Taxation I Cases

Taxation I
WMSU LLB 3A SY 2016-2017

Atty. Honoriza M. Lavista
TAXATION I CASES
TABLE OF CONTENTS
1. Commissioner vs Algue ..............................................................................................................................................2
2. Commissioner vs BPI ..................................................................................................................................................7
3. Tio vs Videogram Regulatory Board ........................................................................................................................19
4. FELS Energy, Inc. vs Province of Batangas ...............................................................................................................27
5. CIR vs Tokyo Shipping Co. Ltd. et al. ........................................................................................................................42
6. Pilipinas Shell Petroleum Corporation vs CIR ..........................................................................................................47
7. Coconut Oil Refiners Association vs Torres .............................................................................................................72
8. Lorenzo vs Posadas ..................................................................................................................................................91
9. CIR vs Fortune Tobacco Corp .................................................................................................................................101
10. Caltex Phils. CoA ..................................................................................................................................................123
11. Osmea vs Orbos .................................................................................................................................................152
12. Southern Cross Cement Corp. vs Cement Manufacturers Association ..............................................................161
13. Batangas Power Corp. vs Batangas City ...............................................................................................................231
14. Commissioner vs Central Luzon Drug Corp..........................................................................................................238
15. M.E. Holding Corp. vs Court of Appeals ...............................................................................................................259
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1. COMMISSIONER VS ALGUE
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER
OF
INTERNAL
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
REVENUE, petitioner,
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, 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
taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the
petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years
1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
2
was stamp received on the same day in the office of the petitioner. On March 12, 1965, a warrant of distraint and
levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to
3
receive it on the ground of the pending protest. A search of the protest in the dockets of the case proved
fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred
4
service of the warrant. On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action
on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
5
served. Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner
6
of Internal Revenue with the Court of Tax Appeals.
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is
8
true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders
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9
hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said
10
request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of
the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965,
when it was filed, the reglementary period which started on the date the assessment was received, viz., January
14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely
informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the
appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.
Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by
the private respondent for actual services rendered. The payment was in the form of promotional
fees. These were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional
fees to be personal holding company income 12 but later conformed to the decision of the respondent court
13
rejecting this assertion. In fact, as the said court found, the amount was earned through the joint efforts of the
persons among whom it was distributed It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and
Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to
14
invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new
15
corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00,
16
and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.
There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.
18
The petitioner claims that these payments are fictitious because most of the payees are members
of the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
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We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not
made in one lump sum but periodically and in different amounts as each payee's need arose. 19 It
should be remembered that this was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to be
closed, each payee made an accounting of all of the fees received by him or her, to make up the total of
20
P75,000.00. Admittedly, everything seemed to be informal. This arrangement was understandable, however, in
view of the close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable
Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the
respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price
of services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock.
. . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
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It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.
Footnotes
1 Rollo, pp. 28-29.
2 Ibid., pp. 29; 42.
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3 Id., p. 29.
4 Respondent's Brief, p. 11.
5 Id., p. 29.
6 Id,
7 Sec. 11.
8 Phil. Planters Investment Co. Inc. v. Comm. of Internal Revenue, CTA Case No.
1266, Nov. 11, 1962; Rollo, p. 30.
9 Vicente Hilado v. Comm. of Internal Revenue, CTA Case No. 1266, Oct. 22,1962;
Rollo, p. 30.
10 Ibid.
11 Penned by Associate Judge Estanislao R. Alvarez, concurred by Presiding Judge
Ramon M. Umali and Associate Judge Ramon L. Avancea.
12 Rollo, p. 33.
13 Ibid., pp. 7-8; Petition, pp. 2-3. 11 Id., p. 37.
15 Id.
16 Id.
17 Id.
18 Id.
19 Respondents Brief, pp. 25-32.
20 Ibid., pp. 30-32.
21 Rollo, p. 37.
22 Now Sec. 30, (a)(1)-(A.), National Internal Revenue Code.
23 Respondent's Brief, p. 35.
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2. COMMISSIONER VS BPI
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 134062
April 17, 2007
COMMISSIONER
OF
vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
INTERNAL
REVENUE, Petitioner,
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29,
1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3 and resolution4 of the
Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case
No. 4715.
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed
respondent Bank of the Philippine Islands (BPIs) deficiency percentage and documentary stamp
taxes for the year 1986 in the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax
Deficiency percentage tax
P 7, 270,892.88
Add: 25% surcharge
1,817,723.22
20% interest from 1-21-87 to 10-28-88
3,215,825.03
15,000.00
Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE
P12,319,441.13
1986 Deficiency Documentary Stamp Tax

Deficiency percentage tax
P93,723,372.40
Add: 25% surcharge
23,430,843.10
Compromise penalty
15,000.00
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P117,169,215.50.5
TOTAL AMOUNT DUE AND COLLECTIBLE
Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed as
shown above. Said assessment has been based on return (filed by you) (as verified) (made by
this Office) (pending investigation) (after investigation). You are requested to pay the above
amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial
Treasurer of xxx6
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed,
even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a
deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can
make an intelligent decision on whether to pay or to protest the assessment. This is all the
more so when the assessment involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to state, even in the
briefest form, why he believes the taxpayer has a deficiency documentary and percentage
taxes, and as to the percentage tax, it is important that the taxpayer be informed also as to
what particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise
forged between your office and the Bankers Association of the Philippines [BAP] on this
issue and of BPIs submission of its computations under this compromise. There is therefore
no basis whatsoever for this assessment, assuming it is on the subject of the BAP
compromise. On the other hand, if it relates to documentary stamp tax on some other issue,
we should like to be informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on how such
assessment may be protested since your letter does not even tell the taxpayer what
particular percentage tax is involved and how your examiner arrived at the deficiency. As
soon as this is explained and clarified in a proper letter of assessment, we shall inform you
of the taxpayers decision on whether to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
although in all respects, your letter failed to qualify as a protest under Revenue Regulations No.
12-85 and therefore not deserving of any rejoinder by this office as no valid issue was raised against
the validity of our assessment still we obliged to explain the basis of the assessments.
xxx xxx xxx
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this constitutes the final decision of this office on the matter.8

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991
letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21, 1992. 10
On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16,
1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become
final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the
National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA
1125.12 It denied reconsideration in a resolution dated May 27, 1996.13
On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the
CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid
assessments because they did not inform the taxpayer of the legal and factual bases therefor. It
declared that the proper assessments were those contained in the May 8, 1991 letter which
provided the reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for
review in the CTA on time.17 The CIR elevated the case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a
period to be prescribed by implementing regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the [CIR] shall issue an assessment based on his
findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988 notices 19 were valid
assessments. If they were not, as held by the CA, then the correct assessments were in the May 8,
1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a
reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by
BPI on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February
18, 1992 would be well within the 30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid
assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which was
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designed for the precise purpose of notifying taxpayers of the assessed amounts due and
demanding payment thereof.21 He contends that there was no law or jurisprudence then that
required notices to state the reasons for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law upon which the assessments
were based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to
Section 228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void."
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due
process requires even under the former Section 270.
BPIs contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of
the deficiency taxes were made. He merely notified BPI of his findings, consisting only of the
computation of the tax liabilities and a demand for payment thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997). 23 In CIR v.
Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR's findings was changed in
1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made; otherwise, the assessment itself would be invalid.
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It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.25 (emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old
law required a written statement to the taxpayer of the law and facts on which the assessments
were based. The Court cannot read into the law what obviously was not intended by Congress. That
would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a computation of
tax liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed
period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met
the requirements of a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void
was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in
1997. Evidently, the legislature saw the need to modify the former Section 270 by inserting the
aforequoted sentence.27 The fact that the amendment was necessary showed that, prior to the
introduction of the amendment, the statute had an entirely different meaning.28
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an
affirmation of what the law required under the former Section 270. The amendment introduced by
RA 8424 was an innovation and could not be reasonably inferred from the old law. 29 Clearly, the
legislature intended to insert a new provision regarding the form and substance of assessments
issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of
the legal and factual basis of the formers decision to charge the latter for deficiency documentary
stamp and gross receipts taxes.31
In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to
inform it in writing of the factual and legal bases of the assessments even if these were not called
for under the old law.
We disagree.
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Indeed, the underlying reason for the law was the basic constitutional requirement that "no person
shall be deprived of his property without due process of law."32 We note, however, what the CTA
had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the
opportunity to discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice
(which [BPI] ignored) but that the examiners themselves went to [BPI] and "we talk to them and we
try to [thresh] out the issues, present evidences as to what they need." Now, how can [BPI] and/or
its counsel honestly tell this Court that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,]
contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant
Manager of the Accounting Department of [BPI]. He testified to the fact that he prepared
worksheets which contain his analysis regarding the findings of the [CIRs] examiner, Mr. San Pedro
and that the same worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature
and basis of the assessments, and was given all the opportunity to contest the same but ignored it
despite the notice conspicuously written on the assessments which states that "this ASSESSMENT
becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to
dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the
cause of his client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated
exclusively to the consideration of tax problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are not supported by
substantial evidence or there is a showing of gross error or abuse on the part of the [CTA]. 34
Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30 days from receipt of the final
decision:35
Sec. 270. Protesting of assessment.
1a\^/phi1. net
xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation in such form and manner as may be prescribed by the implementing regulations
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Taxation I
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final
and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt
of the said decision; otherwise, the decision shall become final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested
the same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did
not qualify as a protest since the letter itself stated that "[a]s soon as this is explained and clarified
in a proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay
or protest the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a
protest against the assessments. As a matter of fact, BPI never deemed this a protest since it did
not even consider the October 28, 1988 notices as valid or proper assessments.
The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day period
provided in the former Section 270 meant that they became final and unappealable. Thus, the CTA
correctly dismissed BPIs appeal for lack of jurisdiction. BPI was, from then on, barred from
disputing the correctness of the assessments or invoking any defense that would reopen the
question of its liability on the merits.37 Not only that. There arose a presumption of correctness
when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has
the duty to prove otherwise. In the absence of proof of any irregularities in the performance of
duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his
superior officers will not be disturbed. All presumptions are in favor of the correctness of tax
assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed
to have failed to appeal the CIRs final decision regarding the disputed assessments within the 30day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final
decision on the matter." BPI therefore had 30 days from the time it received the decision on June
27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal
in the CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer
the repercussions of its omission. We have already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the basis
of his statement indubitably showing that the Commissioner's communicated action is his final
decision on the contested assessment, the aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would
be able to determine when his right to appeal to the tax court accrues.
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The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment and, consequently, the collection of the
amount demanded as taxes by repeated requests for recomputation and reconsideration. On
the part of the [CIR], this would encourage his office to conduct a careful and thorough study of
every questioned assessment and render a correct and definite decision thereon in the first
instance. This would also deter the [CIR] from unfairly making the taxpayer grope in the dark and
speculate as to which action constitutes the decision appealable to the tax court. Of greater import,
this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in
administrative action.39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the
subject tax assessments.
We realize that these assessments (which have been pending for almost 20 years) involve a
considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly due it and the
public will suffer if taxpayers will not be held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, 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; without taxes, government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals
in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
SO ORDERED.
RENATO
Associate Justice
C.
CORONA
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
ADOLFO S. AZCUNA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
14
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Taxation I
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.
REYNATO
Chief Justice
S.
PUNO
Footnotes
1
Under Rule 45 of the Rules of Court.
Penned by Associate Justice Emeterio C. Cui (retired) and concurred in by Associate

Justices Ramon U. Mabutas, Jr. (retired) and Hilarion L. Aquino (retired) of the Second
Division of the Court of Appeals; rollo, pp. 40-46. Under RA 9282, effective April 23, 2004,
decisions of the reconstituted CTA are no longer appealable to the CA but directly to the SC.
3
Penned by Associate Judge Ramon O. De Veyra (retired) and concurred in by Presiding

Judge Ernesto D. Acosta and Associate Judge Manuel K. Gruba (deceased) of the old CTA;
id., pp. 47-69.
4
Id., pp. 70-71.
Id., pp. 47-48, 72.
Id., p. 72.
Id., pp. 41, 90.
Id., pp. 12, 48.
Id., p. 41.
10
Id., p. 49.
11
Id., p. 41.
12
Id., pp. 67-68. These sections state:

Sec. 7. Jurisdiction The [CTA] shall exercise exclusive appellate jurisdiction to
review by appeal as herein provided
15
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Taxation I
(1) Decisions of the Collector (now Commissioner) of Internal Revenue in

cases involving disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters
arising under the [NIRC] or other law or part of law administered by the
Bureau of Internal Revenue; xxx
Sec. 11. Who may appeal; effect of appeal. Any person, association or corporation
adversely affected by a decision or ruling of the Collector (now Commissioner) of
Internal Revenue, the Collector of Customs or any provincial or city Board of
Assessment Appeals may file an appeal in the [CTA] within thirty days after the
receipt of such decision or ruling.
13
Id., pp. 70-71.
14
Id., p. 45.
15
Id.
16
Id., p. 43.
17
Id., p. 44.
18
People v. Sandiganbayan (G.R. No. 152532, 16 August 2005) contains a legislative history
of this provision in its footnote no. 9:
"Sec. 229 was originally found in the [National Internal Revenue Code (NIRC)] of
1977, which was codified by and made an integral part of Presidential Decree (PD)
No. 1158, otherwise known as A Decree to Consolidate and Codify all the Internal
Revenue Laws of the Philippines.
When the NIRC of 1977 was amended by PD 1705 on August 1, 1980, Sec. 229 was
restated as Sec. 16(d). On January 16, 1981, PD 1773 further amended Sec. 16 by
eliminating paragraph (d) and inserting its contents between Secs. 319 and 320 as a
new Sec. 319-A. PD 1994 then renumbered Sec. 319-A as Sec. 270 on January 1,
1986; and on January 1, 1988, Sec. 270 was again renumbered as Sec. 229 and
rearranged to fall under Chapter 3 of Title VIII of the NIRC by Executive Order (EO)
No. 273, otherwise known as Adopting a Value-Added Tax, Amending for this
Purpose Certain Provisions of the [NIRC], and for other purposes.
At present, Sec. 229 has been amended as Sec. 228 by RA 8424, otherwise known as
the Tax Reform Act of 1997."
19
FAS-4-86-88-003209 and FAS-5-86-88-003210; id., p. 72.
20
Id., pp. 43-44.
16
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Taxation I
21
Id., pp. 163-164.
22
Id., p. 164.
23
Sec. 270 was renumbered Sec. 229 before it was amended and became Sec.
228; supra note 18.
24
G.R. No. 159694, 27 January 2006, 480 SCRA 382.
25
Id., p. 393.
26
Tupaz v. Ulep, G.R. No. 127777, 1 October 1999, 316 SCRA 118, 126.
27
See Commissioner v. Court of Tax Appeals, G.R. Nos. L-48886-88, 21 July 1993, 224 SCRA
665, 671.
28
Palanca v. City of Manila and Trinidad, 41 Phil. 125, 131 (1920); R. Agpalo, Statutory
Construction 308 (3rd ed., 1995).
29
See Pioneer Texturizing Corp. v. NLRC, 345 Phil. 1057, 1072 (1997).
30
Id.
31
Rollo, p. 43.
32
Constitution, Art. III, Sec. 1.
33
Rollo, pp. 62-65, citations omitted.
34
Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of
Internal Revenue, G.R. No. 157064, 7 August 2006, 498 SCRA 126.
35
Rollo, pp. 51-52.
36
Supra note 7.
37
Republic v. Court of Appeals, G.R. No. L-38540, 30 April 1987, 149 SCRA 351, 357, citation
omitted.
38
Sy Po v. Court of Appeals, G.R. No. L-81446, 18 August 1988, 164 SCRA 524, 530, citations
omitted.
39
Oceanic Wireless Network, Inc. v. Commission of Internal Revenue, G.R. No. 148380, 9
December 2005, 477 SCRA 205, 211-212, citing Surigao Electric Co., Inc. v. Court of Tax
Appeals, G.R. No. L-25289, 28 June 1974, 57 SCRA 523.
17
MAS
Taxation I
40
National Power Corporation v. City of Cabanatuan, G.R. No. 149110, 9 April 2003, 401
SCRA 259, 269-270, citations omitted.
18
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Taxation I
3. TIO VS VIDEOGRAM REGULATORY BOARD

