tariff
Commission are not binding on the DTI Secretary.45
After giving due course to Southern Cross's Petition, the Court called the
case for oral argument on 18 February 2004.46 At the oral argument,
attended by the counsel for Philcemcor and Southern Cross and the Office
of the Solicitor General, the Court simplified the issues in this wise: (i)
whether the Decision of the DTI Secretary is appealable to the CTA or the
Court of Appeals; (ii) assuming that the Court of Appeals has jurisdiction,
whether its Decision is in accordance with law; and, (iii) whether a
Temporary Restraining Order is warranted.47
During the oral arguments, counsel for Southern Cross manifested that
due to the imposition of the general safeguard measures, Southern Cross
was forced to cease operations in the Philippines in November of 2003. 48
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Cross's
application for provisional relief. It sought to enjoin the DTI Secretary from
enforcing the definitive safeguard measure he imposed in his 25 June 2003
Decision. The Court did not grant the provisional relief for it would be
tantamount to enjoining the collection of taxes, a peremptory judicial act
which is traditionally frowned upon,49 unless there is a clear statutory basis
for it.50 In that regard, Section 218 of the Tax Reform Act of 1997 prohibits
any court from granting an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by the internal
revenue code.51 A similar philosophy is expressed by Section 29 of the
SMA, which states that the filing of a petition for review before the CTA
does not stop, suspend, or otherwise toll the imposition or collection of the
appropriate tariff duties or the adoption of other appropriate safeguard
measures.52 This evinces a clear legislative intent that the imposition of
safeguard measures, despite the availability of judicial review, should not
be enjoined notwithstanding any timely appeal of the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the allegation of forumshopping has been duly proven, or that sanction should befall upon
Southern Cross and its counsel. The standard by Section 5, Rule 7 of the

1997 Rules of Civil Procedure in order that sanction may be had is that
"the acts of the party or his counsel clearly constitute willful and deliberate
forum shopping."53 The standard implies a malicious intent to subvert
procedural rules, and such state of mind is not evident in this case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief
that it had jurisdiction over Philcemcor's Petition, discussed the issue of
whether or not the DTI Secretary is bound to adopt the negative
recommendation of the Tariff Commission on the application for safeguard
measure. The Court of Appeals maintained that it had jurisdiction over the
petition, as it alleged grave abuse of discretion on the part of the DTI
Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse
of discretion on the part of the DTI Secretary in rendering the
assailed April 5, 2002 Decision wherein it was ruled that he had no
alternative but to abide by the findings of the Commission on the
matter of safeguard measures for the local cement industry. Abuse
of discretion is admittedly within the ambit of certiorari.
Grave abuse of discretion implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. It is
alleged that, in the assailed Decision, the DTI Secretary gravely
abused his discretion in wantonly evading to discharge his duty to
render an independent determination or decision in imposing a
definitive safeguard measure.54
We do not doubt that the Court of Appeals' certiorari powers extend to
correcting grave abuse of discretion on the part of an officer exercising
judicial or quasi-judicial functions.55 However, the special civil action of
certiorari is available only when there is no plain, speedy and adequate
remedy in the ordinary course of law.56 Southern Cross relies on this
limitation, stressing that Section 29 of the SMA is a plain, speedy and
adequate remedy in the ordinary course of law which Philcemcor did not
avail of. The Section reads:
Section 29. Judicial Review. Any interested party who is
adversely affected by the ruling of the Secretary in connection
with the imposition of a safeguard measure may file with the
CTA, a petition for review of such ruling within thirty (30) days
from receipt thereof. Provided, however, that the filing of such
petition for review shall not in any way stop, suspend or otherwise
toll the imposition or collection of the appropriate tariff duties or

the adoption of other appropriate safeguard measures, as the case

may be.
The petition for review shall comply with the same requirements
and shall follow the same rules of procedure and shall be subject
to the same disposition as in appeals in connection with adverse
rulings on tax matters to the Court of Appeals.57 (Emphasis
supplied)
It is not difficult to divine why the legislature singled out the CTA as the
court with jurisdiction to review the ruling of the DTI Secretary in
connection with the imposition of a safeguard measure. The Court has long
recognized the legislative determination to vest sole and exclusive
jurisdiction on matters involving internal revenue and customs duties to
such a specialized court.58 By the very nature of its function, the CTA is
dedicated exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject. 59
At the same time, since the CTA is a court of limited jurisdiction, its
jurisdiction to take cognizance of a case should be clearly conferred and
should not be deemed to exist on mere implication. 60 Concededly, Rep. Act
No. 1125, the statute creating the CTA, does not extend to it the power to
review decisions of the DTI Secretary in connection with the imposition of
safeguard measures.61 Of course, at that time which was before the advent
of trade liberalization the notion of safeguard measures or safety nets was
not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by
including review of the rulings of the DTI Secretary in connection with the
imposition of safeguard measures. However, Philcemcor and the public
respondents agree that the CTA has appellate jurisdiction over a decision
of the DTI Secretary imposing a safeguard measure, but not when his
ruling is not to impose such measure.
In a related development, Rep. Act No. 9282, enacted on 30 March 2004,
expressly vests unto the CTA jurisdiction over "[d]ecisions of the Secretary
of Trade and Industry, in case of nonagricultural product, commodity or
article xxx involving xxx safeguard measures under Republic Act No.
8800, where either party may appeal the decision to impose or not
to impose said duties."62 Had Rep. Act No. 9282 already been in force at
the beginning of the incidents subject of this case, there would have been
no need to make any deeper inquiry as to the extent of the CTA's
jurisdiction. But as Rep. Act No. 9282 cannot be applied retroactively to
the present case, the question of whether such jurisdiction extends to a
decision not to impose a safeguard measure will have to be settled
principally on the basis of the SMA.

Under Section 29 of the SMA, there are three requisites to enable the CTA
to acquire jurisdiction over the petition for review contemplated therein:
(i) there must be a ruling by the DTI Secretary; (ii) the petition must be
filed by an interested party adversely affected by the ruling; and (iii) such
ruling must be in connection with the imposition of a safeguard measure.
The first two requisites are clearly present. The third requisite deserves
closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this
case where the DTI Secretary decides not to impose a safeguard measure,
it is the CTA which has jurisdiction to review his decision. The reasons are
as follows:
First. Split jurisdiction is abhorred.
Essentially, respondents' position is that judicial review of the DTI
Secretary's ruling is exercised by two different courts, depending on
whether or not it imposes a safeguard measure, and in either case the
court exercising jurisdiction does so to the exclusion of the other. Thus, if
the DTI decision involves the imposition of a safeguard measure it is the
CTA which has appellate jurisdiction; otherwise, it is the Court of Appeals.
Such setup is as novel and unusual as it is cumbersome and unwise.
Essentially, respondents advocate that Section 29 of the SMA has
established split appellate jurisdiction over rulings of the DTI Secretary on
the imposition of safeguard measure.
This interpretation cannot be favored, as the Court has consistently
refused to sanction split jurisdiction.63 The power of the DTI Secretary to
adopt or withhold a safeguard measure emanates from the same statutory
source, and it boggles the mind why the appeal modality would be such
that one appellate court is qualified if what is to be reviewed is a positive
determination, and it is not if what is appealed is a negative
determination. In deciding whether or not to impose a safeguard measure,
provisional or general, the DTI Secretary would be evaluating only one
body of facts and applying them to one set of laws. The reviewing tribunal
will be called upon to examine the same facts and the same laws, whether
or not the determination is positive or negative.
In short, if we were to rule for respondents we would be confirming the
exercise by two judicial bodies of jurisdiction over basically the same
subject matterprecisely the split-jurisdiction situation which is anathema
to the orderly administration of justice.64 The Court cannot accept that
such was the legislative motive especially considering that the law
expressly confers on the CTA, the tribunal with the specialized competence
over tax and tariff matters, the role of judicial review without mention of
any other court that may exercise corollary or ancillary jurisdiction in
relation to the SMA. The provision refers to the Court of Appeals but only