SUPREME COURT
Manila
EN BANC
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with
broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as
the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10, 1986,
fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential
Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be subject
to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers
Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to
intervene in the case, over petitioner's opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and that their "survival and very existence is
threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter
allowed to file their Comment in Intervention.
19
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Taxation I
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including,
among others, videotapes, discs, cassettes or any technical improvement or
variation thereof, have greatly prejudiced the operations of moviehouses and
theaters, and have caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial losses estimated at
P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per
annum from rentals, sales and disposition of videograms, and such earnings have
not been subjected to tax, thereby depriving the Government of approximately
P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also
affected the viability of the movie industry, particularly the more than 1,200 movie
houses and theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the
Government to create an environment conducive to growth and development of all
business industries, including the movie industry which has an accumulated
investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not
only alleviate the dire financial condition of the movie industry upon which more
than 75,000 families and 500,000 workers depend for their livelihood, but also
provide an additional source of revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features
constitutes a clear and present danger to the moral and spiritual well-being of the
youth, and impairs the mandate of the Constitution for the State to support the
rearing of the youth for civic efficiency and the development of moral character and
promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to
curb these blatant malpractices which have flaunted our censorship and copyright
laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of
the people and betraying the national economic recovery program, bold emergency
measures must be adopted with dispatch; ... (Numbering of paragraphs supplied).
20
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Taxation I
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to
the local government is a RIDER and the same is not germane to the subject matter
thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of
trade in violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast
powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is
not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a
statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The requirement is satisfied if
all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as they are not inconsistent with or
2
An act having a single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to
the general subject, and may be considered in furtherance of such subject by providing for the method and means
3
of carrying out the general object." The rule also is that the constitutional requirement as to the title of a bill
4
should not be so narrowly construed as to cripple or impede the power of legislation. It should be given practical
5
rather than technical construction.
foreign to the general subject and title.
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a
rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any
provision of law to the contrary, the province shall collect a tax of thirty percent
(30%) of the purchase price or rental rate, as the case may be, for every sale, lease
or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall
accrue to the province, and the other fifty percent (50%) shall acrrue to the
municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the
tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
21
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Taxation I
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video industry
through the Videogram Regulatory Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is simply
one of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the
DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled
distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the
lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram Regulatory
Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of
7
the DECREE.
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even definitely deters the activities
taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely
venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the
9
authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by
the realization that earnings of videogram establishments of around P600 million per annum have
not been subjected to tax, thereby depriving the Government of an additional source of revenue. It
is an end-user tax, imposed on retailers for every videogram they make available for public viewing.
It is similar to the 30% amusement tax imposed or borne by the movie industry which the theaterowners pay to the government, but which is passed on to the entire cost of the admission ticket,
thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly
on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation
of intellectual property rights, and the proliferation of pornographic video tapes. And while it was
also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the state's police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by
the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in
the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof,
22
MAS
Taxation I
or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to
act adequately on any matter for any reason that in his judgment requires immediate action, he
may, in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions,
which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency
measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the exercise of legislative power under the
said Amendment still pends resolution in several other cases, we reserve resolution of the question
raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative
power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct
assistance of other agencies and units of the government and deputize, for a fixed and limited
period, the heads or personnel of such agencies and units to perform enforcement functions for the
Board" is not a delegation of the power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation. "The true distinction is between
the delegation of power to make the law, which necessarily involves a discretion as to what it shall
be, and conferring authority or discretion as to its execution to be exercised under and in pursuance
of the law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very
language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned
being "subject to the direction and control of the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or
different testimony than the law required at the time of the commission of the offense." It is
petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of fortyfive (45) days after the effectivity of this Decree within which to register with and
secure a permit from the BOARD to engage in the videogram business and to
register with the BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations thereof, before they
could be sold, leased, or otherwise disposed of. Thereafter any videogram found in
the possession of any person engaged in the videogram business without the
required proof of registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram be for private
showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post
facto law.
23
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Taxation I
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et
al. 15
... it is now well settled that "there is no constitutional objection to the passage of a
law providing that the presumption of innocence may be overcome by a contrary
presumption founded upon the experience of human conduct, and enacting what
evidence shall be sufficient to overcome such presumption of innocence" (People vs.
Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when
certain facts have been proved that they shall be prima facie evidence of the
existence of the guilt of the accused and shift the burden of proof provided there be
a rational connection between the facts proved and the ultimate facts presumed so
that the inference of the one from proof of the others is not unreasonable and
arbitrary because of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection
between the fact proved, which is non-registration, and the ultimate fact presumed which is
violation of the DECREE, besides the fact that the prima facie presumption of violation of the
DECREE attaches only after a forty-five-day period counted from its effectivity and is, therefore,
neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being
eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its
regulation was apparent. While the underlying objective of the DECREE is to protect the moribund
movie industry, there is no question that public welfare is at bottom of its enactment, considering
"the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing
public brought about by the availability of unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences; and losses in government revenues
due to the drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and municipal license
fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video
industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of
the DECREE. These considerations, however, are primarily and exclusively a matter of legislative
concern.
Only congressional power or competence, not the wisdom of the action taken, may
be the basis for declaring a statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the respective authority of
each department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of
a coordinate branch, the judiciary would substitute its own. If there be adherence to
24
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Taxation I
the rule of law, as there ought to be, the last offender should be courts of justice, to
which rightly litigants submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack on the validity of the
challenged provision likewise insofar as there may be objections, even if valid and
cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged
statute. We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla,
Bidin, Sarmiento and Cortes, JJ., concur.
Footnotes
1 Section 19[1], Article VIII, 1973 Constitution; Section 26[l] Article VI, 1987
Constitution.
2 Sumulong vs. COMELEC, No. 48609, October 10, 1941, 73 Phil. 288; Cordero vs.
Hon. Jose Cabatuando, et al., L-14542, Oct. 31, 1962,6 SCRA 418.
3 Public Service Co., Recktenwald, 290 III. 314, 8 ALR 466, 470.
4 Government vs. Hongkong & Shanghai Banking Corporation, No. 44257, November
22, 1938, 66 Phil. 483; Cordero vs. Cabatuando, et al., supra.
5 Sumulong vs. Commission on Elections, supra.
6 United States vs. Sanchez, 340 U.S. 42, 44, 1950, cited in Bernas, Philippines
Constitutional Law, p. 594.
7 People vs. Carlos, L-239, June 30, 1947, 78 Phil. 535.
8 U.S. vs. Sanchez, supra.
9 II Cooley, A Treatise on the Constitutional Limitations, p. 986.
10 ibid., p. 987.
25
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Taxation I
11 Magnano Co. vs. Hamilton, 292, U.S. 40.

12 Lutz vs. Araneta, L-7859, December 22, 1955, 98 Phil. 148, citing Carmichael vs.
Southern Coal and Coke Co., 301 U.S. 495, 81 L. Ed. 1245.
13 ibid., citing Great Atl. and Pacific Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed.
1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat,
316,4 L. Ed. 579.
14 Cincinnati, W & Z.R. Co. vs. Clinton County Comrs (1852) 1 Ohio St. 88.
15 G. R. No. L-40195, May 29, 1987.
16 ibid., citing People vs. Mingoa, supra, See also U.S. vs. Luling No. 11162, August
12, 1916,34 Phil. 725.
17 Solicitor General's Comments, p. 102, Rollo.
18 Morfe vs. Mutuc, L-20387, January 31, 1968, 22 SCRA 424, 450-451.
26
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Taxation I
4. FELS ENERGY, INC. VS PROVINCE OF BATANGAS

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168557
February 16, 2007
FELS
vs.
THE PROVINCE OF BATANGAS and
ENERGY,
INC., Petitioner,
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

x----------------------------------------------------x
G.R. No. 170628
February 16, 2007
NATIONAL
POWER
CORPORATION, Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as the
Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS represented by its
Provincial Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which
were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC),
respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of
the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005 Decision3 and
November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed
on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel
engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an
Energy Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads:
27
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Taxation I
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties,
fees, charges and other levies imposed by the National Government of the Republic of the
Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to
or in relation to the performance of their obligations under this agreement (other than (i) taxes
imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its
employees and (ii) construction permit fees, environmental permit fees and other similar fees and
charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered
those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC,
reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the
full power and authority to represent it in any conference regarding the real property assessment of
the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors
decision to assess real property taxes on the power barges. However, the motion was denied on
September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment. 8 This
prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that
should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the
necessary corrections.9
In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly
stated that power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount
ofP56,184,088.40, for the year 1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are
installed at a specific location with a character of permanency. The LBAA also pointed out that the
owner of the bargesFELS, a private corporationis the one being taxed, not NPC. A mere
agreement making NPC responsible for the payment of all real estate taxes and assessments will
28
MAS
Taxation I
not justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be
extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant
by Distraint13over the power barges, seeking to collect real property taxes amounting
to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on
November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment
during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of
FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or
judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings
before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that
the judgment be unfavorable to them). The bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real
property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas
is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby
ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List of
Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed
to act accordingly.
SO ORDERED.18
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since
they are actually, directly and exclusively used by it, the power barges are covered by the
exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA
ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in
accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier
decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
29
MAS
Taxation I
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490
praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution23 dated
February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CAG.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for
reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated
July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as
G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition was,
however, denied in this Courts Resolution25 of November 8, 2004, for NPCs failure to sufficiently
show that the CA committed any reversible error in the challenged decision. NPC filed a motion for
reconsideration, which the Court denied with finality in a Resolution26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right
to question the assessment of the Provincial Assessor had already prescribed upon the failure of
FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS
had lost the right to question the assessment, the right of the Provincial Government to collect the
tax was already absolute.
30
MAS
Taxation I
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the
February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution27 dated November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for
lack of merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the
following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore, not
subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it
should be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not the same is
subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property tax
assessment on the petitioners personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED
OUT OF TIME.
II
31
MAS
Taxation I
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT
SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER
BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.
1awphi1.net
In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not
submitted their respective memoranda. Considering that taxesthe lifeblood of our economyare
involved in the present controversy, the Court was prompted to dispense with the said pleadings,
with the end view of advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.
FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the
running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60day period for appealing to the LBAA should be reckoned from its receipt of the denial of its motion
for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath
on the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such
affidavits or documents submitted in support of the appeal.32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file
a motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.
32
MAS
Taxation I
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city
or municipal assessor in the assessment of the property. It follows then that the determination
made by the respondent Provincial Assessor with regard to the taxability of the subject real
properties falls within its power to assess properties for taxation purposes subject to appeal before
the LBAA.33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the local
assessor on a particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not
permit the property owner the remedy of filing a motion for reconsideration before the local
assessor. The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals
before the LBAA. Unfortunately, despite the advice to this effect contained in their respective
notices of assessment, the owners chose to bring their requests for a review/readjustment before
the city assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite
corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation
where values of real property may be initially set unreasonably high, and then subsequently
reduced upon the request of a property owner. In the latter instance, allusions of a possible covert,
illicit trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for
mischief must be prevented and excised from our system.36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or
lawful possessor of real property of its revised assessed value, the former shall no longer have any
jurisdiction to entertain any request for a review or readjustment. The appropriate forum where
the aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that
the 60-day period for making the appeal to the LBAA runs without interruption. This is what We
held in SP 67490 and reaffirm today in SP 67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect
the taxes due with respect to the taxpayers property becomes absolute upon the expiration of the
period to appeal.38 It also bears stressing that the taxpayers failure to question the assessment in
the LBAA renders the assessment of the local assessor final, executory and demandable, thus,
precluding the taxpayer from questioning the correctness of the assessment, or from invoking any
defense that would reopen the question of its liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out
of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.
Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory
and jurisdictional, and failure in this regard renders the decision final and executory.40
33
MAS
Taxation I
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by
res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final
determination on the issue of prescription), effectively precludes the claims herein; and that the
filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum
shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was
not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not
participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it.
As to the issue of forum shopping, petitioner claims that no forum shopping could have been
committed since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes
it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the
individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa. A
conflicting doctrine would subject the public peace and quiet to the will and dereliction of
individuals and prefer the regalement of the litigious disposition on the part of suitors to the
preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda.
de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by
a court of competent jurisdiction acting upon a matter within its authority is conclusive on the
rights of the parties and their privies. This ruling holds in all other actions or suits, in the same or
any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in
the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the same parties or
their privies to litigate anew a question once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party
should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by
the same parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject
matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the
first and the second actions, identity of parties, subject matter and causes of action. The application
of the doctrine of res judicata does not require absolute identity of parties but merely substantial
identity of parties. There is substantial identity of parties when there is community of interest or
34
MAS
Taxation I
privity of interest between a party in the first and a party in the second case even if the first case
did not implead the latter.43
To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding
real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as
G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed
decision in the earlier petition for review filed in this Court was the decision of the appellate court
in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is
binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are
substantially "identical parties" as to warrant the application of res judicata. FELSs argument that it
is not bound by the erroneous petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as
a result of an adverse judgment in one forum, a party seeks another and possibly favorable
judgment in another forum other than by appeal or special civil action or certiorari. There is also
forum shopping when a party institutes two or more actions or proceedings grounded on the same
cause, on the gamble that one or the other court would make a favorable disposition.44
Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not
present in the cases at bar; however, as already discussed, res judicata may be properly applied
herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after
the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another
trying to get a favorable decision from one of the tribunals which allowed them to pursue their
cases.
It must be stressed that an important factor in determining the existence of forum shopping is the
vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or
complaints constitutes abuse of court processes, which tends to degrade the administration of
justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily
burdened dockets of the courts.46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and (c) the identity of the two preceding particulars is such
that any judgment rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other.47
Having found that the elements of res judicata and forum shopping are present in the consolidated
cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and
contentment of petitioners, we shall shed light on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real property and are thus
subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113
was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax
35
MAS
Taxation I
examiners are presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired
expertise in their field, are generally binding and conclusive upon the Court; we will not assume to
interfere with the sensible exercise of the judgment of men especially trained in appraising
property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment
undisturbed.49 We find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power
company brought an action to review property tax assessment. On the citys motion to dismiss, the
Supreme Court of New York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power
plant barges, and the accessory equipment mounted on the barges were subject to real property
taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast"
are considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and which tend directly
to meet the needs of said industry or work.51
Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply,
generation, and transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section
2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings,
machinery and equipment on the Site used in connection with the Power Barges which have been
supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the
purpose of converting Fuel of NAPOCOR into electricity.52
It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of
the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power; x x x
36
MAS
Taxation I
Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace
in this provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the
necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power
Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53
It is a basic rule that obligations arising from a contract have the force of law between the parties.
Not being contrary to law, morals, good customs, public order or public policy, the parties to the
contract are bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would seek to
be thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is
between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province
of Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
governments deprivation of revenues. The power to tax is an incident of sovereignty and is
unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against its
abuse is to be found only in the responsibility of the legislature which imposes the tax on the
constituency who are to pay for it.57 The right of local government units to collect taxes due must
always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy
to guarantee the autonomy of local governments58 and the objective of the Local Government Code
that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the attainment of
national goals.59
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the 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.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.
SO ORDERED.
37
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Taxation I
ROMEO
Associate Justice
J.
CALLEJO,
SR.
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
MA. ALICIA AUSTRIA-MARTINEZ

Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
CONSUELO
Associate
Chairperson
YNARES-SANTIAGO
Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it
is hereby certified that the conclusions in the above decision were reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
REYNATO
Chief Justice
S.
PUNO
Footnotes
1
Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guaria III
and Santiago Javier Ranada (retired), concurring; rollo (G.R. No. 168557), pp. 103-116.
2
Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guaria III
and Santiago Javier Ranada; concurring; id. at 118-120.
3
Penned by Associate Justice Mario L. Guaria III, with Associate Justices Marina L. Buzon
and Santiago Javier Ranada; concurring; rollo (G.R. No. 170628), pp. 59-64.
4
Penned by Associate Justice Mario L. Guaria III, with Associate Justices Marina L. Buzon
and Santiago Javier Ranada; concurring; id. at 65.
38
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Taxation I
5
Rollo (G.R. No. 168557), pp. 121-245.
Id. at 155.
Id. at 249-250.
Id. at 253-255.
Rollo (G.R. No. 168557), pp. 256-267.
10
Id. at 286-288.
11
Id. at 289-294.
12
Id. at 294.
13
Rollo (G.R. No. 170628), pp. 122-124.
14
Id. at 129.
15
Rollo (G.R. No. 168557), pp. 364-369.
16
Id. at 370-372.
17
Id. at 383-394.
18
Id. at 394.
19
Otherwise known as the "Local Government Code of 1991."
20
Rollo (G.R. No. 168557), pp. 425-431.
21
Id. at 430-431.
22
Id. at 478.
23
CA Rollo (CA-G.R. SP No. 67490), p. 422.
24
Rollo (G.R. No. 168557), pp. 49-50.
25
Id. at 605.
26
Id. at 606.
27
Rollo (G.R. No. 170628), p. 65.
39
MAS
Taxation I
28
Rollo (G.R. No. 168557), pp. 23-25.
29
Id. at 61.
30
Rollo (G.R. No. 170628), pp. 18-19.
31
Rollo (G.R. No. 168557), p. 637.
32
Id. at 246 (Italics supplied).
33
Systems Plus Computer College of Caloocan City v. Local Government of Caloocan City,
455 Phil. 956, 962-963 (2003).
34
G.R. Nos. 115253-74, January 30, 1998, 285 SCRA 648.
35
Formerly Section 30 of The Real Property Tax Code.
36
Callanta v. Office of the Ombudsman, supra note 33, at 661-662.
37
Rollo (G.R. No. 170628), pp. 62-63.
38
Manila Electric Company v. Barlis, G. R. No. 114231, June 29, 2004, 433 SCRA 11, 32.
39
Id. at 32-33.
40
See Borja Estate v. Ballad, G.R. No. 152550, June 8, 2005, 459 SCRA 657, 668, 670.
41
Cruz v. Court of Appeals, G.R. No. 164797, February 13, 2006, 482 SCRA 379, 395, citing
Heirs of the Late Faustina Adalid v. Court of Appeals, 459 SCRA 27, 41 (2005).
42
G.R. No. 138660, February 5, 2004, 422 SCRA 101.
43
Id. at 116.
44
Municipality of Taguig v. Court of Appeals, G.R. No. 142619, September 13, 2005, 469
SCRA 588, 594-595.
45
Foronda v. Guerrero, Adm. Case No. 5469, August 10, 2004, 436 SCRA 9, 23.
46
Wee v. Galvez, G.R. No. 147394, August 11, 2004, 436 SCRA 96, 108-109.
47
Hongkong and Shanghai Banking Corporation Limited v. Catalan, G.R. Nos. 159590 and
159591, October 18, 2004, 440 SCRA 498, 513-514.
48
Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31,
2005, 454 SCRA 301, 329.
40
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Taxation I
49
Cagayan Robina Sugar Milling Co. v. Court of Appeals, 396 Phil. 830, 840 (2000).
50
80 Misc.2d 1065 (1975).
51
J. Vitug, civil law volume ii, property, ownership, and its modifications, 3-4 (2003).
52
Rollo (G.R. No. 168557), p. 135.
53
Id. at 142. (Emphasis supplied)
54
L & L Lawrence Footwear, Inc. v. PCI Leasing and Finance Corporation, G.R. No. 160531,
August 30, 2005, 468 SCRA 393, 402.
55
Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R.

No. 140230, December 15, 2005, 478 SCRA 61, 74.
56
Republic v. City of Kidapawan, G.R. No. 166651, December 9, 2005, 477 SCRA 324, 335,
citing Sea-Land Service, Inc. v. Court of Appeals, 357 SCRA 441, 444 (2001).
57
Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, September 11,
1996, 261 SCRA 667, 679.
58
CONSTITUTION, Section 25, Article II, and Section 2, Article X.
59
Republic Act No. 7160, Section 2(a).
60
Mactan Cebu International Airport Authority v. Marcos, supra note 56, at 690.
41
MAS
Taxation I
5. CIR VS TOKYO SHIPPING CO. LTD. ET AL.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68252 May 26, 1995

COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT
OF TAX APPEALS, respondents.
PUNO, J.:
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund
or tax credit for amounts representing pre-payment of income and common carrier's taxes under
the National Internal Revenue Code, section 24 (b) (2), as amended. 1
Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship
Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980,
NASUTRA 2 chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. 3 On December 23,
4
1980, Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, paid the required income and
common carrier's taxes in the respective sums of FIFTY-NINE THOUSAND FIVE HUNDRED TWENTY-THREE PESOS
and SEVENTY-FIVE CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS
(P47,619.00), or a total of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE
5
CENTAVOS (P107,142.75) based on the expected gross receipts of the vessel. Upon arriving, however, at
Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and private
respondent's agent mutually agreed to have the vessel sail for Japan without any cargo.
Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was
realized from the charter agreement, private respondent instituted a claim for tax credit or refund
of the sum ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTYFIVE CENTAVOS (P107,142.75) before petitioner Commissioner of Internal Revenue on March 23,
1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent
filed a petition for review 6 before public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that
taxes are presumed to have been collected in accordance with law; that in an action for refund, the
burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and
42
MAS
Taxation I
the taxpayer's failure to sustain said burden is fatal to the action for refund; and that claims for
refund are construed strictly against tax claimants. 7
After trial, respondent tax court decided in favor of the private respondent. It held:
It has been shown in this case that 1) the petitioner has complied with the
mentioned statutory requirement by having filed a written claim for refund within
the two-year period from date of payment; 2) the respondent has not issued any
deficiency assessment nor disputed the correctness of the tax returns and the
corresponding amounts of prepaid income and percentage taxes; and 3) the
chartered vessel sailed out of the Philippine port with absolutely no cargo laden on
board as cleared and certified by the Customs authorities; nonetheless 4)
respondent's apparent bit of reluctance in validating the legal merit of the claim, by
and large, is tacked upon the "examiner who is investigating petitioner's claim for
refund which is the subject matter of this case has not yet submitted his report.
Whether or not respondent will present his evidence will depend on the said report
of the examiner." (Respondent's Manifestation and Motion dated September 7,
1982). Be that as it may the case was submitted for decision by respondent on the
basis of the pleadings and records and by petitioner on the evidence presented by
counsel sans the respective memorandum.
An examination of the records satisfies us that the case presents no dispute as to
relatively simple material facts. The circumstances obtaining amply justify
petitioner's righteous indignation to a more expeditious action. Respondent has
offered no reason nor made effort to submit any controverting documents to bash
that patina of legitimacy over the claim. But as might well be, towards the end of
some two and a half years of seeming impotent anguish over the pendency, the
respondent Commissioner of Internal Revenue would furnish the satisfaction of
ultimate solution by manifesting that "it is now his turn to present evidence,
however, the Appellate Division of the BIR has already recommended the approval
of petitioner's claim for refund subject matter of this petition. The examiner who
examined this case has also recommended the refund of petitioner's claim. Without
prejudice to withdrawing this case after the final approval of petitioner's claim, the
Court ordered the resetting to September 7, 1983." (Minutes of June 9, 1983 Session
of the Court) We need not fashion any further issue into an apparently settled legal
situation as far be it from a comedy of errors it would be too much of a stretch to
hold and deny the refund of the amount of prepaid income and common carrier's
taxes for which petitioner could no longer be made accountable.
On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this
petition for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to support its claim of
refund; (2) it failed to prove that it did not realize any receipt from its charter agreement; and (3) it
suppressed evidence when it did not present its charter agreement.
43
MAS
Taxation I
We find no merit in the petition.

There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal Revenue
Code which at that time provides as follows:
A corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be taxable as
provided in subsection (a) of this section upon the total net income derived in the
preceding taxable year from all sources within the Philippines: Provided, however,
That international carriers shall pay a tax of two and one-half per cent (2 1/2%) on
their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing
business in the Philippines of passage documents sold therein, whether for
passenger, excess baggage or mail, provided the cargo or mail originates from the
Philippines. The gross revenue realized from the said cargo or mail include the gross
freight charge up to final destination. Gross revenue from chartered flights
originating from the Philippines shall likewise form part of "Gross Philippine Billings"
regardless of the place or payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable
for taxes depending on the amount of income it derives from sources within the Philippines. Thus,
before such a tax liability can be enforced the taxpayer must be shown to have earned income
sourced from the Philippines.
We agree with petitioner that a claim for refund is in the nature of a claim for exemption 8 and should
9
be construed in strictissimi juris against the taxpayer. Likewise, there can be no disagreement with petitioner's
stance that private respondent has the burden of proof to establish the factual basis of its claim for tax refund.
The pivotal issue involves a question of fact whether or not the private respondent was able to
prove that it derived no receipts from its charter agreement, and hence is entitled to a refund of the
taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been adduced by the private respondent
proving that it derived no receipt from its charter agreement with NASUTRA. This finding of fact
rests on a rational basis, and hence must be sustained. Exhibits "E", "F," and "G" positively show
that the tramper vessel M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw
sugar to load and returned to Japan without any cargo laden on board. Exhibit "E" is the Clearance
Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo while Exhibit "F" is
the Certification by the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. The
correctness of the contents of these documents regularly issued by officials of the Bureau of
Customs cannot be doubted as indeed, they have not been contested by the petitioner. The records
also reveal that in the course of the proceedings in the court a quo, petitioner hedged and hawed
when its turn came to present evidence. At one point, its counsel manifested that the BIR examiner
and the appellate division of the BIR have both recommended the approval of private respondent's
claim for refund. The same counsel even represented that the government would withdraw its
opposition to the petition after final approval of private respondents' claim. The case dragged on
44
MAS
Taxation I
but petitioner never withdrew its opposition to the petition even if it did not present evidence at
all. The insincerity of petitioner's stance drew the sharp rebuke of respondent court in its Decision
and for good reason. Taxpayers owe honesty to government just as government owes fairness to
taxpayers.
In its last effort to retain the money erroneously prepaid by the private respondent, petitioner
contends that private respondent suppressed evidence when it did not present its charter
agreement with NASUTRA. The contention cannot succeed. It presupposes without any basis that
the charter agreement is prejudicial evidence against the private respondent. 10 Allegedly, it will show
that private respondent earned a charter fee with or without transporting its supposed cargo from Iloilo to Japan.
The allegation simply remained an allegation and no court of justice will regard it as truth. Moreover, the charter
agreement could have been presented by petitioner itself thru the proper use of asubpoena duces tecum. It never
11
did either because of neglect or because it knew it would be of no help to bolster its position. For whatever
reason, the petitioner cannot take to task the private respondent for not presenting what it mistakenly calls
"suppressed evidence."
We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum
of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE
CENTAVOS (P107,142.75) erroneously prepaid by private respondent. The tax was paid way back in
1980 and despite the clear showing that it was erroneously paid, the government succeeded in
delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation,
the money that will be finally refunded to the private respondent is just worth a damaged nickel.
This is not, however, the kind of success the government, especially the BIR, needs to increase its
collection of taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands that
BIR should refund without any unreasonable delay what it has erroneously collected. Our ruling
inRoxas v. Court of Tax Appeals 12 is apropos to recall:
The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg." And, in order to maintain the general public's
trust and confidence in the Government this power must be used justly and not
treacherously.
IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15,
1983, is AFFIRMED in toto. No costs.
SO ORDERED.
Narvasa, C.J., Regalado and Mendoza, JJ., concur.
Footnotes
45
MAS
Taxation I
1 This appeal was brought pursuant to Republic Act No. 1125 (June 16, 1954), as
amended. Under Batas Blg. 129, decisions of the Court of Tax Appeals are
appealable to the Court of Appeals, amending the procedure prescribed by the Act.
The change has been held to be merely procedural. (First Lepanto Ceramics, Inc. vs.
Court of Appeals, G.R. No. 110571, March 10, 1994, 231 SCRA 30).
2 TSN of May 10, 1982, p. 7.
3 Annex "C."
4 TSN of May 10, 1982, p. 3.
5 Annex "A."
6 Docketed C.T.A. Case No. 3260.
7 Petition, pp. 6-9; Rollo, pp. 18-21.
8 Resins, Inc. v. Auditor General, L-17888, October 29, 1968, 25 SCRA 754.
9 Province of Tarlac v. Alcantara, G.R. No. 65230, December 23, 1992, 216 SCRA 790.
10 See Nicolas v. Nicolas, 52 Phil. 265 [1928].
11 See Ang Seng Quiem v. Te Chico, 7 Phil 541 [1907].
12 No. L-25043, April 26, 1968,23 SCRA 276.
46
MAS
Taxation I
6. PILIPINAS SHELL PETROLEUM CORPORATION VS CIR