in regard to procedural rules and dispositions of appeals from the CTA to

the Court of Appeals.65
The principle enunciated in Tejada v. Homestead Property Corporation66 is
applicable to the case at bar:
The Court agrees with the observation of the [that] when an
administrative agency or body is conferred quasi-judicial functions,
all controversies relating to the subject matter pertaining to
its specialization are deemed to be included within the
jurisdiction of said administrative agency or body. Split
jurisdiction is not favored.67
Second. The interpretation of the provisions of the SMA favors vesting
untrammeled appellate jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not
expressly bar the CTA from reviewing a negative determination by the DTI
Secretary nor conferred on the Court of Appeals such review authority.
Respondents note, on the other hand, that neither did the law expressly
grant to the CTA the power to review a negative determination. However,
under the clear text of the law, the CTA is vested with jurisdiction to
review the ruling of the DTI Secretary "in connection with the imposition
of a safeguard measure." Had the law been couched instead to incorporate
the phrase "the ruling imposing a safeguard measure," then respondent's
claim would have indisputable merit. Undoubtedly, the phrase "in
connection with" not only qualifies but clarifies the succeeding phrase
"imposition of a safeguard measure." As expounded later, the phrase also
encompasses the opposite or converse ruling which is the non-imposition
of a safeguard measure.
In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States
Supreme Court, in interpreting a key provision of the Employee Retirement
Security Act of 1974, construed the phrase "relates to" in its normal sense
which is the same as "if it has connection with or reference to." 69 There is
no serious dispute that the phrase "in connection with" is synonymous to
"relates to" or "reference to," and that all three phrases are broadly
expansive. This is affirmed not just by jurisprudential fiat, but also the
acquired connotative meaning of "in connection with" in common parlance.
Consequently, with the use of the phrase "in connection with," Section 29
allows the CTA to review not only the ruling imposing a safeguard
measure, but all other rulings related or have reference to the
application for such measure.
Now, let us determine the maximum scope and reach of the phrase "in
connection with" as used in Section 29 of the SMA. A literalist reading or
linguistic survey may not satisfy. Even the US Supreme Court in New York

State Blue Cross Plans v. Travelers Ins.70 conceded that the phrases
"relate to" or "in connection with" may be extended to the farthest stretch
of indeterminacy for, universally, relations or connections are infinite and
stop nowhere.71 Thus, in the case the US High Court, examining the same
phrase of the same provision of law involved in Shaw, resorted to looking
at the statute and its objectives as the alternative to an "uncritical
literalism."72 A similar inquiry into the other provisions of the SMA is in
order to determine the scope of review accorded therein to the CTA. 73
The authority to decide on the safeguard measure is vested in the DTI
Secretary in the case of non-agricultural products, and in the Secretary of
the Department of Agriculture in the case of agricultural products. 74
Section 29 is likewise explicit that only the rulings of the DTI Secretary or
the Agriculture Secretary may be reviewed by the CTA.75 Thus, the acts of
other bodies that were granted some powers by the SMA, such as the
Tariff Commission, are not subject to direct review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to
decide on several matters. Within thirty (30) days from receipt of a
petition seeking the imposition of a safeguard measure, or from the date
he made motu proprio initiation, the Secretary shall make a preliminary
determination on whether the increased imports of the product under
consideration substantially cause or threaten to cause serious injury to the
domestic industry.76 Such ruling is crucial since only upon the Secretary's
positive preliminary determination that a threat to the domestic industry
exists shall the matter be referred to the Tariff Commission for formal
investigation, this time, to determine whether the general safeguard
measure should be imposed or not.77 Pursuant to a positive preliminary
determination, the Secretary may also decide that the imposition of a
provisional safeguard measure would be warranted under Section 8 of the
SMA.78 The Secretary is also authorized to decide, after receipt of the
report of the Tariff Commission, whether or not to impose the general
safeguard measure, and if in the affirmative, what general safeguard
measures should be applied.79 Even after the general safeguard measure is
imposed, the Secretary is empowered to extend the safeguard measure, 80
or terminate, reduce or modify his previous rulings on the general
safeguard measure.81
With the explicit grant of certain powers involving safeguard measures by
the SMA on the DTI Secretary, it follows that he is empowered to rule on
several issues. These are the issues which arise in connection with, or in
relation to, the imposition of a safeguard measure. They may arise at
different stages the preliminary investigation stage, the post-formal
investigation stage, or the post-safeguard measure stage yet all these
issues do become ripe for resolution because an initiatory action has been
taken seeking the imposition of a safeguard measure. It is the initiatory
action for the imposition of a safeguard measure that sets the wheels in

motion, allowing the Secretary to make successive rulings, beginning with

the preliminary determination.
Clearly, therefore, the scope and reach of the phrase "in connection with,"
as intended by Congress, pertain to all rulings of the DTI Secretary or
Agriculture Secretary which arise from the time an application or motu
proprio initiation for the imposition of a safeguard measure is taken.
Indeed, the incidents which require resolution come to the fore only
because there is an initial application or action seeking the imposition of a
safeguard measure. From the legislative standpoint, it was a matter of
sense and practicality to lump up the questions related to the initiatory
application or action for safeguard measure and to assign only one court
and; that is the CTA to initially review all the rulings related to such
initiatory application or action. Both directions Congress put in place by
employing the phrase "in connection with" in the law.
Given the relative expanse of decisions subject to judicial review by the
CTA under Section 29, we do not doubt that a negative ruling refusing to
impose a safeguard measure falls within the scope of its jurisdiction. On a
literal level, such negative ruling is "a ruling of the Secretary in connection
with the imposition of a safeguard measure," as it is one of the possible
outcomes that may result from the initial application or action for a
safeguard measure. On a more critical level, the rulings of the DTI
Secretary in connection with a safeguard measure, however diverse the
outcome may be, arise from the same grant of jurisdiction on the DTI
Secretary by the SMA.82 The refusal by the DTI Secretary to grant a
safeguard measure involves the same grant of authority, the same
statutory prescriptions, and the same degree of discretion as the
imposition by the DTI Secretary of a safeguard measure.
The position of the respondents is one of "uncritical literalism" 83
incongruent with the animus of the law. Moreover, a fundamentalist
approach to Section 29 is not warranted, considering the absurdity of the
consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur
Inconveniens Et Absurdum.84
Even assuming arguendo that Section 29 has not expressly granted the
CTA jurisdiction to review a negative ruling of the DTI Secretary, the Court
is precluded from favoring an interpretation that would cause
inconvenience and absurdity.85 Adopting the respondents' position favoring
the CTA's minimal jurisdiction would unnecessarily lead to illogical and
onerous results.
Indeed, it is illiberal to assume that Congress had intended to provide
appellate relief to rulings imposing a safeguard measure but not to those

declining to impose the measure. Respondents might argue that the right
to relief from a negative ruling is not lost since the applicant could, as
Philcemcor did, question such ruling through a special civil action for
certiorari under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an
appeal to the CTA. Yet these two reliefs are of differing natures and
gravamen. While an appeal may be predicated on errors of fact or errors of
law, a special civil action for certiorari is grounded on grave abuse of
discretion or lack of or excess of jurisdiction on the part of the decider. For
a special civil action for certiorari to succeed, it is not enough that the
questioned act of the respondent is wrong. As the Court clarified in
Sempio v. Court of Appeals:
A tribunal, board or officer acts without jurisdiction if it/he does
not have the legal power to determine the case. There is excess of
jurisdiction where, being clothed with the power to determine the
case, the tribunal, board or officer oversteps its/his authority as
determined by law. And there is grave abuse of discretion where
the tribunal, board or officer acts in a capricious, whimsical,
arbitrary or despotic manner in the exercise of his judgment as to
be said to be equivalent to lack of jurisdiction. Certiorari is often
resorted to in order to correct errors of jurisdiction. Where the
error is one of law or of fact, which is a mistake of judgment,
appeal is the remedy.86
It is very conceivable that the DTI Secretary, after deliberate thought and
careful evaluation of the evidence, may either make a negative preliminary
determination as he is so empowered under Section 7 of the SMA, or
refuse to adopt the definitive safeguard measure under Section 13 of the
same law. Adopting the respondents' theory, this negative ruling is
susceptible to reversal only through a special civil action for certiorari, thus
depriving the affected party the chance to elevate the ruling on appeal on
the rudimentary grounds of errors in fact or in law. Instead, and despite
whatever indications that the DTI Secretary acted with measure and within
the bounds of his jurisdiction are, the aggrieved party will be forced to
resort to a gymnastic exercise, contorting the straight and narrow in an
effort to discombobulate the courts into believing that what was within was
actually beyond and what was studied and deliberate actually whimsical
and capricious. What then would be the remedy of the party aggrieved by
a negative ruling that simply erred in interpreting the facts or the law? It
certainly cannot be the special civil action for certiorari, for as the Court
held in Silverio v. Court of Appeals: "Certiorari is a remedy narrow in its
scope and inflexible in its character. It is not a general utility tool in the
legal workshop."87
Fortunately, this theoretical quandary need not come to pass. Section 29
of the SMA is worded in such a way that it places under the CTA's judicial
review all rulings of the DTI Secretary, which are connected with the
imposition of a safeguard measure. This is sound and proper in light of the

specialized jurisdiction of the CTA over tax matters. In the same way that
a question of whether to tax or not to tax is properly a tax matter, so is
the question of whether to impose or not to impose a definitive safeguard
measure.
On another note, the second paragraph of Section 29 similarly reveals the
legislative intent that rulings of the DTI Secretary over safeguard
measures should first be reviewed by the CTA and not the Court of
Appeals. It reads:
The petition for review shall comply with the same requirements
and shall follow the same rules of procedure and shall be subject
to the same disposition as in appeals in connection with adverse
rulings on tax matters to the Court of Appeals.
This is the only passage in the SMA in which the Court of Appeals is
mentioned. The express wish of Congress is that the petition conform to
the requirements and procedure under Rule 43 of the Rules of Civil
Procedure. Since Congress mandated that the form and procedure adopted
be analogous to a review of a CTA ruling by the Court of Appeals, the
legislative contemplation could not have been that the appeal be directly
taken to the Court of Appeals.
Issue of Binding Effect of Tariff
Commission's Factual Determination
on DTI Secretary.
The next issue for resolution is whether the factual determination made by
the Tariff Commission under the SMA is binding on the DTI Secretary.
Otherwise stated, the question is whether the DTI Secretary may impose
general safeguard measures in the absence of a positive final
determination by the Tariff Commission.
The Court of Appeals relied upon Section 13 of the SMA in ruling that the
findings of the Tariff Commission do not necessarily constitute a final
decision. Section 13 details the procedure for the adoption of a safeguard
measure, as well as the steps to be taken in case there is a negative final
determination. The implication of the Court of Appeals' holding is that the
DTI Secretary may adopt a definitive safeguard measure, notwithstanding
a negative determination made by the Tariff Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions
before general safeguard measures may be imposed. However, the most
fundamental restriction on the DTI Secretary's power in that
respect is contained in Section 5 of the SMAthat there should
first be a positive final determination of the Tariff

Commissionwhich the Court of Appeals curiously all but ignored.

Section 5 reads:
Sec. 5. Conditions for the Application of General Safeguard
Measures. The Secretary shall apply a general safeguard
measure upon a positive final determination of the [Tariff]
Commission that a product is being imported into the country in
increased quantities, whether absolute or relative to the domestic
production, as to be a substantial cause of serious injury or threat
thereof to the domestic industry; however, in the case of nonagricultural products, the Secretary shall first establish that the
application of such safeguard measures will be in the public
interest. (emphasis supplied)
The plain meaning of Section 5 shows that it is the Tariff Commission that
has the power to make a "positive final determination." This power lodged
in the Tariff Commission, must be distinguished from the power to impose
the general safeguard measure which is properly vested on the DTI
Secretary.88
All in all, there are two condition precedents that must be satisfied before
the DTI Secretary may impose a general safeguard measure on grey
Portland cement. First, there must be a positive final determination by the
Tariff Commission that a product is being imported into the country in
increased quantities (whether absolute or relative to domestic production),
as to be a substantial cause of serious injury or threat to the domestic
industry. Second, in the case of non-agricultural products the Secretary
must establish that the application of such safeguard measures is in the
public interest.89 As Southern Cross argues, Section 5 is quite clear-cut,
and it is impossible to finagle a different conclusion even through
overarching methods of statutory construction. There is no safer nor better
settled canon of interpretation that when language is clear and
unambiguous it must be held to mean what it plainly expresses: 90 In the
quotable words of an illustrious member of this Court, thus:
[I]f a statute is clear, plain and free from ambiguity, it must be
given its literal meaning and applied without attempted
interpretation. The verba legis or plain meaning rule rests on the
valid presumption that the words employed by the legislature in a
statute correctly express its intent or will and preclude the court
from construing it differently. The legislature is presumed to know
the meaning of the words, to have used words advisedly, and to
have expressed its intent by the use of such words as are found in
the statute.91
Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA, 92
which interprets Section 5 of the law, likewise requires a positive final

determination on the part of the Tariff Commission before the application

of the general safeguard measure.
The SMA establishes a distinct allocation of functions between the Tariff
Commission and the DTI Secretary. The plain meaning of Section 5 shows
that it is the Tariff Commission that has the power to make a "positive final
determination." This power, which belongs to the Tariff Commission, must
be distinguished from the power to impose general safeguard measure
properly vested on the DTI Secretary. The distinction is vital, as a "positive
final determination" clearly antecedes, as a condition precedent, the
imposition of a general safeguard measure. At the same time, a positive
final determination does not necessarily result in the imposition of a
general safeguard measure. Under Section 5, notwithstanding the positive
final determination of the Tariff Commission, the DTI Secretary is tasked to
decide whether or not that the application of the safeguard measures is in
the public interest.
It is also clear from Section 5 of the SMA that the positive final
determination to be undertaken by the Tariff Commission does not entail a
mere gathering of statistical data. In order to arrive at such determination,
it has to establish causal linkages from the statistics that it compiles and
evaluates: after finding there is an importation in increased quantities of
the product in question, that such importation is a substantial cause of
serious threat or injury to the domestic industry.
The Court of Appeals relies heavily on the legislative record of a
congressional debate during deliberations on the SMA to assert a
purported legislative intent that the findings of the Tariff Commission do
not bind the DTI Secretary.93 Yet as explained earlier, the plain meaning of
Section 5 emphasizes that only if the Tariff Commission renders a positive
determination could the DTI Secretary impose a safeguard measure.
Resort to the congressional records to ascertain legislative intent is not
warranted if a statute is clear, plain and free from ambiguity. The
legislature is presumed to know the meaning of the words, to have used
words advisedly, and to have expressed its intent by the use of such words
as are found in the statute.94
Indeed, the legislative record, if at all to be availed of, should be
approached with extreme caution, as legislative debates and proceedings
are powerless to vary the terms of the statute when the meaning is clear.95
Our holding in Civil Liberties Union v. Executive Secretary96 on the resort
to deliberations of the constitutional convention to interpret the
Constitution is likewise appropriate in ascertaining statutory intent:
While it is permissible in this jurisdiction to consult the debates
and proceedings of the constitutional convention in order to arrive
at the reason and purpose of the resulting Constitution, resort

thereto may be had only when other guides fail as said

proceedings are powerless to vary the terms of the Constitution
when the meaning is clear. Debates in the constitutional
convention "are of value as showing the views of the individual
members, and as indicating the reasons for their votes, but they
give us no light as to the views of the large majority who did not
talk xxx. We think it safer to construe the constitution from what
appears upon its face."97
Moreover, it is easy to selectively cite passages, sometimes out of their
proper context, in order to assert a misleading interpretation. The effect
can be dangerous. Minority or solitary views, anecdotal ruminations, or
even the occasional crude witticisms, may improperly acquire the mantle
of legislative intent by the sole virtue of their publication in the
authoritative congressional record. Hence, resort to legislative
deliberations is allowable when the statute is crafted in such a manner as
to leave room for doubt on the real intent of the legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretary's
power to impose a general safeguard measure by preconditioning such
imposition on a positive determination by the Tariff Commission. Such
legislative intent should be given full force and effect, as the executive
power to impose definitive safeguard measures is but a delegated
powerthe power of taxation, by nature and by command of the
fundamental law, being a preserve of the legislature.98 Section 28(2),
Article VI of the 1987 Constitution confirms the delegation of legislative
power, yet ensures that the prerogative of Congress to impose limitations
and restrictions on the executive exercise of this power:
The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as
it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework
of the national development program of the Government. 99
The safeguard measures which the DTI Secretary may impose under the
SMA may take the following variations, to wit: (a) an increase in, or
imposition of any duty on the imported product; (b) a decrease in or the
imposition of a tariff-rate quota on the product; (c) a modification or
imposition of any quantitative restriction on the importation of the product
into the Philippines; (d) one or more appropriate adjustment measures,
including the provision of trade adjustment assistance; and (e) any
combination of the above-described actions. Except for the provision of
trade adjustment assistance, the measures enumerated by the SMA are
essentially imposts, which precisely are the subject of delegation under
Section 28(2), Article VI of the 1987 Constitution. 100