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172598
December 21, 2007
PILIPINAS
SHELL
PETROLEUM
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
CORPORATION, Petitioner,
DECISION
VELASCO, JR., J.:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 assailing the April 28, 2006
Decision1 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 64, which upheld respondents
assessment against petitioner for deficiency excise taxes for the taxable years 1992 and 1994 to
1997. Said En Banc decision reversed and set aside the August 2, 2004 Decision 2 and January 20,
2005 Resolution3 of the CTA Division in CTA Case No. 6003 entitled Pilipinas Shell Petroleum
Corporation v. Commissioner of Internal Revenue, which ordered the withdrawal of the April 22,
1998 collection letter of respondent and enjoined him from collecting said deficiency excise taxes.
The Facts
Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of the
international petroleum giant Shell, and is engaged in the importation, refining and sale of
petroleum products in the country.
From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates (TCCs)
which it acquired through the Department of Finance (DOF) One Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center (Center) from other Board of Investment (BOI)-registered companies.
The Center is a composite body run by four government agencies, namely: the DOF, Bureau of
Internal Revenue (BIR), Bureau of Customs (BOC), and BOI.
Through the Center, PSPC acquired for value various Center-issued TCCs which were
correspondingly transferred to it by other BOI-registered companies through Center-approved
Deeds of Assignments. Subsequently, when PSPC signified its intent to use the TCCs to pay part of
47
MAS
Taxation I
its excise tax liabilities, said payments were duly approved by the Center through the issuance of
Tax Debit Memoranda (TDM), and the BIR likewise accepted as payments the TCCs by issuing its
own TDM covering said TCCs, and the corresponding Authorities to Accept Payment for Excise Taxes
(ATAPETs).
However, on April 22, 1998, the BIR sent a collection letter4 to PSPC for alleged deficiency excise tax
liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997, inclusive of
delinquency surcharges and interest. As basis for the collection letter, the BIR alleged that PSPC is
not a qualified transferee of the TCCs it acquired from other BOI-registered companies. These
alleged excise tax deficiencies covered by the collection letter were already paid by PSPC with TCCs
acquired through, and issued and duly authorized by the Center, and duly covered by TDMs of both
the Center and BIR, with the latter also issuing the corresponding ATAPETs.
PSPC protested the April 22, 1998 collection letter, but the protest was denied by the BIR through
the Regional Director of Revenue Region No. 8. PSPC filed its motion for reconsideration. However,
due to respondents inaction on the motion, on February 2, 1999, PSPC filed a petition for review
before the CTA, docketed as CTA Case No. 5728.
On July 23, 1999, the CTA rendered a Decision5 in CTA Case No. 5728 ruling, inter alia, that the use
by PSPC of the TCCs was legal and valid, and that respondents attempt to collect alleged delinquent
taxes and penalties from PSPC without an assessment constitutes denial of due process. The
dispositive portion of the July 23, 1999 CTA Decision reads:
[T]he instant petition for review is GRANTED. The collection letter issued by the Respondent dated
April 22, 1998 is considered withdrawn and he is ENJOINED from any attempts to collect from
petitioner the specific tax, surcharge and interest subject of this petition.6
Respondent elevated the July 23, 1999 CTA Decision in CTA Case No. 5728 to the Court of Appeals
(CA) through a petition for review7 docketed as CA-G.R. SP No. 55329. This case was subsequently
consolidated with the similarly situated case of Petron Corporation under CA-G.R. SP No. 55330. To
date, these consolidated cases are still pending resolution before the CA.
Meanwhile, in late 1999, and despite the pendency of CA-G.R. SP No. 55329, the Center sent
several letters to PSPC dated August 31, 1999,8 September 1, 1999,9 and October 18, 1999.10 The
first required PSPC to submit copies of pertinent sales invoices and delivery receipts covering sale
transactions of PSPC products to the TCC assignors/transferors purportedly in connection with an
ongoing post audit. The second letter similarly required submission of the same documents
covering PSPC Industrial Fuel Oil (IFO) deliveries to Spintex International, Inc. The third letter is in
reply to the September 29, 1999 letter sent by PSPC requesting a list of the serial numbers of the
TCCs assigned or transferred to it by various BOI-registered companies, either assignors or
transferors.
In its letter dated October 29, 1999 and received by the Center on November 3, 1999, PSPC
emphasized that the required submission of these documents had no legal basis, for the applicable
rules and regulations on the matter only require that both the assignor and assignee of TCCs be
BOI-registered entities.11 On November 3, 1999, the Center informed PSPC of the cancellation of the
48
MAS
Taxation I
first batch of TCCs transferred to PSPC and the TDM covering PSPCs use of these TCCs as well as the
corresponding TCC assignments. PSPCs motion for reconsideration was not acted upon.
On November 22, 1999, PSPC received the November 15, 1999 assessment letter12 from respondent
for excise tax deficiencies, surcharges, and interest based on the first batch of cancelled TCCs and
TDM covering PSPCs use of the TCCs. All these cancelled TDM and TCCs were also part of the
subject matter in CTA Case No. 5728, now pending before the CA in CA-G.R. SP No. 55329.
PSPC protested13 the assessment letter, but the protest was denied by the BIR, constraining it to file
another petition for review14 before the CTA, docketed as CTA Case No. 6003.
Parenthetically, on March 30, 2004, Republic Act No. (RA) 928215 was promulgated amending RA
1125,16expanding the jurisdiction of the CTA and enlarging its membership. It became effective on
April 23, 2004 after its due publication. Thus, CTA Case No. 6003 was heard and decided by a CTA
Division.
The Ruling of the Court of Tax Appeals Division
(CTA Case No. 6003)
On August 2, 2004, the CTA Division rendered a Decision17 granting the PSPCs petition for review.
The dispositive portion reads:
[T]he instant petition is hereby GRANTED. Accordingly, the assessment issued by the respondent
dated November 15, 1999 against petitioner is hereby CANCELLED and SET ASIDE.18
In granting PSPCs petition for review, the CTA Division held that respondent failed to prove with
convincing evidence that the TCCs transferred to PSPC were fraudulently issued as respondents
finding of alleged fraud was merely speculative. The CTA Division found that neither the respondent
nor the Center could state what sales figures were used as basis for the TCCs to issue, as they
merely based their conclusions on the audited financial statements of the transferors which did not
clearly show the actual export sales of transactions from which the TCCs were issued.
In the same vein, the CTA Division held that the machinery and equipment cannot be the basis in
concluding that transferor could not have produced the volume of products indicated in its BOI
registration. It further ruled that the Center erroneously based its findings of fraud on two
possibilities: either the transferor did not declare its export sales or underdeclare them. Thus, no
specific fraudulent acts were identified or proven. The CTA Division concluded that the TCCs
transferred to PSPC were not fraudulently issued.
On the issue of whether a TCC transferee should be a supplier of either capital equipment,
materials, or supplies, the CTA Division ruled in the negative as the Memorandum of Agreement
(MOA)19 between the DOF and BOI executed on August 29, 1989 specifying such requirement was
not incorporated in the Implementing Rules and Regulations (IRR) of Executive Order No. (EO)
226.20 The CTA Division found that only the October 5, 1982 MOA between the then Ministry of
Finance (MOF) and BOI was incorporated in the IRR of EO 226. It held that while the August 29,
49
MAS
Taxation I
1989 MOA indeed amended the October 5, 1982 MOA still it was not incorporated in the IRR.
Moreover, according to the CTA Division, even if the August 29, 1989 MOA was elevated or
incorporated in the IRR of EO 226, still, it is ineffective and could not bind nor prejudice third parties
as it was never published.
Anent the affidavits of former Officers or General Managers of transferors attesting that no IFO
deliveries were made by PSPC, the CTA Division ruled that such cannot be given probative value as
the affiants were not presented during trial of the case. However, the CTA Division said that the
November 15, 1999 assessment was not precluded by the prior CTA Case No. 5728 as the latter
concerned the validity of the transfer of the TCCs, while CTA Case No. 6003 involved alleged
fraudulent procurement and transfer of the TCCs.
Respondent forthwith filed his motion for reconsideration of the above decision which was rejected
on January 20, 2005. And, pursuant to Section 1121 of RA 9282, respondent appealed the above
decision through a petition for review22 before the CTA En Banc.
The Ruling of the Court of Tax Appeals En Banc
(CTA EB No. 64)
The CTA En Banc, however, rendered the assailed April 28, 2006 Decision23 setting aside the August
2, 2004 Decision and the January 20, 2005 Resolution of the CTA Division. The fallo reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. The assailed
Decision and Resolution dated August 2, 2004 and January 20, 2005, respectively, are hereby SET
ASIDE and a new one entered dismissing respondent Pilipinas Shell Petroleum Corporations
Petition for Review filed in C.T.A. Case No. 6003 for lack of merit. Accordingly, respondent is
ORDERED TO PAY the petitioner the amount of P570,577,401.61 as deficiency excise tax for the
taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20% interest, computed as
follows:
Basic Tax P285,766,987.00
Add:
Surcharge (25%) 71,441,746.75
Interest (20%) 213,368,667.86
Total Tax Due P570,577,401.61
In addition, respondent is hereby ORDERED TO PAY 20% delinquency interest thereon per annum
computed from December 4, 1999 until full payment thereof, pursuant to Sections 248 and 249 of
the NIRC of 1997.
SO ORDERED.24
50
MAS
Taxation I
The CTA En Banc resolved respondents appeal by holding that PSPC was liable to pay the alleged
excise tax deficiencies arising from the cancellation of the TDM issued against its TCCs which were
used to pay some of its excise tax liabilities for the years 1992 and 1994 to 1997. It ratiocinated in
this wise, to wit:
First, the finding of the DOF that the TCCs had no monetary value was undisputed. Consequently,
there was a non-payment of excise taxes corresponding to the value of the TCCs used for payment.
Since it was PSPC which acquired the subject TCCs from a third party and utilized the same to
discharge its own obligations, then it must bear the loss.
Second, the TCCs carry a suspensive condition, that is, their issuance was subject to post audit in
order to determine if the holder is indeed qualified to use it. Thus, until final determination of the
holders right to the issuance of the TCCs, there is no obligation on the part of the DOF or BIR to
recognize the rights of the holder or assignee. And, considering that the subject TCCs were canceled
after the DOFs finding of fraud in its issuance, the assignees must bear the consequence of such
cancellation.
Third, PSPC was not an innocent purchaser for value of the TCCs as they contained liability clauses
expressly stipulating that the transferees are solidarily liable with the transferors for any fraudulent
act or violation of pertinent laws, rules, or regulations relating to the transfer of the TCC.
Fourth, the BIR was not barred by estoppel as it is a settled rule that in the performance of its
governmental functions, the State cannot be estopped by the neglect of its agents and officers.
Although the TCCs were confirmed to be valid in view of the TDM, the subsequent finding on post
audit by the Center declaring the TCCs to be fraudulently issued is entitled to the presumption of
regularity. Thus, the cancellation of the TCCs was legal and valid.
Fifth, the BIRs assessment did not prescribe considering that no payment took effect as the subject
TCCs were canceled upon post audit. Consequently, the filing of the tax return sans payment due to
the cancellation of the TCCs resulted in the falsity and/or omission in the filing of the tax return
which put them in the ambit of the applicability of the 10-year prescriptive period from the
discovery of falsity, fraud, or omission.
Finally, however, the CTA En Banc applied Aznar v. Court of Tax Appeals,25 where this Court held
that without proof that the taxpayer participated in the fraud, the 50% fraud surcharge is not
imposed, but the 25% late payment and the 20% interest per annum are applicable.
Thus, PSPC filed this petition with the following issues:
I
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN ORDERING PETITIONER
PSPC TO PAY THE AMOUNT OF TWO HUNDRED EIGHTY FIVE MILLION SEVEN HUNDRED
SIXTY SIX THOUSAND NINE HUNDRED EIGHTY SEVEN PESOS (P285,766,987.00), AS ALLEGED
DEFICIENCY EXCISE TAXES, FOR THE TAXABLE YEARS, 1992 AND 1994 TO 1997.
51
MAS
Taxation I
II
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN ISSUING THE
QUESTIONED DECISION DATED 28 APRIL 2006 UPHOLDING THE CANCELLATION OF THE TAX
CREDIT CERTIFICATES UTILIZED BY PETITIONER PSPC IN PAYING ITS EXCISE TAX LIABILITIES.
III
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN IMPOSING
SURCHARGES AND INTERESTS ON THE ALLEGED DEFICIENCY EXCISE TAX OF PETITIONER
PSPC.
IV
WHETHER OR NOT THE ASSESSMENT DATED 15 NOVEMBER 1999 IS VOID CONSIDERING
THAT IT FAILED TO COMPLY WITH THE STATUTORY AS WELL AS REGULATORY
REQUIREMENTS IN THE ISSUANCE OF ASSESSMENTS.26
The Courts Ruling
The petition is meritorious.
First Issue: Assessment of excise tax deficiencies
PSPC contends that respondent had no basis in issuing the November 15, 1999 assessment as PSPC
had no pending unpaid excise tax liabilities. PSPC argues that under the IRR of EO 226, it is allowed
to use TCCs transferred from other BOI-registered entities. On one hand, relative to the validity of
the transferred TCCs, PSPC asserts that the TCCs are not subject to a suspensive condition; that the
post-audit of a transferred TCC refers only to computational discrepancy; that the solidary liability
of the transferor and transferee refers to computational discrepancy resulting from the transfer and
not from the issuance of the TCC; that a post-audit cannot affect the validity and effectivity of a TCC
after it has been utilized by the transferee; and that the BIR duly acknowledged the use of the
subject TCCs, accepting them as payment for the excise tax liabilities of PSPC. On the other hand,
PSPC maintains that if there was indeed fraud in the issuance of the subject TCCs, of which it had no
knowledge nor participation, the Centers remedy is to go after the transferor for the value of the
TCCs the Center may have erroneously issued.
PSPC likewise assails the BIR assessment on prescription for having been issued beyond the threeyear prescriptive period under Sec. 203 of the National Internal Revenue Code (NIRC); and neither
can the BIR use the 10-year prescriptive period under Sec. 222(a) of the NIRC, as PSPC has neither
failed to file a return nor filed a false or fraudulent return with intent to evade taxes.
Respondent, on the other hand, counters that petitioner is liable for the tax liabilities adjudged by
the CTA En Banc since PSPC, as transferee of the subject TCCs, is bound by the liability clause found
at the dorsal side of the TCCs which subjects the genuineness, validity, and value of the TCCs to the
outcome of the post-audit to be conducted by the Center. He relies on the CTA En Bancs finding of
52
MAS
Taxation I
the presence of a suspensive condition in the issuance of the TCCs. Thus, according to him, with the
finding by the Center that the TCCs were fraudulently procured the subsequent cancellation of the
TCCs resulted in the non-payment by PSPC of its excise tax liabilities equivalent to the value of the
canceled TCCs.
Respondent likewise posits that the Center erred in approving the transfer and issuance of the
TDM, and of the TDM and ATAPETs issued by the BIR in accepting the utilization by PSPC of the
subject TCCs, as payments for excise taxes cannot prejudice the BIR from assessing the tax
deficiencies of PSPC resulting from the non-payment of the deficiencies after due cancellation by
the Center of the subject TCCs and corresponding TDM.
Respondent concludes that due to the fraudulent procurement of the subject TCCs, his right to
assess has not yet prescribed. He relies on the finding of the Center that the fraud was discovered
only after the post-audit was conducted; hence, Sec. 222(a) of the NIRC applies, reckoned from
October 24, 1999 or the date of the post-audit report. In fine, he points that what is at issue is the
resulting non-payment of PSPCs excise tax liabilities from the cancellation of subject TCCs and not
the amount of deficiency taxes due from PSPC, as what was properly assessed on November 15,
1999 was the amount of tax declared and found in PSPCs excise tax returns covered by the subject
TCCs.
We find for PSPC.
The CTA En Banc upheld respondents theory by holding that the Center has the authority to do a
post-audit on the TCCs it issued; the TCCs are subject to the results of the post-audit since their
issuance is subject to a suspensive condition; the transferees of the TCCs are solidarily liable with
the transferors on the result of the post-audit; and the cancellation of the subject TCCs resulted in
PSPC having to bear the loss anchored on its solidary liability with the transferor of the subject
TCCs.
We can neither sustain respondents theory nor that of the CTA En Banc.
First, in overturning the August 2, 2004 Decision of the CTA Division, the CTA En Banc applied Article
1181 of the Civil Code in this manner:
To completely understand the matter presented before Us, it is worth emphasizing that the
statement on the subject certificate stating that it is issued subject to post-audit is in the nature of a
suspensive condition under Article 1181 of the Civil Code, which is quoted hereunder for ready
reference, to wit:
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition.
The above-quoted article speaks of obligations. These conditions affect obligations in diametrically
opposed ways. If the suspensive condition happens, the obligation arises; in other words, if the
condition does not happen, the obligation does not come into existence. On the other hand, the
resolutory condition extinguishes rights and obligations already existing; in other words, the
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obligations and rights already exist, but under the threat of extinction upon the happening of the
resolutory condition. (8 Manresa 130-131, cited on page 140, Civil Code of the Philippines,
Tolentino, 1962 ed., Vol. IV).
In adopting the foregoing provision of law, this Court rules that the issuance of the tax credit
certificate is subject to the condition that a post-audit will subsequently be conducted in order to
determine if the holder is indeed qualified for its issuance. As stated earlier, the holder takes the
same subject to the outcome of the post-audit. Thus, unless and until there is a final determination
of the holders right to the issuance of the certificate, there exists no obligation on the part of the
DOF or the BIR to recognize the rights of then holder or transferee. x x x
xxxx
The validity and propriety of the TCC to effectively constitute payment of taxes to the government
are still subject to the outcome of the post-audit. In other words, when the issuing authority (DOF)
finds, as in the case at bar, circumstances which may warrant the cancellation of the certificate, the
holder is inevitably bound by the outcome by the virtue of the express provisions of the TCCs. 27
The CTA En Banc is incorrect.
Art.1181 tells us that the condition is suspensive when the acquisition of rights or demandability of
the obligation must await the occurrence of the condition.28 However, Art. 1181 does not apply to
the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws,
rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among
the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of
Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106(c) of the Tariff and Customs
Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the
aforementioned laws does the post-audit become necessary for the validity or effectivity of the
TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a
suspensive condition.
The CTA En Bancs holding of the presence of a suspensive condition is untenable as the subject
TCCs duly issued by the Center are immediately effective and valid. The suspensive condition as
ratiocinated by the CTA En Banc is one where the transfer contract was duly effected on the day it
was executed between the transferee and the transferor but the TCC cannot be enforced until after
the post-audit has been conducted. In short, under the ruling of the CTA En Banc, even if the TCC
has been issued, the real and true application of the tax credit happens only after the post-audit
confirms the TCCs validity and not before the confirmation; thus, the TCC can still be canceled even
if it has already been ostensibly applied to specific internal revenue tax liabilities.
We are not convinced.
We cannot subscribe to the CTA En Bancs holding that the suspensive condition suspends the
effectivity of the TCCs as payment until after the post-audit. This strains the very nature of a TCC.
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A tax credit is not specifically defined in our Tax Code,29 but Art. 21 of EO 226 defines a tax credit as
"any of the credits against taxes and/or duties equal to those actually paid or would have been paid
to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his
representative, or the Board (of Investments), if so delegated by the Secretary of Finance." Tax
credits were granted under EO 226 as incentives to encourage investments in certain businesses. A
tax credit generally refers to an amount that may be "subtracted directly from ones total tax
liability."30 It is therefore an "allowance against the tax itself"31 or "a deduction from what is
owed"32 by a taxpayer to the government. In RR 5-2000,33 a tax credit is defined as "the amount due
to a taxpayer resulting from an overpayment of a tax liability or erroneous payment of a tax due." 34
A TCC is
a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly
authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed
formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit,
the money value of which may be used in payment or in satisfaction of any of his internal revenue
tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be
disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by
the provisions of these Regulations.35
From the above definitions, it is clear that a TCC is an undertaking by the government through the
BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either
an overpayment of income taxes, a direct benefit granted by law or other sources and instances
granted by law such as on specific unused input taxes and excise taxes on certain goods. As such,
tax credit is transferable in accordance with pertinent laws, rules, and regulations.
Therefore, the TCCs are immediately valid and effective after their issuance. As aptly pointed out in
the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and
Instructions found at the back of each TCC, which provide:
1. This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes
and duties until the amount is fully utilized, in accordance with the pertinent tax and customs
laws, rules and regulations.
xxxx
4. To acknowledge application of payment, the One-Stop-Shop Tax Credit Center shall issue the
corresponding Tax Debit Memo (TDM) to the grantee.
The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall
accomplish the Application of Tax Credit portion at the back of the certificate and affix his signature
on the column provided. (Emphasis supplied.)
The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle
tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC
dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it
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would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since
there is no contemplation of the situation wherein there is no post-audit. Does the payment made
become effective if no post-audit is conducted? Or does the so-called suspensive condition still
apply as no law, rule, or regulation specifies a period when a post-audit should or could be
conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both
effective when made and dependent on a future event for its effectivity. Our system of laws and
procedures abhors ambiguity.
Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very
purpose of the TCC would be defeated as there would be no guarantee that the TCC would be
honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs
if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits
as to the exercise of said post-audit.
The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition,
and are thus valid and effective from their issuance. As such, in the present case, if the TCCs have
already been applied as partial payment for the tax liability of PSPC, a post-audit of the TCCs cannot
simply annul them and the tax payment made through said TCCs. Payment has already been made
and is as valid and effective as the issued TCCs. The subsequent post-audit cannot void the TCCs and
allow the respondent to declare that utilizing canceled TCCs results in nonpayment on the part of
PSPC. As will be discussed, respondent and the Center expressly recognize the TCCs as valid
payment of PSPCs tax liability.
Second, the only conditions the TCCs are subjected to are those found on its face. And these are:
1. Post-audit and subsequent adjustment in the event of computational discrepancy;
2. A reduction for any outstanding account/obligation of herein claimant with the BIR
and/or BOC; and
3. Revalidation with the Center in case the TCC is not utilized or applied within one (1) year
from date of issuance/date of last utilization.
The above conditions clearly show that the post-audit contemplated in the TCCs does not pertain to
their genuineness or validity, but on computational discrepancies that may have resulted from the
transfer and utilization of the TCC.
This is shown by a close reading of the first and second conditions above; the third condition is self
explanatory. Since a tax credit partakes of what is owed by the State to a taxpayer, if the taxpayer
has an outstanding liability with the BIR or the BOC, the money value of the tax credit covered by
the TCC is primarily applied to such internal revenue liabilities of the holder as provided under
condition number two. Elsewise put, the TCC issued to a claimant is applied first and foremost to
any outstanding liability the claimant may have with the government. Thus, it may happen that
upon post-audit, a TCC of a taxpayer may be reduced for whatever liability the taxpayer may have
with the BIR which remains unpaid due to inadvertence or computational errors, and such
reduction necessarily affects the balance of the monetary value of the tax credit of the TCC.
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Taxation I
For example, Company A has been granted a TCC in the amount of PhP 500,000 through its export
transactions, but it has an outstanding excise tax liability of PhP 250,000 which due to inadvertence
was erroneously assessed and paid at PhP 225,000. On post-audit, with the finding of a deficiency of
PhP 25,000, the utilization of the TCC is accordingly corrected and the tax credit remaining in the
TCC correspondingly reduced by PhP 25,000. This is a concrete example of a computational
discrepancy which comes to light after a post-audit is conducted on the utilization of the TCC. The
same holds true for a transferees use of the TCC in paying its outstanding internal revenue tax
liabilities.
Other examples of computational errors would include the utilization of a single TCC to settle
several internal revenue tax liabilities of the taxpayer or transferee, where errors committed in the
reduction of the credit tax running balance are discovered in the post-audit resulting in the
adjustment of the TCC utilization and remaining tax credit balance.
Third, the post-audit the Center conducted on the transferred TCCs, delving into their issuance and
validity on alleged violations by PSPC of the August 29, 1989 MOA between the DOF and BOI, is
completely misplaced. As may be recalled, the Center required PSPC to submit copies of pertinent
sales invoices and delivery receipts covering sale transactions of PSPC products to the TCC
assignors/transferors purportedly in connection with an ongoing post audit. As correctly protested
by PSPC but which was completely ignored by the Center, PSPC is not required by law to be a capital
equipment provider or a supplier of raw material and/or component supplier to the transferors.
What the law requires is that the transferee be a BOI-registered company similar to the BOIregistered transferors.
The IRR of EO 226, which incorporated the October 5, 1982 MOA between the MOF and BOI,
pertinently provides for the guidelines concerning the transferability of TCCs:
[T]he MOF and the BOI, through their respective representatives, have agreed on the following
guidelines to govern the transferability of tax credit certificates:
1) All tax credit certificates issued to BOI-registered enterprises under P.D. 1789 may be