This delegation of the taxation power by the legislative to the executive is

authorized by the Constitution itself.101 At the same time, the Constitution
also grants the delegating authority (Congress) the right to impose
restrictions and limitations on the taxation power delegated to the
President.102 The restrictions and limitations imposed by Congress take on
the mantle of a constitutional command, which the executive branch is
obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of the President,103 to
impose definitive general safeguard measures, which basically are tariff
imposts of the type spoken of in the Constitution. However, the law did not
grant him full, uninhibited discretion to impose such measures. The DTI
Secretary authority is derived from the SMA; it does not flow from any
inherent executive power. Thus, the limitations imposed by Section 5 are
absolute, warranted as they are by a constitutional fiat. 104
Philcemcor cites our 1912 ruling in Lamb v. Phipps105 to assert that the DTI
Secretary, having the final decision on the safeguard measure, has the
power to evaluate the findings of the Tariff Commission and make an
independent judgment thereon. Given the constitutional and statutory
limitations governing the present case, the citation is misplaced. Lamb
pertained to the discretion of the Insular Auditor of the Philippine Islands,
whom, as the Court recognized, "[t]he statutes of the United States
require[d] xxx to exercise his judgment upon the legality xxx [of]
provisions of law and resolutions of Congress providing for the payment of
money, the means of procuring testimony upon which he may act." 106
Thus in Lamb, while the Court recognized the wide latitude of discretion
that may have been vested on the Insular Auditor, it also recognized that
such latitude flowed from, and is consequently limited by, statutory grant.
However, in this case, the provision of the Constitution in point expressly
recognizes the authority of Congress to prescribe limitations in the case of
tariffs, export/import quotas and other such safeguard measures. Thus,
the broad discretion granted to the Insular Auditor of the Philippine Islands
cannot be analogous to the discretion of the DTI Secretary which is
circumscribed by Section 5 of the SMA.
For that matter, Cario v. Commissioner on Human Rights,107 likewise cited
by Philcemcor, is also inapplicable owing to the different statutory regimes
prevailing over that case and the present petition. In Cario, the Court
ruled that the constitutional power of the Commission on Human Rights
(CHR) to investigate human rights' violations did not extend to
adjudicating claims on the merits.108 Philcemcor claims that the functions
of the Tariff Commission being "only investigatory," it could neither decide
nor adjudicate.109

The applicable law governing the issue in Cario is Section 18, Article XIII
of the Constitution, which delineates the powers and functions of the CHR.
The provision does not vest on the CHR the power to adjudicate cases, but
only to investigate all forms of human rights violations. 110 Yet, without
modifying the thorough disquisition of the Court in Cario on the general
limitations on the investigatory power, the precedent is inapplicable
because of the difference in the involved statutory frameworks. The
Constitution does not repose binding effect on the results of the CHR's
investigation.111 On the other hand, through Section 5 of the SMA and
under the authority of Section 28(2), Article VI of the Constitution,
Congress did intend to bind the DTI Secretary to the determination made
by the Tariff Commission.112 It is of no consequence that such
determination results from the exercise of investigatory powers by the
Tariff Commission since Congress is well within its constitutional mandate
to limit the authority of the DTI Secretary to impose safeguard measures
in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA
and Rule 13 of the SMA's Implementing Rules in support of the view that
the DTI Secretary may decide independently of the determination made by
the Tariff Commission. Admittedly, there are certain infelicities in the
language of Section 13 and Rule 13. But reliance should not be placed on
the textual imprecisions. Rather, Section 13 and Rule 13 must be viewed in
light of the fundamental prescription imposed by Section 5. 113
Section 13 of the SMA lays down the procedure to be followed after the
Tariff Commission renders its report. The provision reads in full:
SEC. 13. Adoption of Definitive Measures. Upon its positive
determination, the Commission shall recommend to the Secretary
an appropriate definitive measure, in the form of:
(a) An increase in, or imposition of, any duty on the imported
product;
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on
the product;
(c) A modification or imposition of any quantitative restriction on
the importation of the product into the Philippines;
(d) One or more appropriate adjustment measures, including the
provision of trade adjustment assistance;
(e) Any combination of actions described in subparagraphs (a) to
(d).
The Commission may also recommend other actions, including the
initiation of international negotiations to address the underlying
cause of the increase of imports of the product, to alleviate the
injury or threat thereof to the domestic industry, and to facilitate
positive adjustment to import competition.

The general safeguard measure shall be limited to the extent of

redressing or preventing the injury and to facilitate adjustment by
the domestic industry from the adverse effects directly attributed
to the increased imports: Provided, however, That when
quantitative import restrictions are used, such measures shall not
reduce the quantity of imports below the average imports for the
three (3) preceding representative years, unless clear justification
is given that a different level is necessary to prevent or remedy a
serious injury.
A general safeguard measure shall not be applied to a product
originating from a developing country if its share of total imports
of the product is less than three percent (3%): Provided, however,
That developing countries with less than three percent (3%) share
collectively account for not more than nine percent (9%) of the
total imports.
The decision imposing a general safeguard measure, the duration
of which is more than one (1) year, shall be reviewed at regular
intervals for purposes of liberalizing or reducing its intensity. The
industry benefiting from the application of a general safeguard
measure shall be required to show positive adjustment within the
allowable period. A general safeguard measure shall be terminated
where the benefiting industry fails to show any improvement, as
may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the
concerned government agencies to implement the appropriate
general safeguard measure as determined by the Secretary within
fifteen (15) days from receipt of the report.
In the event of a negative final determination, or if the cash bond
is in excess of the definitive safeguard duty assessed, the
Secretary shall immediately issue, through the Secretary of
Finance, a written instruction to the Commissioner of Customs,
authorizing the return of the cash bond or the remainder thereof,
as the case may be, previously collected as provisional general
safeguard measure within ten (10) days from the date a final
decision has been made: Provided, That the government shall not
be liable for any interest on the amount to be returned. The
Secretary shall not accept for consideration another petition from
the same industry, with respect to the same imports of the product
under consideration within one (1) year after the date of rendering
such a decision.
When the definitive safeguard measure is in the form of a tariff
increase, such increase shall not be subject or limited to the

maximum levels of tariff as set forth in Section 401(a) of the Tariff

and Customs Code of the Philippines.
To better comprehend Section 13, note must be taken of the distinction
between the investigatory and recommendatory functions of the Tariff
Commission under the SMA.
The word "determination," as used in the SMA, pertains to the factual
findings on whether there are increased imports into the country of the
product under consideration, and on whether such increased imports are a
substantial cause of serious injury or threaten to substantially cause
serious injury to the domestic industry.114 The SMA explicitly authorizes the
DTI Secretary to make a preliminary determination,115 and the Tariff
Commission to make the final determination.116 The distinction is
fundamental, as these functions are not interchangeable. The Tariff
Commission makes its determination only after a formal investigation
process, with such investigation initiated only if there is a positive
preliminary determination by the DTI Secretary under Section 7 of the
SMA.117 On the other hand, the DTI Secretary may impose definitive
safeguard measure only if there is a positive final determination made by
the Tariff Commission.118
In contrast, a "recommendation" is a suggested remedial measure
submitted by the Tariff Commission under Section 13 after making a
positive final determination in accordance with Section 5. The Tariff
Commission is not empowered to make a recommendation absent a
positive final determination on its part.119 Under Section 13, the Tariff
Commission is required to recommend to the [DTI] Secretary an
"appropriate definitive measure."120 The Tariff Commission "may also
recommend other actions, including the initiation of international
negotiations to address the underlying cause of the increase of imports of
the products, to alleviate the injury or threat thereof to the domestic
industry and to facilitate positive adjustment to import competition." 121
The recommendations of the Tariff Commission, as rendered under Section
13, are not obligatory on the DTI Secretary. Nothing in the SMA mandates
the DTI Secretary to adopt the recommendations made by the Tariff
Commission. In fact, the SMA requires that the DTI Secretary establish
that the application of such safeguard measures is in the public interest,
notwithstanding the Tariff Commission's recommendation on the
appropriate safeguard measure based on its positive final determination. 122
The non-binding force of the Tariff Commission's recommendations is
congruent with the command of Section 28(2), Article VI of the 1987
Constitution that only the President may be empowered by the Congress
to impose appropriate tariff rates, import/export quotas and other similar
measures.123 It is the DTI Secretary, as alter ego of the President, who
under the SMA may impose such safeguard measures subject to the
limitations imposed therein. A contrary conclusion would in essence unduly

arrogate to the Tariff Commission the executive power to impose the

appropriate tariff measures. That is why the SMA empowers the DTI
Secretary to adopt safeguard measures other than those recommended by
the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination
has a different effect on the DTI Secretary. Only on the basis of a positive
final determination made by the Tariff Commission under Section 5 can the
DTI Secretary impose a general safeguard measure. Clearly, then the DTI
Secretary is bound by the determination made by the Tariff
Commission.
Some confusion may arise because the sixth paragraph of Section 13 124
uses the variant word "determined" in a different context, as it
contemplates "the appropriate general safeguard measure as determined
by the Secretary within fifteen (15) days from receipt of the report." Quite
plainly, the word "determined" in this context pertains to the DTI
Secretary's power of choice of the appropriate safeguard measure, as
opposed to the Tariff Commission's power to determine the existence of
conditions necessary for the imposition of any safeguard measure. In
relation to Section 5, such choice also relates to the mandate of the DTI
Secretary to establish that the application of safeguard measures is in the
public interest, also within the fifteen (15) day period. Nothing in Section
13 contradicts the instruction in Section 5 that the DTI Secretary is
allowed to impose the general safeguard measures only if there is a
positive determination made by the Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is
captioned "Final Determination by the Secretary." The assailed Decision
and Philcemcor latch on this phraseology to imply that the factual
determination rendered by the Tariff Commission under Section 5 may be
amended or reversed by the DTI Secretary. Of course, implementing rules
should conform, not clash, with the law that they seek to implement, for a
regulation which operates to create a rule out of harmony with the statute
is a nullity.125 Yet imperfect draftsmanship aside, nothing in Rule 13.2
implies that the DTI Secretary can set aside the determination made by
the Tariff Commission under the aegis of Section 5. This can be seen by
examining the specific provisions of Rule 13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the
Report of the Commission, the Secretary shall make a decision,
taking into consideration the measures recommended by the
Commission.

RULE 13.2.b. If the determination is affirmative, the Secretary shall

issue, within two (2) calendar days after making his decision, a
written instruction to the heads of the concerned government
agencies to immediately implement the appropriate general
safeguard measure as determined by him. Provided, however, that
in the case of non-agricultural products, the Secretary shall first
establish that the imposition of the safeguard measure will be in the
public interest.
RULE 13.2.c. Within two (2) calendar days after making his
decision, the Secretary shall also order its publication in two (2)
newspapers of general circulation. He shall also furnish a copy of his
Order to the petitioner and other interested parties, whether
affirmative or negative. (Emphasis supplied.)
Moreover, the DTI Secretary does not have the power to review the
findings of the Tariff Commission for it is not subordinate to the
Department of Trade and Industry ("DTI"). It falls under the supervision,
not of the DTI nor of the Department of Finance (as mistakenly asserted
by Southern Cross),126 but of the National Economic Development
Authority, an independent planning agency of the government of
co-equal rank as the DTI.127 As the supervision and control of a
Department Secretary is limited to the bureaus, offices, and agencies
under him,128 the DTI Secretary generally cannot exercise review authority
over actions of the Tariff Commission. Neither does the SMA specifically
authorize the DTI Secretary to alter, amend or modify in any way the
determination made by the Tariff Commission. The most that the DTI
Secretary could do to express displeasure over the Tariff Commission's
actions is to ignore its recommendation, but not its determination.
The word "determination" as used in Rule 13.2 of the Implementing Rules
is dissonant with the same word as employed in the SMA, which in the
latter case is undeviatingly in reference to the determination made by the
Tariff Commission. Beyond the resulting confusion, however, the divergent
use in Rule 13.2 is explicable as the Rule textually pertains to the power of
the DTI Secretary to review the recommendations of the Tariff
Commission, not the latter's determination. Indeed, an examination of the
specific provisions show that there is no real conflict to reconcile. Rule 13.2
respects the logical order imposed by the SMA. The Rule does not remove
the essential requirement under Section 5 that a positive final
determination be made by the Tariff Commission before a definitive
safeguard measure may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission
as merely recommendatory and points to the DTI Secretary as the
authority who renders the final decision.129 At the same time, Philcemcor
asserts that the Tariff Commission's functions are merely investigatory,
and as such do not include the power to decide or adjudicate. These

contentions, viewed in the context of the fundamental requisite set forth

by Section 5, are untenable. They run counter to the statutory prescription
that a positive final determination made by the Tariff Commission should
first be obtained before the definitive safeguard measures may be laid
down.
Was it anomalous for Congress to have provided for a system whereby the
Tariff Commission may preclude the DTI, an office of higher rank, from
imposing a safeguard measure? Of course, this Court does not inquire into
the wisdom of the legislature but only charts the boundaries of powers and
functions set in its enactments. But then, it is not difficult to see the
internal logic of this statutory framework.
For one, as earlier stated, the DTI cannot exercise review powers over the
Tariff Commission which is not its subordinate office.
Moreover, the mechanism established by Congress establishes a measure
of check and balance involving two different governmental agencies with
disparate specializations. The matter of safeguard measures is of such
national importance that a decision either to impose or not to impose then
could have ruinous effects on companies doing business in the Philippines.
Thus, it is ideal to put in place a system which affords all due deliberation
and calls to fore various governmental agencies exercising their particular
specializations.
Finally, if this arrangement drawn up by Congress makes it difficult to
obtain a general safeguard measure, it is because such safeguard measure
is the exception, rather than the rule. The Philippines is obliged to observe
its obligations under the GATT, under whose framework trade liberalization,
not protectionism, is laid down. Verily, the GATT actually prescribes
conditions before a member-country may impose a safeguard measure.
The pertinent portion of the GATT Agreement on Safeguards reads:
2. A Member may only apply a safeguard measure to a product
only if that member has determined, pursuant to the provisions set
out below, that such product is being imported into its territory in
such increased quantities, absolute or relative to domestic
production, and under such conditions as to cause or threaten to
cause serious injury to the domestic industry that produces like or
directly competitive products. 130
3. (a) A Member may apply a safeguard measure only following an
investigation by the competent authorities of that Member
pursuant to procedures previously established and made public in
consonance with Article X of the GATT 1994. This investigation
shall include reasonable public notice to all interested parties and
public hearings or other appropriate means in which importers,

exporters and other interested parties could present evidence and

their views, including the opportunity to respond to the
presentations of other parties and to submit their views, inter alia,
as to whether or not the application of a safeguard measure would
be in the public interest. The competent authorities shall publish a
report setting forth their findings and reasoned conclusions
reached on all pertinent issues of fact and law.131
The SMA was designed not to contradict the GATT, but to complement it.
The two requisites laid down in Section 5 for a positive final determination
are the same conditions provided under the GATT Agreement on
Safeguards for the application of safeguard measures by a member
country. Moreover, the investigatory procedure laid down by the SMA
conforms to the procedure required by the GATT Agreement on
Safeguards. Congress has chosen the Tariff Commission as the competent
authority to conduct such investigation. Southern Cross stresses that
applying the provision of the GATT Agreement on Safeguards, the Tariff
Commission is clearly empowered to arrive at binding conclusions. 132 We
agree: binding on the DTI Secretary is the Tariff Commission's
determinations on whether a product is imported in increased quantities,
absolute or relative to domestic production and whether any such increase
is a substantial cause of serious injury or threat thereof to the domestic
industry.133
Satisfied as we are with the proper statutory paradigm within which the
SMA should be analyzed, the flaws in the reasoning of the Court of Appeals
and in the arguments of the respondents become apparent. To better
understand the dynamics of the procedure set up by the law leading to the
imposition of definitive safeguard measures, a brief step-by-step recount
thereof is in order.
1. After the initiation of an action involving a general safeguard
measure,134 the DTI Secretary makes a preliminary determination whether
the increased imports of the product under consideration substantially
cause or threaten to substantially cause serious injury to the domestic
industry,135 and whether the imposition of a provisional measure is
warranted under Section 8 of the SMA.136 If the preliminary determination
is negative, it is implied that no further action will be taken on the
application.
2. When his preliminary determination is positive, the Secretary
immediately transmits the records covering the application to the Tariff
Commission for immediate formal investigation.137
3. The Tariff Commission conducts its formal investigation, keyed towards
making a final determination. In the process, it holds public hearings,
providing interested parties the opportunity to present evidence or

otherwise be heard.138 To repeat, Section 5 enumerates what the Tariff

Commission is tasked to determine: (a) whether a product is being
imported into the country in increased quantities, irrespective of whether
the product is absolute or relative to the domestic production; and (b)
whether the importation in increased quantities is such that it causes
serious injury or threat to the domestic industry.139 The findings of the
Tariff Commission as to these matters constitute the final determination,
which may be either positive or negative.
4. Under Section 13 of the SMA, if the Tariff Commission makes a positive
determination, the Tariff Commission "recommends to the [DTI] Secretary
an appropriate definitive measure." The Tariff Commission "may also
recommend other actions, including the initiation of international
negotiations to address the underlying cause of the increase of imports of
the products, to alleviate the injury or threat thereof to the domestic
industry, and to facilitate positive adjustment to import competition." 140
5. If the Tariff Commission makes a positive final determination, the DTI
Secretary is then to decide, within fifteen (15) days from receipt of the
report, as to what appropriate safeguard measures should he impose.
6. However, if the Tariff Commission makes a negative final determination,
the DTI Secretary cannot impose any definitive safeguard measure. Under
Section 13, he is instructed instead to return whatever cash bond was paid
by the applicant upon the initiation of the action for safeguard measure.
The Effect of the Court's Decision
The Court of Appeals erred in remanding the case back to the DTI
Secretary, with the instruction that the DTI Secretary may impose a
general safeguard measure even if there is no positive final determination
from the Tariff Commission. More crucially, the Court of Appeals could not
have acquired jurisdiction over Philcemcor's petition for certiorari in the
first place, as Section 29 of the SMA properly vests jurisdiction on the CTA.
Consequently, the assailed Decision is an absolute nullity, and we declare it
as such.
What is the effect of the nullity of the assailed Decision on the 5 June 2003
Decision of the DTI Secretary imposing the general safeguard measure?
We have recognized that any initial judicial review of a DTI ruling in
connection with the imposition of a safeguard measure belongs to the CTA.
At the same time, the Court also recognizes the fundamental principle that
a null and void judgment cannot produce any legal effect. There is
sufficient cause to establish that the 5 June 2003 Decision of the DTI
Secretary resulted from the assailed Court of Appeals Decision, even if the
latter had not yet become final. Conversely, it can be concluded that it was
because of the putative imprimatur of the Court of Appeals' Decision that