transferred under conditions provided herein;
2) The transferee should be a BOI-registered firm;
3) The transferee may apply such tax credit certificates for payment of taxes, duties, charges
or fees directly due to the national government for as long as it enjoys incentives under P.D.
1789. (Emphasis supplied.)
The above requirement has not been amended or repealed during the unfolding of the instant
controversy. Thus, it is clear from the above proviso that it is only required that a TCC transferee be
BOI-registered. In requiring PSPC to submit sales documents for its purported post-audit of the
TCCs, the Center gravely abused its discretion as these are not required of the transferee PSPC by
law and by the rules.
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While the October 5, 1982 MOA appears to have been amended by the August 29, 1989 MOA
between the DOF and BOI, such may not operate to prejudice transferees like PSPC. For one, the
August 29, 1989 MOA remains only an internal agreement as it has neither been elevated to the
level of nor incorporated as an amendment in the IRR of EO 226. As aptly put by the CTA Division:
If the 1989 MOA has validly amended the 1982 MOA, it would have been incorporated either
expressly or by reference in Rule VII of the Implementing Rules and Regulations (IRRs) of E.O. 226.
To date, said Rule VII has not been repealed, amended or otherwise modified. It is noteworthy that
the 1999 edition of the official publication by the BOI of E.O. 226 and its IRRs (Exhibit R) which is the
latest version, as amended, has not mentioned expressly or by reference [sic] 1989 MOA. The MOA
mentioned therein is still the 1982 MOA.
The 1982 MOA, although executed as a mere agreement between the DOF and the BOI was
elevated to the status of a rule and regulation applicable to the general public by reason of its
having been expressly incorporated in Rule VII of the IRRs. On the other hand, the 1989 MOA which
purportedly amended the 1982 MOA, remained a mere agreement between the DOF and the BOI
because, unlike the 1982 MOA, it was never incorporated either expressly or by reference to any
amendment or revision of the said IRRs. Thus, it cannot be the basis of any invalidation of the
transfers of TCCs to petitioner nor of any other sanction against petitioner.36
For another, even if the August 29, 1989 MOA has indeed amended the IRR, which it has not, still, it
is ineffective and cannot prejudice third parties for lack of publication as mandatorily required
under Chapter 2 of Book VII, EO 292, otherwise known as the Administrative Code of 1987, which
pertinently provides:
Section 3. Filing.(1) Every agency shall file with the University of the Philippines Law Center three
(3) certified copies of every rule adopted by it. Rules in force on the date of effectivity of this Code
which are not filed within three (3) months from the date shall not thereafter be the basis of any
sanction against any party or person.
(2) The records officer of the agency, or his equivalent functionary, shall carry out the
requirements of this section under pain of disciplinary action.
(3) A permanent register of all rules shall be kept by the issuing agency and shall be open to
public inspection.
Section 4. Effectivity.In addition to other rule-making requirement provided by law not
inconsistent with this Book, each rule shall become effective fifteen (15) days from the date of filing
as above provided unless a different date is fixed by law, or specified in the rule in cases of
imminent danger to public health, safety and welfare, the existence of which must be expressed in
a statement accompanying the rule. The agency shall take appropriate measures to make
emergency rules known to persons who may be affected by them.
Section 5. x x x x
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(2) Every rule establishing an offense or defining an act which pursuant to law, is punishable as a
crime or subject to a penalty shall in all cases be published in full text.
It is clear that the Center or DOF cannot compel PSPC to submit sales documents for the purported
post-audit, as PSPC has duly complied with the requirements of the law and rules to be a qualified
transferee of the subject TCCs.
Fourth, we likewise fail to see the liability clause at the dorsal portion of the TCCs to be a suspensive
condition relative to the result of the post-audit. Said liability clause indicates:
LIABILITY CLAUSE
Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent
act or violation of the pertinent laws, rules and regulations relating to the transfer of this TAX
CREDIT CERTIFICATE. (Emphasis supplied.)
The above clause to our mind clearly provides only for the solidary liability relative to the transfer of
the TCCs from the original grantee to a transferee. There is nothing in the above clause that
provides for the liability of the transferee in the event that the validity of the TCC issued to the
original grantee by the Center is impugned or where the TCC is declared to have been fraudulently
procured by the said original grantee. Thus, the solidary liability, if any, applies only to the sale of
the TCC to the transferee by the original grantee. Any fraud or breach of law or rule relating to the
issuance of the TCC by the Center to the transferor or the original grantee is the latters
responsibility and liability. The transferee in good faith and for value may not be unjustly prejudiced
by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC
from the Center. It is not only unjust but well-nigh violative of the constitutional right not to be
deprived of ones property without due process of law. Thus, a re-assessment of tax liabilities
previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory,
more so when surcharges and interests are likewise assessed.
A transferee in good faith and for value of a TCC who has relied on the Centers representation of
the genuineness and validity of the TCC transferred to it may not be legally required to pay again
the tax covered by the TCC which has been belatedly declared null and void, that is, after the TCCs
have been fully utilized through settlement of internal revenue tax liabilities. Conversely, when the
transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has
knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud
committed as provided for by law.
In the instant case, a close review of the factual milieu and the records reveals that PSPC is a
transferee in good faith and for value. No evidence was adduced that PSPC participated in any way
in the issuance of the subject TCCs to the corporations who in turn conveyed the same to PSPC. It
has likewise been shown that PSPC was not involved in the processing for the approval of the
transfers of the subject TCCs from the various BOI-registered transferors.
Respondent, through the Center, made much of the alleged non-payment through non-delivery by
PSPC of the IFOs it purportedly sold to the transferors covered by supply agreements which were
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allegedly the basis of the Center for the approval of the transfers. Respondent points to the
requirement under the August 29, 1989 MOA between the DOF and BOI, specifying the
requirement that "[t]he transferee should be a BOI-registered firm which is a domestic capital
equipment supplier, or a raw material and/or component supplier of the transferor."37
As discussed above, the above amendment to the October 5, 1982 MOA between BOI and MOF
cannot prejudice any transferee, like PSPC, as it was neither incorporated nor elevated to the IRR of
EO 226, and for lack of due publication. The pro-forma supply agreements allegedly executed by
PSPC and the transferors covering the sale of IFOs to the transferors have been specifically denied
by PSPC. Moreover, the above-quoted requirement is not required under the IRR of EO 226.
Therefore, it is incumbent for respondent to present said supply agreements to prove participation
by PSPC in the approval of the transfers of the subject TCCs. Respondent failed to do this.
PSPC claims to be a transferee in good faith of the subject TCCs. It believed that its tax obligations
for 1992 and 1994 to 1997 had in fact been paid when it applied the subject TCCs, considering that
all the necessary authorizations and approvals attendant to the transfer and utilization of the TCCs
were present. It is undisputed that the transfers of the TCCs from the original holders to PSPC were
duly approved by the Center, which is composed of a number of government agencies, including
the BIR. Such approval was annotated on the reverse side of the TCCs, and the Center even issued
TDM which is proof of its approval for PSPC to apply the TCCs as payment for the tax liabilities. The
BIR issued its own TDM, also signifying approval of the TCCs as payment for PSPCs tax liabilities.
The BIR also issued ATAPETs covering the aforementioned BIR-issued TDM, further proving its
acceptance of the TCCs as valid tax payments, which formed part of PSPCs total tax payments along
with checks duly acknowledged and received by BIRs authorized agent banks.
Several approvals were secured by PSPC before it utilized the transferred TCCs, and it relied on the
verification of the various government agencies concerned of the genuineness and authenticity of
the TCCs as well as the validity of their issuances. Furthermore, the parties stipulated in open court
that the BIR-issued ATAPETs for the taxes covered by the subject TCCs confirm the correctness of
the amount of excise taxes paid by PSPC during the tax years in question.
Thus, it is clear that PSPC is a transferee in good faith and for value of the subject TCCs and may not
be prejudiced with a re-assessment of excise tax liabilities it has already settled when due with the
use of the subject TCCs. Logically, therefore, the excise tax returns filed by PSPC duly covered by the
TDM and ATAPETs issued by the BIR confirming the full payment and satisfaction of the excise tax
liabilities of PSPC, have not been fraudulently filed. Consequently, as PSPC is a transferee in good
faith and for value, Sec. 222(a) of the NIRC does not apply in the instant case as PSPC has neither
been shown nor proven to have committed any fraudulent act in the transfer and utilization of the
subject TCCs. With more reason, therefore, that the three-year prescriptive period for assessment
under Art. 203 of the NIRC has already set in and bars respondent from assessing anew PSPC for the
excise taxes already paid in 1992 and 1994 to 1997. Besides, even if the period for assessment has
not prescribed, still, there is no valid ground for the assessment as the excise tax liabilities of PSPC
have been duly settled and paid.
Fifth, PSPC cannot be blamed for relying on the Centers approval for the transfers of the subject
TCCs and the Centers acceptance of the TCCs for the payment of its excise tax liabilities. Likewise,
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PSPC cannot be faulted in relying on the BIRs acceptance of the subject TCCs as payment for its
excise tax liabilities. This reliance is supported by the fact that the subject TCCs have passed through
stringent reviews starting from the claims of the transferors, their issuance by the Center, the
Centers approval for their transfer to PSPC, the Centers acceptance of the TCCs to pay PSPCs
excise tax liabilities through the issuance of the Centers TDM, and finally the acceptance by the BIR
of the subject TCCs as payment through the issuance of its own TDM and ATAPETs.
Therefore, PSPC cannot be prejudiced by the Centers turnaround in assailing the validity of the
subject TCCs which it issued in due course.
Sixth, we are of the view that the subject TCCs cannot be canceled by the Center as these had
already been canceled after their application to PSPCs excise tax liabilities. PSPC contends they are
already functus officio, not quite in the sense of being no longer effective, but in the sense that they
have been used up. When the subject TCCs were accepted by the BIR through the latters issuance
of TDM and the ATAPETs, the subject TCCs were duly canceled.
The tax credit of a taxpayer evidenced by a TCC is used up or, in accounting parlance, debited when
applied to the taxpayers internal revenue tax liability, and the TCC canceled after the tax credit it
represented is fully debited or used up. A credit is a payable or a liability. A tax credit, therefore, is a
liability of the government evidenced by a TCC. Thus, the tax credit of a taxpayer evidenced by a
TCC is debited by the BIR through a TDM, not only evidencing the payment of the tax by the
taxpayer, but likewise deducting or debiting the existing tax credit with the amount of the tax paid.
For example, a transferee or the tax claimant has a TCC of PhP 1 million, which was used to pay
income tax liability of PhP 500,000, documentary stamp tax liability of PhP 100,000, and valueadded tax liability of PhP 350,000, for an aggregate internal revenue tax liability of PhP 950,000.
After the payments through the PhP 1 million TCC have been approved and accepted by the BIR
through the issuance of corresponding TDM, the TCC money value is reduced to only PhP 50,000,
that is, a credit balance of PhP 50,000. In this sense, the tax credit of the TCC has been canceled or
used up in the amount of PhP 950,000. Now, let us say the transferee or taxpayer has excise tax
liability of PhP 250,000, s/he only has the remaining PhP 50,000 tax credit in the TCC to pay part of
said excise tax. When the transferee or taxpayer applies such payment, the TCC is canceled as the
money value of the tax credit it represented has been fully debited or used up. In short, there is no
more tax credit available for the taxpayer to settle his/her other tax liabilities.
In the instant case, with due application, approval, and acceptance of the payment by PSPC of the
subject TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the subject TCCs
have been canceled as the money value of the tax credits these represented have been used up.
Therefore, the DOF through the Center may not now cancel the subject TCCs as these have already
been canceled and used up after their acceptance as payment for PSPCs excise tax liabilities. What
has been used up, debited, and canceled cannot anymore be declared to be void, ineffective, and
canceled anew.
Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the TCC
canceled when fully utilized, but the payment is also final subject only to a post-audit on
computational errors. Under RR 5-2000, a TDM is
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a certification, duly issued by the Commissioner or his duly authorized representative, reduced in a
BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the
taxpayer named therein has duly paid his internal revenue tax liability in the form of and through
the use of a Tax Credit Certificate, duly issued and existing in accordance with the provisions of
these Regulations. The Tax Debit Memo shall serve as the official receipt from the BIR evidencing
a taxpayers payment or satisfaction of his tax obligation. The amount shown therein shall be
charged against and deducted from the credit balance of the aforesaid Tax Credit Certificate.
Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made by PSPC
with the use of the subject TCCs have been effected and consummated as the TDMs serve as the
official receipts evidencing PSPCs payment or satisfaction of its tax obligation. Moreover, the BIR
not only issued the corresponding TDM, but it also issued ATAPETs which doubly show the payment
of the subject excise taxes of PSPC.
Based on the above discussion, we hold that respondent erroneously and without factual and legal
basis levied the assessment. Consequently, the CTA En Banc erred in sustaining respondents
assessment.
Second Issue: Cancellation of TCCs
PSPC argues that the CTA En Banc erred in upholding the cancellation by the Center of the subject
TCCs it used in paying some of its excise tax liabilities as the subject TCCs were genuine and
authentic, having been subjected to thorough and stringent procedures, and approvals by the
Center. Moreover, PSPC posits that both the CTAs Division and En Banc duly found that PSPC had
neither knowledge, involvement, nor participation in the alleged fraudulent issuance of the subject
TCCs, and, thus, as a transferee in good faith and for value, it cannot be held solidarily liable for any
fraud attendant to the issuance of the subject TCCs. PSPC further asserts that the Center has no
authority to cancel the subject TCCs as such authority is lodged exclusively with the BOI. Lastly,
PSPC said that the Centers Excom Resolution No. 03-05-99 which the Center relied upon as basis
for the cancellation is defective, ineffective, and cannot prejudice third parties for lack of
publication.
As we have explained above, the subject TCCs after being fully utilized in the settlement of PSPCs
excise tax liabilities have been canceled, and thus cannot be canceled anymore. For being
immediately effective and valid when issued, the subject TCCs have been duly utilized by transferee
PSPC which is a transferee in good faith and for value.
On the issue of the fraudulent procurement of the TCCs, it has been asseverated that fraud was
committed by the TCC claimants who were the transferors of the subject TCCs. We see no need to
rule on this issue in view of our finding that the real issue in this petition does not dwell on the
validity of the TCCs procured by the transferor from the Center but on whether fraud or breach of
law attended the transfer of said TCCs by the transferor to the transferee.
The finding of the CTA En Banc that there was fraud in the procurement of the subject TCCs is,
therefore, irrelevant and immaterial to the instant petition. Moreover, there are pending criminal
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cases arising from the alleged fraud. We leave the matter to the anti-graft court especially
considering the failure of the affiants to the affidavits to appear, making these hearsay evidence.
We note in passing that PSPC and its officers were not involved in any fraudulent act that may have
been undertaken by the transferors of subject TCCs, supported by the finding of the Ombudsman
Special Prosecutor Leonardo P. Tamayo that Pacifico R. Cruz, PSPC General Manager of the Treasury
and Taxation Department, who was earlier indicted as accused in OMB-0-99-2012 to 2034 for
violation of Sec. 3(e) and (j) of RA 3019, as amended, otherwise known as the "Anti-Graft and
Corrupt Practices Act," for allegedly conspiring with other accused in defrauding and causing undue
injury to the government,38 did not in any way participate in alleged fraudulent activities relative to
the transfer and use of the subject TCCs.
In a Memorandum39 addressed to then Ombudsman Aniano A. Desierto, the Special Prosecutor
Leonardo P. Tamayo recommended dropping Pacifico Cruz as accused in Criminal Case Nos. 2594025962 entitled People of the Philippines v. Antonio P. Belicena, et al., pending before the
Sandiganbayan Fifth Division for lack of probable cause. Special
Prosecutor Tamayo found that Cruzs involvement in the transfers of the subject TCCs came after
the applications for the transfers had been duly processed and approved; and that Cruz could not
have been part of the conspiracy as he cannot be presumed to have knowledge of the irregularity,
because the 1989 MOA, which prescribed the additional requirement that the transferee of a TCC
should be a supplier of the transferor, was not yet published and made known to private parties at
the time the subject TCCs were transferred to PSPC. The Memorandum of Special Prosecutor
Tamayo was duly approved by then Ombudsman Desierto. Consequently, on May 31, 2000, the
Sandiganbayan Fifth Division, hearing Criminal Case Nos. 25940-25962, dropped Cruz as accused.40
But even assuming that fraud attended the procurement of the subject TCCs, it cannot prejudice
PSPCs rights as earlier explained since PSPC has not been shown or proven to have participated in
the perpetration of the fraudulent acts, nor is it shown that PSPC committed fraud in the transfer
and utilization of the subject TCCs.
On the issue of the authority to cancel duly issued TCCs, we agree with respondent that the Center
has concurrent authority with the BIR and BOC to cancel the TCCs it issued. The Center was created
under Administrative Order No. (AO) 266 in relation to EO 226. A scrutiny of said executive
issuances clearly shows that the Center was granted the authority to issue TCCs pursuant to its
mandate under AO 266. Sec. 5 of AO 266 provides:
SECTION 5. Issuance of Tax Credit Certificates and/or Duty Drawback.The Secretary of Finance
shall designate his representatives who shall, upon the recommendation of the CENTER, issue tax
credit certificates within thirty (30) working days from acceptance of applications for the enjoyment
thereof. (Emphasis supplied.)
On the other hand, it is undisputed that the BIR under the NIRC and related statutes has the
authority to both issue and cancel TCCs it has issued and even those issued by the Center, either
upon full utilization in the settlement of internal revenue tax liabilities or upon conversion into a tax
63
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Taxation I
refund of unutilized TCCs in specific cases under the conditions provided.41 AO 266 however is silent
on whether or not the Center has authority to cancel a TCC it itself issued. Sec. 3 of AO 266 reveals:
SECTION 3. Powers, Duties and Functions.The Center shall have the following powers, duties and
functions:
a. To promulgate the necessary rules and regulations and/or guidelines for the effective
implementation of this administrative order;
xxxx
g. To enforce compliance with tax credit/duty drawback policy and procedural guidelines;
xxxx
l. To perform such other functions/duties as may be necessary or incidental in the furtherance of
the purpose for which it has been established. (Emphasis supplied.)
Sec. 3, letter l. of AO 266, in relation to letters a. and g., does give ample authority to the Center to
cancel the TCCs it issued. Evidently, the Center cannot carry out its mandate if it cannot cancel the
TCCs it may have erroneously issued or those that were fraudulently issued. It is axiomatic that
when the law and its implementing rules are silent on the matter of cancellation while granting
explicit authority to issue, an inherent and incidental power resides on the issuing authority to
cancel that which was issued. A caveat however is required in that while the Center has authority to
do so, it must bear in mind the nature of the TCCs immediate effectiveness and validity for which
cancellation may only be exercised before a transferred TCC has been fully utilized or canceled by
the BIR after due application of the available tax credit to the internal revenue tax liabilities of an
innocent transferee for value, unless of course the claimant or transferee was involved in the
perpetration of the fraud in the TCCs issuance, transfer, or utilization. The utilization of the TCC will
not shield a guilty party from the consequences of the fraud committed.
While we agree with respondent that the State in the performance of governmental function is not
estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of
taxation,42 yet this principle cannot be applied to work injustice against an innocent party. In the
case at bar, PSPCs rights as an innocent transferee for value must be protected. Therefore, the
remedy for respondent is to go after the claimant companies who allegedly perpetrated the fraud.
This is now the subject of a criminal prosecution before the Sandiganbayan docketed as Criminal
Case Nos. 25940-25962 for violation of RA 3019.
On the issue of the publication of the Centers Excom Resolution No. 03-05-99 providing for the
"Guidelines and Procedures for the Cancellation, Recall and Recovery of Fraudulently Issued Tax
Credit Certificates," we find that the resolution is invalid and unenforceable. It authorizes the
cancellation of TCCs and TDM which are found to have been granted without legal basis or based on
fraudulent documents. The cancellation of the TCCs and TDM is covered by a penal provision of the
assailed resolution. Such being the case, it should have been published and filed with the National
64
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Taxation I
Administrative Register of the U.P. Law Center in accordance with Secs. 3, 4, and 5, Chapter 2 of
Book VII, EO 292 or the Administrative Code of 1987.
We explained in People v. Que Po Lay43 that a rule which carries a penal sanction will bind the public
if the public is officially and specifically informed of the contents and penalties prescribed for the
breach of the rule. Since Excom Resolution No. 03-05-99 was neither registered with the U.P.
Law Center nor published, it is ineffective and unenforceable. Even if the resolution need not be
published, the punishment for any alleged fraudulent act in the procurement of the TCCs must not
be visited on PSPC, an innocent transferee for value, which has not been shown to have
participated in the fraud. Respondent must go after the perpetrators of the fraud.
Third Issue: Imposition of surcharges and interests
PSPC claims that having no deficiency excise tax liabilities, it may not be liable for the late payment
surcharges and annual interests.
This issue has been mooted by our disquisition above resolving the first issue in that PSPC has duly
settled its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no basis for the
imposition of a late payment surcharges and for interests, and no need for further discussion on the
matter.
Fourth Issue: Non-compliance with statutory and
procedural due process
Finally, PSPC avers that its statutory and procedural right to due process was violated by
respondent in the issuance of the assessment. PSPC claims respondent violated RR 12-99 since no
pre-assessment notice was issued to PSPC before the November 15, 1999 assessment. Moreover,
PSPC argues that the November 15, 1999 assessment effectively deprived it of its statutory right to
protest the pre-assessment within 30 days from receipt of the disputed assessment letter.
While this has likewise been mooted by our discussion above, it would not be amiss to state that
PSPCs rights to substantive and procedural due process have indeed been violated. The facts show
that PSPC was not accorded due process before the assessment was levied on it. The Center
required PSPC to submit certain sales documents relative to supposed delivery of IFOs by PSPC to
the TCC transferors. PSPC contends that it could not submit these documents as the transfer of the
subject TCCs did not require that it be a supplier of materials and/or component supplies to the
transferors in a letter dated October 29, 1999 which was received by the Center on November 3,
1999. On the same day, the Center informed PSPC of the cancellation of the subject TCCs and the
TDM covering the application of the TCCs to PSPCs excise tax liabilities. The objections of PSPC
were brushed aside by the Center and the assessment was issued by respondent on November 15,
1999, without following the statutory and procedural requirements clearly provided under the NIRC
and applicable regulations.
What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation to Sec.
245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the assessment of national
65
MAS
Taxation I
internal revenue taxes, fees, and charges. The procedures delineated in the said statutory provisos
and RR 12-99 were not followed by respondent, depriving PSPC of due process in contesting the
formal assessment levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice
for informal conference44 and a preliminary assessment notice, as required.45 PSPCs November 4,
1999 motion for reconsideration of the purported Center findings and cancellation of the subject
TCCs and the TDM was not even acted upon.
1wphi1
PSPC was merely informed that it is liable for the amount of excise taxes it declared in its excise tax
returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of demand and
assessment notice. For being formally defective, the November 15, 1999 formal letter of demand
and assessment notice is void. Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides:
3.1.4 Formal Letter of Demand and Assessment Notice.The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts,
the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void. The same shall be sent to the
taxpayer only by registered mail or by personal delivery. x x x (Emphasis supplied.)
In short, respondent merely relied on the findings of the Center which did not give PSPC ample
opportunity to air its side. While PSPC indeed protested the formal assessment, such does not
denigrate the fact that it was deprived of statutory and procedural due process to contest the
assessment before it was issued. Respondent must be more circumspect in the exercise of his
functions, as this Court aptly held in Roxas v. Court of Tax Appeals:
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."
And, in the order to maintain the general publics trust and confidence in the Government this
power must be used justly and not treacherously.46
WHEREFORE, the petition is GRANTED. The April 28, 2006 CTA En Banc Decision in CTA EB No. 64 is
hereby REVERSED and SET ASIDE, and the August 2, 2004 CTA Decision in CTA Case No. 6003
disallowing the assessment is hereby REINSTATED. The assessment of respondent for deficiency
excise taxes against petitioner for 1992 and 1994 to 1997 inclusive contained in the April 22, 1998
letter of respondent is canceled and declared without force and effect for lack of legal basis. No
pronouncement as to costs.
SO ORDERED.
PRESBITERO
Associate Justice
J.
VELASCO,
WE CONCUR:
66
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JR.
Taxation I
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO
Associate Justice
CONCHITA CARPIO MORALES