the DTI Secretary issued his ruling imposing the safeguard measure. Since
the 5 June 2003 Decision derives its legal effect from the void Decision of
the Court of Appeals, this ruling of the DTI Secretary is consequently void.
The spring cannot rise higher than the source.
The DTI Secretary himself acknowledged that he drew stimulating force
from the appellate court's Decision for in his own 5 June 2003 Decision, he
declared:
From the aforementioned ruling, the CA has remanded the case to
the DTI Secretary for a final decision. Thus, there is no legal
impediment for the Secretary to decide on the application. 141
The inescapable conclusion is that the DTI Secretary needed the assailed
Decision of the Court of Appeals to justify his rendering a second Decision.
He explicitly invoked the Court of Appeals' Decision as basis for rendering
his 5 June 2003 ruling, and implicitly recognized that without such
Decision he would not have the authority to revoke his previous ruling and
render a new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the DTI Secretary is a
product of the void Decision, it being an attempt to carry out such null
judgment. There is therefore no choice but to declare it void as well, lest
we sanction the perverse existence of a fruit from a non-existent tree. It
does not even matter what the disposition of the 25 June 2003 Decision
was, its nullity would be warranted even if the DTI Secretary chose to
uphold his earlier ruling denying the application for safeguard measures.
It is also an unfortunate spectacle to behold the DTI Secretary, seeking to
enforce a judicial decision which is not yet final and actually pending
review on appeal. Had it been a judge who attempted to enforce a decision
that is not yet final and executory, he or she would have readily been
subjected to sanction by this Court. The DTI Secretary may be beyond the
ambit of administrative review by this Court, but we are capacitated to
allocate the boundaries set by the law of the land and to exact fealty to
the legal order, especially from the instrumentalities and officials of
government.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of
Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI
Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and SET ASIDE.
No Costs.
SO ORDERED.

G.R. No. 147188

September 14, 2004

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Coadministrators Lorna Kapunan and Mario Luza Bautista,
respondents.
DECISION
DAVIDE, JR., C.J.:
This Court is called upon to determine in this case whether the tax
planning scheme adopted by a corporation constitutes tax evasion that
would justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision1 of the Court of Appeals
of 31 January 2001 in CA-G.R. SP No. 57799 affirming the 3 January 2000
Decision2 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5328, 3
which held that the respondent Estate of Benigno P. Toda, Jr. is not liable
for the deficiency income tax of Cibeles Insurance Corporation (CIC) in the
amount of P79,099,999.22 for the year 1989, and ordered the cancellation
and setting aside of the assessment issued by Commissioner of Internal
Revenue Liwayway Vinzons-Chato on 9 January 1995.
The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from
an alleged simulated sale of a 16-storey commercial building known as
Cibeles Building, situated on two parcels of land on Ayala Avenue, Makati
City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner
of 99.991% of its issued and outstanding capital stock, to sell the Cibeles
Building and the two parcels of land on which the building stands for an
amount of not less than P90 million.4
On 30 August 1989, Toda purportedly sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day
to Royal Match Inc. (RMI) for P200 million. These two transactions were
evidenced by Deeds of Absolute Sale notarized on the same day by the
same notary public.5
For the sale of the property to RMI, Altonaga paid capital gains tax in the
amount of P10 million.6

On 16 April 1990, CIC filed its corporate annual income tax return 7 for the
year 1989, declaring, among other things, its gain from the sale of real
property in the amount of P75,728.021. After crediting withholding taxes
of P254,497.00, it paid P26,341,2078 for its net taxable income of
P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T.
Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of
Stocks.9 Three and a half years later, or on 16 January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an
assessment notice10 and demand letter to the CIC for deficiency income
tax for the year 1989 in the amount of P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the assessment
should be directed against the old CIC, and not against the new CIC, which
is owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all
tax liabilities for the fiscal years 1987-1989.11
On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by
special co-administrators Lorna Kapunan and Mario Luza Bautista, received
a Notice of Assessment12 dated 9 January 1995 from the Commissioner of
Internal Revenue for deficiency income tax for the year 1989 in the
amount of P79,099,999.22, computed as follows:
Income Tax 1989
Net
Income
per return

Add:
Additional
gain on
sale of real
property
taxable
under
ordinary
corporate
income but
were
substituted
with
individual
capital

P75,987,72
5.00
100,000,00
0.00

Total

gains(P200
M 100M)

Total Net Taxable

Income per
investigation
Tax Due
thereof at
35%

A
d
d
:
I
n
t
e
r
e
s
t
2
0
%

P175,987,7
25.00

P 61,595,703.75

Less:
Payment
already
made
1. Per
return

P26,595
,704.00

2. Thru
Capital
Gains Tax
made
by R.A.
Altonaga

10,000,
000.00

36,595,704.
00

P
24,999,999.
75
A
d
d
:
5
0
%

Bal
anc
e
of
tax
due

f
r
o
m
4/16/904/30/94
(.808)

35,349,999.65

TOTAL AMT. DUE &

COLLECTIBLE

P
79,099,999.
22
=======
=======

The Estate thereafter filed a letter of protest.13

S 12,499,999.88
u
r
c
h
a
r
g
e
25%
Surcharge

P
43,749,999.
57

6,249,999.9
4

In the letter dated 19 October 1995, 14 the Commissioner dismissed the

protest, stating that a fraudulent scheme was deliberately perpetuated by
the CIC wholly owned and controlled by Toda by covering up the additional
gain of P100 million, which resulted in the change in the income structure
of the proceeds of the sale of the two parcels of land and the building
thereon to an individual capital gains, thus evading the higher corporate
income tax rate of 35%.
On 15 February 1996, the Estate filed a petition for review 15 with the CTA
alleging that the Commissioner erred in holding the Estate liable for
income tax deficiency; that the inference of fraud of the sale of the
properties is unreasonable and unsupported; and that the right of the
Commissioner to assess CIC had already prescribed.

In his Answer16 and Amended Answer,17 the Commissioner argued that the
two transactions actually constituted a single sale of the property by CIC
to RMI, and that Altonaga was neither the buyer of the property from CIC
nor the seller of the same property to RMI. The additional gain of P100
million (the difference between the second simulated sale for P200 million
and the first simulated sale for P100 million) realized by CIC was taxed at
the rate of only 5% purportedly as capital gains tax of Altonaga, instead of
at the rate of 35% as corporate income tax of CIC. The income tax return
filed by CIC for 1989 with intent to evade payment of the tax was thus
false or fraudulent. Since such falsity or fraud was discovered by the BIR
only on 8 March 1991, the assessment issued on 9 January 1995 was well
within the prescriptive period prescribed by Section 223 (a) of the National
Internal Revenue Code of 1986, which provides that tax may be assessed
within ten years from the discovery of the falsity or fraud. With the sale
being tainted with fraud, the separate corporate personality of CIC should
be disregarded. Toda, being the registered owner of the 99.991% shares
of stock of CIC and the beneficial owner of the remaining 0.009% shares
registered in the name of the individual directors of CIC, should be held
liable for the deficiency income tax, especially because the gains realized
from the sale were withdrawn by him as cash advances or paid to him as
cash dividends. Since he is already dead, his estate shall answer for his
liability.

In its challenged Decision of 31 January 2001, the Court of Appeals

affirmed the decision of the CTA, reasoning that the CTA, being more
advantageously situated and having the necessary expertise in matters of
taxation, is "better situated to determine the correctness, propriety, and
legality of the income tax assessments assailed by the Toda Estate." 22

In its decision18 of 3 January 2000, the CTA held that the Commissioner
failed to prove that CIC committed fraud to deprive the government of the
taxes due it. It ruled that even assuming that a pre-conceived scheme was
adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion. There being no proof of fraudulent transaction, the applicable
period for the BIR to assess CIC is that prescribed in Section 203 of the
NIRC of 1986, which is three years after the last day prescribed by law for
the filing of the return. Thus, the governments right to assess CIC
prescribed on 15 April 1993. The assessment issued on 9 January 1995
was, therefore, no longer valid. The CTA also ruled that the mere
ownership by Toda of 99.991% of the capital stock of CIC was not in itself
sufficient ground for piercing the separate corporate personality of CIC.
Hence, the CTA declared that the Estate is not liable for deficiency income
tax of P79,099,999.22 and, accordingly, cancelled and set aside the
assessment issued by the Commissioner on 9 January 1995.