Associate Justice
DANTE O. TINGA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
LEONARDO
Associate
Chairperson
A.
QUISUMBING
Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
REYNATO
Chief Justice
S.
PUNO
Footnotes
1
Rollo, pp. 109-130. Penned by Associate Justice Erlinda P. Uy and concurred in by Associate
Justices Juanito C. Castaeda, Jr., Caesar A. Casanova and Olga Palanca-Enriquez; with
Dissenting Opinion of Associate Justice Lovell R. Bautista, concurred in by Presiding Justice
Ernesto D. Acosta, id. at 131-145.
2
Id. at 1708-1742. Penned by Associate Justice Lovell R. Bautista and concurred in by

Presiding Justice Ernesto D. Acosta; with Dissenting Opinion of Associate Justice Juanito C.
Castaeda, Jr., id. at 1743-1757.
3
Id. at 1758-1761, with Dissenting Opinion of Associate Justice Juanito C. Castaeda, Jr., id.
at 1762-1767.
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Taxation I
4
Id. at 651.
CA rollo, pp. 19-40. Penned by Associate Justice Amancio Q. Saga and concurred in by
Presiding Justice Ernesto D. Acosta and Associate Justice Ramon O. De Veyra.
6
Id. at 39.
Rollo, pp. 511-526.
Id. at 163-164.
Id. at 165.
10
Id. at 166-177.
11
Id. at 178-184.
12
Id. at 193-208.
13
Id. at 209-222, Letter-Protest of PSPC dated December 2, 1999.
14
Id. at 227-286.
15
"An Act Expanding the Jurisdiction of the Court of Tax Appeals, Elevating its Rank to the
Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending
for the Purpose Sections of Republic Act No. 1125, otherwise known as the Law Creating the
Court of Tax Appeals."
16
Enacted on June 16, 1954.
17
Supra note 3.
18
Rollo, p. 1741.
19
Id. at 159-160.
20
The Omnibus Investments Code of 1987, as Amended.
21
Section 11. Section 18 of [RA 1125] is hereby amended as follows:

SEC. 18. Appeal to the Court of Tax Appeals En Banc.No civil proceeding involving
matter arising under the National Internal Revenue Code, the Tariff and Customs
Code or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed of in
accordance with the provisions of this Act.
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Taxation I
A party adversely affected by a resolution of a Division of the CTA on a motion for

reconsideration or new trial, may file a petition for review with the CTA en banc.
SEC. 19. Review by Certiorari.A party adversely affected by a decision or ruling of
the CTA en banc may file with the Supreme Court a verified petition for review on
certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
22
Rollo, pp. 1768-1863, dated March 28, 2005.
23
Supra note 2.
24
Rollo, p. 129.
25
No. L-20569, August 23, 1974, 58 SCRA 519.
26
Rollo, pp. 26-27. Original in boldface.
27
Id. at 119-120.
28
III J. Vitug, Civil Law Obligations and Contracts 27 (2003); citation omitted.
29
RA 8424 as amended by RAs 8761 and 9010. Likewise, the term "tax credit" is not defined
in PD 1158, otherwise known as the National Internal Revenue Code of 1977, as amended.
30
Garner, ed., Blacks Law Dictionary 1501 (8th ed., 1999).
31
Smith, Wests Tax Law Dictionary 177-178 (1993).
32
Oran and Tosti, Orans Dictionary of the Law 124 (3rd ed., 2000).
33
"Prescribing the Regulations Governing the Manner of the Issuance of Tax Credit
Certificates, and the Conditions for their Use, Revalidation and Transfer," issued by then
Secretary of Finance Jose T. Pardo on July 19, 2000.
34
Id., Section 1, A.
35
Id., Section 1, B.
36
Rollo, pp. 1731-1732.
37
Id. at 160.
38
Id. at 1535-1584. March 27, 2000 Joint Resolution of the Office of the Ombudsman
Evaluation and Preliminary Investigation Bureau.
39
Id. at 4253-4257.
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MAS
Taxation I
40
Id. at 1258-1260. May 31, 2000 Resolution penned Associate Justice Minita V. ChicoNazario (Chairperson, now a member of this Court) and concurred in by Associate Justices
Rodolfo G. Palatiao and Ma. Cristina G. Cortez-Estrada.
41
See Sec. 204 in relation to Sec. 230 of the NIRC.
42
See Commissioner of Internal Revenue v. Proctor and Gamble PMC, G.R. No. L-66838, April
15, 1988, 160 SCRA 560.
43
94 Phil. 640 (1954).
44
RR 12-99, Sec. 3, par. 3.1.1 states:

3.1.1 Notice for informal conference.The Revenue Officer who audited the
taxpayer's records shall, among others, state in his report whether or not the
taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or
taxes. If the taxpayer is not amenable, based on the said Officers submitted report
of investigation, the taxpayer shall be informed, in writing, by the Revenue District
Office or by the Special Investigation Division, as the case may be (in the case
Revenue Regional Offices) or by the Chief of Division concerned (in the case of the
BIR National Office) of the discrepancy or discrepancies in the taxpayers payment of
his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the
taxpayer fails to respond within fifteen (15) days from date of receipt of the notice
for informal conference, he shall be considered in default, in which case, the
Revenue District Officer or the Chief of the Special Investigation Division of the
Revenue Regional Office, or the Chief of Division in the National Office, as the case
may be, shall endorse the case with the least possible delay to the Assessment
Division of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and issuance
of a deficiency tax assessment, if warranted.
45
RR 12-99, Sec. 3, par. 3.1.2 states:

3.1.2 Preliminary Assessment Notice (PAN).If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative,
as the case may be, it is determined that there exists sufficient basis to assess the
taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at
least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed
assessment, showing in detail, the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be
considered in default, in which case, a formal letter of demand and assessment
notice shall be caused to be issued by the said Office, calling for payment of the
taxpayers deficiency tax liability, inclusive of the applicable penalties.
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Taxation I
46
No. L-25043, April 26, 1968, 23 SCRA 276, 282.
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Taxation I
7. COCONUT OIL REFINERS ASSOCIATION VS TORRES