The Commissioner reiterates her arguments in her previous pleadings and

insists that the sale by CIC of the Cibeles property was in connivance with
its dummy Rafael Altonaga, who was financially incapable of purchasing it.
She further points out that the documents themselves prove the fact of
fraud in that (1) the two sales were done simultaneously on the same
date, 30 August 1989; (2) the Deed of Absolute Sale between Altonaga
and RMI was notarized ahead of the alleged sale between CIC and
Altonaga, with the former registered in the Notarial Register of Jocelyn H.
Arreza Pabelana as Doc. 91, Page 20, Book I, Series of 1989; and the
latter, as Doc. No. 92, Page 20, Book I, Series of 1989, of the same Notary
Public; (3) as early as 4 May 1989, CIC received P40 million from RMI, and
not from Altonaga. The said amount was debited by RMI in its trial balance
as of 30 June 1989 as investment in Cibeles Building. The substantial
portion of P40 million was withdrawn by Toda through the declaration of
cash dividends to all its stockholders.

In its motion for reconsideration,19 the Commissioner insisted that the sale
of the property owned by CIC was the result of the connivance between
Toda and Altonaga. She further alleged that the latter was a
representative, dummy, and a close business associate of the former,
having held his office in a property owned by CIC and derived his salary
from a foreign corporation (Aerobin, Inc.) duly owned by Toda for
representation services rendered. The CTA denied20 the motion for
reconsideration, prompting the Commissioner to file a petition for review 21
with the Court of Appeals.

For its part, respondent Estate asserts that the Commissioner failed to
present the income tax return of Altonaga to prove that the latter is
financially incapable of purchasing the Cibeles property.

Unsatisfied with the decision of the Court of Appeals, the Commissioner

filed the present petition invoking the following grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
RESPONDENT COMMITTED NO FRAUD WITH INTENT TO EVADE
THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES
INSURANCE CORPORATION.
II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE
SEPARATE CORPORATE PERSONALITY OF CIBELES INSURANCE
CORPORATION.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT
OF PETITIONER TO ASSESS RESPONDENT FOR DEFICIENCY
INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED.

To resolve the grounds raised by the Commissioner, the following questions

are pertinent:
1. Is this a case of tax evasion or tax avoidance?

2. Has the period for assessment of deficiency income tax for the
year 1989 prescribed? and
3. Can respondent Estate be held liable for the deficiency income
tax of CIC for the year 1989, if any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion or tax avoidance?
Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving
device within the means sanctioned by law. This method should be used by
the taxpayer in good faith and at arms length. Tax evasion, on the other
hand, is a scheme used outside of those lawful means and when availed of,
it usually subjects the taxpayer to further or additional civil or criminal
liabilities.23
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as being "evil," in
"bad faith," "willfull," or "deliberate and not accidental"; and (3) a course
of action or failure of action which is unlawful. 24
All these factors are present in the instant case. It is significant to note
that as early as 4 May 1989, prior to the purported sale of the Cibeles
property by CIC to Altonaga on 30 August 1989, CIC received P40 million
from RMI,25 and not from Altonaga. That P40 million was debited by RMI
and reflected in its trial balance26 as "other inv. Cibeles Bldg." Also, as of
31 July 1989, another P40 million was debited and reflected in RMIs trial
balance as "other inv. Cibeles Bldg." This would show that the real buyer
of the properties was RMI, and not the intermediary Altonaga.lavvphi1.net
The investigation conducted by the BIR disclosed that Altonaga was a close
business associate and one of the many trusted corporate executives of
Toda. This information was revealed by Mr. Boy Prieto, the assistant
accountant of CIC and an old timer in the company.27 But Mr. Prieto did not
testify on this matter, hence, that information remains to be hearsay and is
thus inadmissible in evidence. It was not verified either, since the letterrequest for investigation of Altonaga was unserved, 28 Altonaga having left
for the United States of America in January 1990. Nevertheless, that
Altonaga was a mere conduit finds support in the admission of respondent
Estate that the sale to him was part of the tax planning scheme of CIC.
That admission is borne by the records. In its Memorandum, respondent
Estate declared:

Petitioner, however, claims there was a "change of structure" of the

proceeds of sale. Admitted one hundred percent. But isnt this
precisely the definition of tax planning? Change the structure of
the funds and pay a lower tax. Precisely, Sec. 40 (2) of the Tax
Code exists, allowing tax free transfers of property for stock,
changing the structure of the property and the tax to be paid. As
long as it is done legally, changing the structure of a transaction to
achieve a lower tax is not against the law. It is absolutely allowed.
Tax planning is by definition to reduce, if not eliminate altogether,
a tax. Surely petitioner [sic] cannot be faulted for wanting to
reduce the tax from 35% to 5%.29 [Underscoring supplied].
The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
Fraud in its general sense, "is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach
of legal or equitable duty, trust or confidence justly reposed, resulting in
the damage to another, or by which an undue and unconscionable
advantage is taken of another."30
Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax, and
not the 35% corporate income tax. Altonagas sole purpose of acquiring
and transferring title of the subject properties on the same day was to
create a tax shelter. Altonaga never controlled the property and did not
enjoy the normal benefits and burdens of ownership. The sale to him was
merely a tax ploy, a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was calculated to
mislead the BIR with the end in view of reducing the consequent income
tax liability.lavvphi1.net
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which
was prompted more on the mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion. 31
Generally, a sale or exchange of assets will have an income tax incidence
only when it is consummated.32 The incidence of taxation depends upon
the substance of a transaction. The tax consequences arising from gains
from a sale of property are not finally to be determined solely by the
means employed to transfer legal title. Rather, the transaction must be
viewed as a whole, and each step from the commencement of negotiations
to the consummation of the sale is relevant. A sale by one person cannot

be transformed for tax purposes into a sale by another by using the latter
as a conduit through which to pass title. To permit the true nature of the
transaction to be disguised by mere formalisms, which exist solely to alter
tax liabilities, would seriously impair the effective administration of the tax
policies of Congress.33
To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the latter
was merely a conduit is to sanction a circumvention of our tax laws.
Hence, the sale to Altonaga should be disregarded for income tax
purposes.34 The two sale transactions should be treated as a single direct
sale by CIC to RMI.
Accordingly, the tax liability of CIC is governed by then Section 24 of the
NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997),
which stated as follows:
Sec. 24. Rates of tax on corporations. (a) Tax on domestic
corporations.- A tax is hereby imposed upon the taxable net
income received during each taxable year from all sources by
every corporation organized in, or existing under the laws of the
Philippines, and partnerships, no matter how created or organized
but not including general professional partnerships, in accordance
with the following:
Twenty-five percent upon the amount by which the taxable
net income does not exceed one hundred thousand pesos;
and
Thirty-five percent upon the amount by which the taxable
net income exceeds one hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable net
income in 1989. The 5% individual capital gains tax provided for in Section
34 (h) of the NIRC of 198635 (now 6% under Section 24 (D) (1) of the Tax
Reform Act of 1997) is inapplicable. Hence, the assessment for the
deficiency income tax issued by the BIR must be upheld.
Has the period of assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform
Act of 1997) read:
Sec. 269. Exceptions as to period of limitation of assessment and
collection of taxes.-(a) In the case of a false or fraudulent return
with intent to evade tax or of failure to file a return, the tax may

be assessed, or a proceeding in court after the collection of such

tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken cognizance of
in the civil or criminal action for collection thereof .
Put differently, in cases of (1) fraudulent returns; (2) false returns with
intent to evade tax; and (3) failure to file a return, the period within which
to assess tax is ten years from discovery of the fraud, falsification or
omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his
counsel, asked the Opinion of the BIR on the tax consequence of the two
sale transactions.36 Thus, the BIR was amply informed of the transactions
even prior to the execution of the necessary documents to effect the
transfer. Subsequently, the two sales were openly made with the execution
of public documents and the declaration of taxes for 1989. However, these
circumstances do not negate the existence of fraud. As earlier discussed
those two transactions were tainted with fraud. And even assuming
arguendo that there was no fraud, we find that the income tax return filed
by CIC for the year 1989 was false. It did not reflect the true or actual
amount gained from the sale of the Cibeles property. Obviously, such was
done with intent to evade or reduce tax liability.
As stated above, the prescriptive period to assess the correct taxes in case
of false returns is ten years from the discovery of the falsity. The false
return was filed on 15 April 1990, and the falsity thereof was claimed to
have been discovered only on 8 March 1991. 37 The assessment for the
1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly,
the issuance of the correct assessment for deficiency income tax was well
within the prescriptive period.
Is respondent Estate liable for the 1989 deficiency income tax of Cibeles
Insurance Corporation?
A corporation has a juridical personality distinct and separate from the
persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. There are, however, certain instances in which
personal liability may arise. It has been held in a number of cases that
personal liability of a corporate director, trustee, or officer along, albeit not
necessarily, with the corporation may validly attach when:

1. He assents to the (a) patently unlawful act of the corporation,

(b) bad faith or gross negligence in directing its affairs, or (c)
conflict of interest, resulting in damages to the corporation, its
stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having
knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with
the corporation; or
4. He is made, by specific provision of law, to personally answer
for his corporate action.38
It is worth noting that when the late Toda sold his shares of stock to Le
Hun T. Choa, he knowingly and voluntarily held himself personally liable for
all the tax liabilities of CIC and the buyer for the years 1987, 1988, and
1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically
provides:
g. Except for transactions occurring in the ordinary course of
business, Cibeles has no liabilities or obligations, contingent or
otherwise, for taxes, sums of money or insurance claims other
than those reported in its audited financial statement as of
December 31, 1989, attached hereto as "Annex B" and made a
part hereof. The business of Cibeles has at all times been
conducted in full compliance with all applicable laws, rules and
regulations. SELLER undertakes and agrees to hold the
BUYER and Cibeles free from any and all income tax
liabilities of Cibeles for the fiscal years 1987, 1988 and
1989.39 [Underscoring Supplied].
When the late Toda undertook and agreed "to hold the BUYER and Cibeles
free from any all income tax liabilities of Cibeles for the fiscal years 1987,
1988, and 1989," he thereby voluntarily held himself personally liable
therefor. Respondent estate cannot, therefore, deny liability for CICs
deficiency income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas contractual
undertaking, as contained in the Deed of Sale of Shares of Stock.

WHEREFORE, in view of all the foregoing, the petition is hereby

GRANTED. The decision of the Court of Appeals of 31 January 2001 in CAG.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is
hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to pay
P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation
for the year 1989, plus legal interest from 1 May 1994 until the amount is
fully paid.
Costs against respondent.
SO ORDERED.

G.R. Nos. L-49839-46

April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their
capacities as appointed and Acting Members of the CENTRAL
BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,
ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as
appointed and Acting Members of the BOARD OF ASSESSMENT
APPEALS of Manila; and NICOLAS CATIIL in his capacity as City
Assessor of Manila, respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977
decision of the Central Board of Assessment Appeals1 in CBAA Cases Nos.
72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of
Assessment Appeals of Manila and City Assessor of Manila" which affirmed
the March 29, 1976 decision of the Board of Tax Assessment Appeals2 in
BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City
Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila" upholding the classification and assessments made by
the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of
parcels of land situated in Tondo and Sta. Cruz Districts, City of Manila,
which are leased and entirely occupied as dwelling sites by tenants. Said
tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature
enacted Republic Act No. 6359 prohibiting for one year from its effectivity,
an increase in monthly rentals of dwelling units or of lands on which
another's dwelling is located, where such rentals do not exceed three
hundred pesos (P300.00) a month but allowing an increase in rent by not
more than 10% thereafter. The said Act also suspended paragraph (1) of
Article 1673 of the Civil Code for two years from its effectivity thereby
disallowing the ejectment of lessees upon the expiration of the usual legal
period of lease. On October 12, 1972, Presidential Decree No. 20 amended
R.A. No. 6359 by making absolute the prohibition to increase monthly
rentals below P300.00 and by indefinitely suspending the aforementioned
provision of the Civil Code, excepting leases with a definite period.

Consequently, the Reyeses, petitioners herein, were precluded from raising

the rentals and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the subject
properties based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision, as expected, entailed an increase in the
corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals. They averred
that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon
them greatly exceeded the annual income derived from their properties.
They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach
which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax
Assessment Appeals, however, considered the assessments valid, holding
thus:
WHEREFORE, and considering that the appellants have failed to
submit concrete evidence which could overcome the presumptive
regularity of the classification and assessments appear to be in
accordance with the base schedule of market values and of the
base schedule of building unit values, as approved by the
Secretary of Finance, the cases should be, as they are hereby,
upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals,
Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment
Appeals.1wphi1 They submitted, among others, the summary of the
yearly rentals to show the income derived from the properties. Respondent
City Assessor, on the other hand, submitted three (3) deeds of sale
showing the different market values of the real property situated in the
same vicinity where the subject properties of petitioners are located. To
better appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular inspection with the
presence of two representatives of the City Assessor prior to the healing of
the case. Neither the owners nor their authorized representatives were
present during the said ocular inspection despite proper notices served
them. It was found that certain parcels of land were below street level and
were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its
decision, the dispositive portion of which reads:

WHEREFORE, the appealed decision insofar as the valuation and

assessment of the lots covered by Tax Declaration Nos. (5835) PD5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD1509, 146 and (1) PD-266, the appealed Decision is modified by
allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the
corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment
Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this
petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE
SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF
APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach"
method would have been more realistic for in disregarding the effect of the
restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and
unjustifiably set increased new assessed values at levels so high and
successive that the resulting annual real estate taxes would admittedly
exceed the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels of
the values assigned to their properties as revised and increased on the
ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals
admits in its decision that the income approach is used in determining land
values in some vicinities, it maintains that when income is affected by
some sort of price control, the same is rejected in the consideration and
study of land values as in the case of properties affected by the Rent
Control Law for they do not project the true market value in the open
market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of the
properties predicated upon prices paid in actual, market transactions
would be a uniform and a more credible standards to use especially in case

of mass appraisal of properties (Ibid.). Otherwise stated, public

respondents would have this Court completely ignore the effects of the
restrictions of P.D. No. 20 on the market value of properties within its
coverage. In any event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are generally acceptable
methods of appraisal for taxation purposes (The Law on Transfer and
Business Taxation by Hector S. De Leon, 1988 Edition). However, it is
conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army &
Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it
has been stressed that the assessors, in finding the value of the property,
have to consider all the circumstances and elements of value and must
exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the
rule of taxation must not only be uniform, but must also be equitable and
progressive.
Uniformity has been defined as that principle by which all taxable articles
or kinds of property of the same class shall be taxed at the same rate
(Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or
progressive aspects of taxation required in the 1973 Charter (Fernando
"The Constitution of the Philippines", p. 221, Second Edition). Thus, the
need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able
to pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest
of all the powers of government. But for all its plenitude the power to tax
is not unconfined as there are restrictions. Adversely effecting as it does
property rights, both the due process and equal protection clauses of the
Constitution may properly be invoked to invalidate in appropriate cases a
revenue measure. If it were otherwise, there would be truth to the 1903
dictum of Chief Justice Marshall that "the power to tax involves the power
to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power
to tax is not the power to destroy while this Court sits. So it is in the
Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v.
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An

obvious example is where it can be shown to amount to confiscation of

property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not
be prompted by a spirit of hostility, or at the very least discrimination that
finds no support in reason. It suffices then that the laws operate equally
and uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not being
different both in the privileges conferred and the liabilities imposed (Ibid.,
p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is
declared that the first Fundamental Principle to guide the appraisal and
assessment of real property for taxation purposes is that the property
must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties
covered by P.D. No. 20 be equated with the market value of properties not
so covered. The former has naturally a much lesser market value in view
of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales
approach" were presented by the public respondents, namely: (1) that the
sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable
property (Rollo, p. 27). Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the
time in question, there were hardly any willing buyers. As a general rule,
there were no takers so that there can be no reasonable basis for the
conclusion that these properties were comparable with other residential
properties not burdened by P.D. 20. Neither can the given circumstances
be nonchalantly dismissed by public respondents as imposed under

distressed conditions clearly implying that the same were merely

temporary in character. At this point in time, the falsity of such premises
cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for
government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158
SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of their
properties.
By the public respondents' own computation the assessment by income
approach would amount to only P10.00 per sq. meter at the time in
question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed
decisions of public respondents are REVERSED and SET ASIDE; and (e) the
respondent Board of Assessment Appeals of Manila and the City Assessor
of Manila are ordered to make a new assessment by the income approach
method to guarantee a fairer and more realistic basis of computation
(Rollo, p. 71).
SO ORDERED.