SUPREME COURT
EN BANC
G.R. No. 132527. July 29, 2005
COCONUT OIL REFINERS ASSOCIATION, INC. represented by its President, JESUS L. ARRANZA,
PHILIPPINE ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI), represented by its Secretary,
ROMEO G. HIDALGO, FEDERATION OF FREE FARMERS (FFF), represented by its President,
JEREMIAS U. MONTEMAYOR, and BUKLURAN NG MANGGAGAWANG PILIPINO (BMP),
represented
by
its
Chairperson,
FELIMON
C.
LAGMAN, Petitioners,
vs.
HON. RUBEN TORRES, in his capacity as Executive Secretary; BASES CONVERSION AND
DEVELOPMENT AUTHORITY, CLARK DEVELOPMENT CORPORATION, SUBIC BAY METROPOLITAN
AUTHORITY, 88 MART DUTY FREE, FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL
DUTY FREE SHOPS, INC., DFS SPORTS, ASIA PACIFIC, MCI DUTY FREE DISTRIBUTOR CORP.
(formerly MCI RESOURCES, CORP.), PARK & SHOP, DUTY FREE COMMODITIES, L. FURNISHING,
SHAMBURGH, SUBIC DFS, ARGAN TRADING CORP., ASIPINE CORP., BEST BUY, INC., PX CLUB,
CLARK TRADING, DEMAGUS TRADING CORP., D.F.S. SPORTS UNLIMITED, INC., DUTY FREE FIRST
SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC. (formerly 88 Mart [Clark] Duty Free
Corp.), LILLY HILL CORP., MARSHALL, PUREGOLD DUTY FREE, INC., ROYAL DFS and ZAXXON
PHILIPPINES, INC., Respondents.
DECISION
AZCUNA, J.:
This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch,
through the public respondents Ruben Torres in his capacity as Executive Secretary, the Bases
Conversion Development Authority (BCDA), the Clark Development Corporation (CDC) and the Subic
Bay Metropolitan Authority (SBMA), from allowing, and the private respondents from continuing
with, the operation of tax and duty-free shops located at the Subic Special Economic Zone (SSEZ)
and the Clark Special Economic Zone (CSEZ), and to declare the following issuances as
unconstitutional, illegal, and void:
1. Section 5 of Executive Order No. 80,1 dated April 3, 1993, regarding the CSEZ.
2. Executive Order No. 97-A, dated June 19, 1993, pertaining to the SSEZ.
3. Section 4 of BCDA Board Resolution No. 93-05-034,2 dated May 18, 1993, pertaining to the CSEZ.
72
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Taxation I
Petitioners contend that the aforecited issuances are unconstitutional and void as they constitute
executive lawmaking, and that they are contrary to Republic Act No. 72273 and in violation of the
Constitution, particularly Section 1, Article III (equal protection clause), Section 19, Article XII
(prohibition of unfair competition and combinations in restraint of trade), and Section 12, Article XII
(preferential use of Filipino labor, domestic materials and locally produced goods).
The facts are as follows:
On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the
sound and balanced conversion of the Clark and Subic military reservations and their extensions
into alternative productive uses in the form of special economic zones in order to promote the
economic and social development of Central Luzon in particular and the country in general. Among
the salient provisions are as follows:
SECTION 12. Subic Special Economic Zone.
...
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be
developed into a self-sustaining, industrial, commercial, financial and investment center to
generate employment opportunities in and around the zone and to attract and promote productive
foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory
ensuringfree flow or movement of goods and capital within, into and exported out of the Subic
Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw
materials, capital and equipment. However, exportation or removal of goods from the territory of
the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines;4
(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes,
local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes,
three percent (3%) of the gross income earned by all businesses and enterprises within the Subic
Special Ecoomic Zone shall be remitted to the National Government, one percent (1%) each to the
local government units affected by the declaration of the zone in proportion to their population
area, and other factors. In addition, there is hereby established a development fund of one percent
(1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic
Zone to be utilized for the development of municipalities outside the City of Olangapo and the
Municipality of Subic, and other municipalities contiguous to the base areas.
...
73
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Taxation I
SECTION 15. Clark and Other Special Economic Zones. Subject to the concurrence by resolution of
the local government units directly affected, the President is hereby authorized to create by
executive proclamation a Special Economic Zone covering the lands occupied by the Clark military
reservations and its contiguous extensions as embraced, covered and defined by the 1947 Military
Bases Agreement between the Philippines and the United States of America, as amended, located
within the territorial jurisdiction of Angeles City, Municipalities of Mabalacat and Porac, Province of
Pampanga and the Municipality of Capas, Province of Tarlac, in accordance with the policies as
herein provided insofar as applicable to the Clark military reservations.
The governing body of the Clark Special Economic Zone shall likewise be established by executive
proclamation with such powers and functions exercised by the Export Processing Zone Authority
pursuant to Presidential Decree No. 66 as amended.
The policies to govern and regulate the Clark Special Economic Zone shall be determined upon
consultation with the inhabitants of the local government units directly affected which shall be
conducted within six (6) months upon approval of this Act.
Similarly, subject to the concurrence by resolution of the local government units directly affected,
the President shall create other Special Economic Zones, in the base areas of Wallace Air Station in
San Fernando, La Union (excluding areas designated for communications, advance warning and
radar requirements of the Philippine Air Force to be determined by the Conversion Authority) and
Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion Authority, the President is likewise authorized to create
Special Economic Zones covering the Municipalities of Morong, Hermosa, Dinalupihan, Castillejos
and San Marcelino.
On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among
others, that Clark shall have all the applicable incentives granted to the Subic Special Economic and
Free Port Zone under Republic Act No. 7227. The pertinent provision assailed therein is as follows:
SECTION 5. Investments Climate in the CSEZ. Pursuant to Section 5(m) and Section 15 of RA 7227,
the BCDA shall promulgate all necessary policies, rules and regulations governing the CSEZ,
including investment incentives, in consultation with the local government units and pertinent
government departments for implementation by the CDC.
Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and
Free Port Zone under RA 7227 and those applicable incentives granted in the Export Processing
Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new
investments laws which may hereinafter be enacted.
The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited investment
incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited incentives. The
full incentives in the Clark SEZ Main Zone and the limited incentives in the Clark SEZ Sub-Zone shall
be determined by the BCDA.
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Taxation I
Pursuant to the directive under Executive Order No. 80, the BCDA passed Board Resolution No. 9305-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods imported
via Clark for consumption outside the CSEZ. The assailed provisions of said resolution read, as
follows:
Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. The CSEZ-registered
enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O. No.
226 and R.A. No. 7042 which shall include, but not limited to, the following:
I. As in Subic Economic and Free Port Zone:
A. Customs:
...
4. Tax and duty-free purchase and consumption of goods/articles (duty free shopping) within the
CSEZ Main Zone.
5. For individuals, duty-free consumer goods may be brought out of the CSEZ Main Zone into the
Philippine Customs territory but not to exceed US$200.00 per month per CDC-registered person,
similar to the limits imposed in the Subic SEZ. This privilege shall be enjoyed only once a month. Any
excess shall be levied taxes and duties by the Bureau of Customs.
On June 10, 1993, the President issued Executive Order No. 97, "Clarifying the Tax and Duty Free
Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227." Said issuance in part
states, thus:
SECTION 1. On Import Taxes and Duties Tax and duty-free importations shall apply only to raw
materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for
these items, importations of other goods into the SSEZ, whether by business enterprises or resident
individuals, are subject to taxes and duties under relevant Philippine laws.
The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts
of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws.
Nine days after, on June 19, 1993, Executive Order No. 97-A was issued, "Further Clarifying the Tax
and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone." The relevant
provisions read, as follows:
SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured
Area of the Subic Special Economic and Free Port Zone:
1.1 The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only
completely tax and duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos and
foreigners) residing within the Secured Area are free to import raw materials, capital goods,
equipment, and consumer items tax and duty-free. Consumption items, however, must be
75
MAS
Taxation I
consumed within the Secured Area. Removal of raw materials, capital goods, equipment and
consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be
subject to the usual taxes and duties, except as may be provided herein.
1.2. Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and
consume any quantity of consumption items in hotels and restaurants within the Secured Area.
However, these residents can purchase and bring out of the Secured Area to other parts of the
Philippine territory consumer items worth not exceeding US$100 per month per person. Only
residents age 15 and over are entitled to this privilege.
1.3. Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity
of consumption items in hotels and restaurants within the Secured Area. However, they can
purchase and bring out [of] the Secured Area to other parts of the Philippine territory consumer
items worth not exceeding US$200 per year per person. Only Filipinos age 15 and over are entitled
to this privilege.
Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the
aforecited provisions respectively to SSEZ residents living outside the Secured Area of the SSEZ and
to Filipinos aged 15 and over residing outside the SSEZ.
On February 23, 1998, petitioners thus filed the instant petition, seeking the declaration of nullity of
the assailed issuances on the following grounds:
I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA
BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING AN EXERCISE OF EXECUTIVE
LAWMAKING.
II.
BOARD RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR BEING VIOLATIVE OF THE EQUAL
PROTECTION CLAUSE AND THE PROHIBITION AGAINST UNFAIR COMPETITION AND PRACTICES IN
RESTRAINT OF TRADE.
III.
BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING VIOLATIVE OF REPUBLIC ACT
NO. 7227.
IV.
THE CONTINUED IMPLEMENTATION OF THE CHALLENGED ISSUANCES IF NOT RESTRAINED WILL
CONTINUE TO CAUSE PETITIONERS TO SUFFER GRAVE AND IRREPARABLE INJURY.5
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In their Comments, respondents point out procedural issues, alleging lack of petitioners legal
standing, the unreasonable delay in the filing of the petition, laches, and the propriety of the
remedy of prohibition.
Anent the claim on lack of legal standing, respondents argue that petitioners, being mere suppliers
of the local retailers operating outside the special economic zones, do not stand to
suffer direct injury in the enforcement of the issuances being assailed herein. Assuming this is true,
this Court has nevertheless held that in cases of paramount importance where serious
constitutional questions are involved, the standing requirements may be relaxed and a suit may be
allowed to prosper even where there is no direct injury to the party claiming the right of judicial
review.6
In the same vein, with respect to the other alleged procedural flaws, even assuming the existence of
such defects, this Court, in the exercise of its discretion, brushes aside these technicalities and takes
cognizance of the petition considering the importance to the public of the present case and in
keeping with the duty to determine whether the other branches of the government have kept
themselves within the limits of the Constitution.7
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on the validity of an act of a co-equal and coordinate
branch of the Government, it bears emphasis that deeply ingrained in our jurisprudence is the timehonored principle that a statute is presumed to be valid.8 This presumption is rooted in the doctrine
of separation of powers which enjoins upon the three coordinate departments of the Government a
becoming courtesy for each others acts.9 Hence, to doubt is to sustain. The theory is that before
the act was done or the law was enacted, earnest studies were made by Congress, or the President,
or both, to insure that the Constitution would not be breached.10 This Court, however, may declare
a law, or portions thereof, unconstitutional where a petitioner has shown a clear and unequivocal
breach of the Constitution, not merely a doubtful or argumentative one.11 In other words, before a
statute or a portion thereof may be declared unconstitutional, it must be shown that the statute or
issuance violates the Constitution clearly, palpably and plainly, and in such a manner as to leave no
doubt or hesitation in the mind of the Court.12
The Issue on Executive Legislation
Petitioners claim that the assailed issuances (Executive Order No. 97-A; Section 5 of Executive Order
No. 80; and Section 4 of BCDA Board Resolution No. 93-05-034) constitute executive legislation, in
violation of the rule on separation of powers. Petitioners argue that the Executive Department, by
allowing through the questioned issuances the setting up of tax and duty-free shops and the
removal of consumer goods and items from the zones without payment of corresponding duties
and taxes, arbitrarily provided additional exemptions to the limitations imposed by Republic Act No.
7227, which limitations petitioners identify as follows:
(1) [Republic Act No. 7227] allowed only tax and duty-free importation of raw materials, capital and
equipment.
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(2) It provides that any exportation or removal of goods from the territory of the Subic Special
Economic Zone to other parts of the Philippine territory shall be subject to customs duties and taxes
under the Customs and Tariff Code and other relevant tax laws of the Philippines.
Anent the first alleged limitation, petitioners contend that the wording of Republic Act No. 7227
clearly limits the grant of tax incentives to the importation of raw materials, capital and equipment
only. Hence, they claim that the assailed issuances constitute executive legislation for invalidly
granting tax incentives in the importation of consumer goods such as those being sold in the dutyfree shops, in violation of the letter and intent of Republic Act No. 7227.
A careful reading of Section 12 of Republic Act No. 7227, which pertains to the SSEZ, would show
that it does not restrict the duty-free importation only to "raw materials, capital and equipment."
Section 12 of the cited law is partly reproduced, as follows:
SECTION 12. Subic Special Economic Zone.
...
...
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory
ensuring free flow or movement of goods and capital within, into and exported out of the Subic
Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw
materials, capital and equipment.However, exportation or removal of goods from the territory of
the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines.13
While it is true that Section 12 (b) of Republic Act No. 7227 mentions only raw materials, capital and
equipment, this does not necessarily mean that the tax and duty-free buying privilege is limited to
these types of articles to the exclusion of consumer goods. It must be remembered that in
construing statutes, the proper course is to start out and follow the true intent of the Legislature
and to adopt that sense which harmonizes best with the context and promotes in the fullest
manner the policy and objects of the Legislature.14
In the present case, there appears to be no logic in following the narrow interpretation petitioners
urge. To limit the tax-free importation privilege of enterprises located inside the special economic
zone only to raw materials, capital and equipment clearly runs counter to the intention of the
Legislature to create a free port where the "free flow of goods or capital within, into, and out of the
zones" is insured.
The phrase "tax and duty-free importations of raw materials, capital and equipment" was merely
cited as an example of incentives that may be given to entities operating within the zone. Public
respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which
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petitioners impliedly rely to support their restrictive interpretation, does not apply when words are
mentioned by way of example.15 It is obvious from the wording of Republic Act No. 7227,
particularly the use of the phrase "such as," that the enumeration only meant to illustrate
incentives that the SSEZ is authorized to grant, in line with its being a free port zone.
Furthermore, said legal maxim should be applied only as a means of discovering legislative intent
which is not otherwise manifest, and should not be permitted to defeat the plainly indicated
purpose of the Legislature.16
The records of the Senate containing the discussion of the concept of "special economic zone" in
Section 12 (a) of Republic Act No. 7227 show the legislative intent that consumer goods entering
the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and
taxes in accordance with Philippine laws, thus:
Senator Guingona. . . . The concept of Special Economic Zone is one that really includes the concept
of a free port, but it is broader. While a free port is necessarily included in the Special Economic
Zone, the reverse is not true that a free port would include a special economic zone.
Special Economic Zone, Mr. President, would include not only the incoming and outgoing of vessels,
duty-free and tax-free, but it would involve also tourism, servicing, financing and all the
appurtenances of an investment center. So, that is the concept, Mr. President. It is broader. It
includes the free port concept and would cater to the greater needs of Olangapo City, Subic Bay and
the surrounding municipalities.
Senator Enrile. May I know then if a factory located within the jurisdiction of Morong, Bataan that
was originally a part of the Subic Naval reservation, be entitled to a free port treatment or just a
special economic zone treatment?
Senator Guingona. As far as the goods required for manufacture is concerned, Mr. President, it
would have privileges of duty-free and tax-free. But in addition, the Special Economic Zone could
embrace the needs of tourism, could embrace the needs of servicing, could embrace the needs of
financing and other investment aspects.
Senator Enrile. When a hotel is constructed, Mr. President, in this geographical unit which we call a
special economic zone, will the goods entering to be consumed by the customers or guests of the
hotel be subject to duties?
Senator Guingona. That is the concept that we are crafting, Mr. President.
Senator Enrile. No. I am asking whether those goods will be duty-free, because it is constructed
within a free port.
Senator Guingona. For as long as it services the needs of the Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain within the zone, whether we call it an economic
zone or a free port, for as long as we say in this law that all goods entering this particular territory
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will be duty-free and tax-free, for as long as they remain there, consumed there or reexported or
destroyed in that place, then they are not subject to the duties and taxes in accordance with the
laws of the Philippines?
Senator Guingona. Yes.17
Petitioners rely on Committee Report No. 1206 submitted by the Ad Hoc Oversight Committee on
Bases Conversion on June 26, 1995. Petitioners put emphasis on the reports finding that the setting
up of duty-free stores never figured in the minds of the authors of Republic Act No. 7227 in
attracting foreign investors to the former military baselands. They maintain that said law aimed to
attract manufacturing and service enterprises that will employ the dislocated former military base
workers, but not investors who would buy consumer goods from duty-free stores.
The Court is not persuaded. Indeed, it is well-established that opinions expressed in the debates
and proceedings of the Legislature, steps taken in the enactment of a law, or the history of the
passage of the law through the Legislature, may be resorted to as aids in the interpretation of a
statute with a doubtful meaning.18 Petitioners posture, however, overlooks the fact that the 1995
Committee Report they are referring to came into being well after the enactment of Republic Act
No. 7227 in 1993. Hence, as pointed out by respondent Executive Secretary Torres, the
aforementioned report cannot be said to form part of Republic Act No. 7227s legislative history.
Section 12 of Republic Act No. 7227, provides in part, thus:
SEC. 12. Subic Special Economic Zone. -- . . .
(a) Within the framework and subject to the mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be
developed into a self-sustaining, industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and promote productive foreign
investments. 19
The aforecited policy was mentioned as a basis for the issuance of Executive Order No. 97-A, thus:
WHEREAS, Republic Act No. 7227 provides that within the framework and subject to the mandate
and limitations of the Constitution and the pertinent provisions of the Local Government Code, the
Subic Special Economic and Free Port Zone (SSEFPZ) shall be developed into a self-sustaining
industrial, commercial, financial and investment center to generate employment opportunities in
and around the zone and to attract and promote productive foreign investments; and
WHEREAS, a special tax and duty-free privilege within a Secured Area in the SSEFPZ subject, to
existing laws has been determined necessary to attract local and foreign visitors to the zone.
Executive Order No. 97-A provides guidelines to govern the "tax and duty-free privileges within the
Secured Area of the Subic Special Economic and Free Port Zone." Paragraph 1.6 thereof states that
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"(t)he sale of tax and duty-free consumer items in the Secured Area shall only be allowed in duly
authorized duty-free shops."
The Court finds that the setting up of such commercial establishments which are the only ones duly
authorized to sell consumer items tax and duty-free is still well within the policy enunciated in
Section 12 of Republic Act No. 7227 that ". . .the Subic Special Economic Zone shall be developed
into a self-sustaining, industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and promote productive foreign
investments." (Emphasis supplied.)
However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive
Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a
limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section
12 of Republic Act No. 7227. Said Section clearly provides that "exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant
tax laws of the Philippines."
On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive
legislation is tenable.
In John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et al.,20 this Court resolved an issue,
very much like the one herein, concerning the legality of the tax exemption benefits given to the
John Hay Economic Zone under Presidential Proclamation No. 420, Series of 1994, "CREATING AND
DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER CAMP JOHN AS THE JOHN HAY
SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227."
In that case, among the arguments raised was that the granting of tax exemptions to John Hay was
an invalid and illegal exercise by the President of the powers granted only to the Legislature.
Petitioners therein argued that Republic Act No. 7227 expressly granted tax exemption only to Subic
and not to the other economic zones yet to be established. Thus, the grant of tax exemption to John
Hay by Presidential Proclamation contravenes the constitutional mandate that "[n]o law granting
any tax exemption shall be passed without the concurrence of a majority of all the members of
Congress."21
This Court sustained the argument and ruled that the incentives under Republic Act No. 7227 are
exclusive only to the SSEZ. The President, therefore, had no authority to extend their application to
John Hay. To quote from the Decision:
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislature, unless limited by a provision of a state constitution, that has full power to exempt any
person or corporation or class of property from taxation, its power to exempt being as broad as its
power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions,
or local governments may pass ordinances on exemption only from local taxes.
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The challenged grant of tax exemption would circumvent the Constitutions imposition that a law
granting any tax exemption must have the concurrence of a majority of all the members of
Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ
from taxation should be manifest and unmistakable from the language of the law on which it is
based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax
exemption cannot be implied as it must be categorically and unmistakably expressed.
If it were the intent of the legislature to grant to John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have so expressly provided in R.A. No. 7227. 22
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant of
incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones, including
the CSEZ. Tax and duty-free incentives being in the nature of tax exemptions, the basis thereof
should be categorically and unmistakably expressed from the language of the statute.
Consequently, in the absence of any express grant of tax and duty-free privileges to the CSEZ in
Republic Act No. 7227, there would be no legal basis to uphold the questioned portions of two
issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05034, which both pertain to the CSEZ.
Petitioners also contend that the questioned issuances constitute executive legislation for allowing
the removal of consumer goods and items from the zones without payment of corresponding duties
and taxes in violation of Republic Act No. 7227 as Section 12 thereof provides for the taxation of
goods that are exported or removed from the SSEZ to other parts of the Philippine territory.
On September 26, 1997, Executive Order No. 444 was issued, curtailing the duty-free shopping
privileges in the SSEZ and the CSEZ "to prevent abuse of duty-free privilege and to protect local
industries from unfair competition." The pertinent provisions of said issuance state, as follows:
SECTION 3. Special Shopping Privileges Granted During the Year-round Centennial Anniversary
Celebration in 1998. Upon effectivity of this Order and up to the Centennial Year 1998, in
addition to the permanent residents, locators and employees of the fenced-in areas of the Subic
Special Economic and Freeport Zone and the Clark Special Economic Zone who are allowed
unlimited duty free purchases, provided these are consumed within said fenced-in areas of the
Zones, the residents of the municipalities adjacent to Subic and Clark as respectively provided in
R.A. 7227 (1992) and E.O. 97-A s. 1993 shall continue to be allowed One Hundred US Dollars
(US$100) monthly shopping privilege until 31 December 1998. Domestic tourists visiting Subic and
Clark shall be allowed a shopping privilege of US$25 for consumable goods which shall be
consumed only in the fenced-in area during their visit therein.
SECTION 4. Grant of Duty Free Shopping Privileges Limited Only To Individuals Allowed by Law.
Starting 1 January 1999, only the following persons shall continue to be eligible to shop in duty free
shops/outlets with their corresponding purchase limits:
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a. Tourists and Filipinos traveling to or returning from foreign destinations under E.O. 97-A s. 1993
One Thousand US Dollars (US$1,000) but not to exceed Ten Thousand US Dollars (US$10,000) in
any given year;
b. Overseas Filipino Workers (OFWs) and Balikbayans defined under R.A. 6768 dated 3 November
1989 Two Thousand US Dollars (US$2,000);
c. Residents, eighteen (18) years old and above, of the fenced-in areas of the freeports under R.A.
7227 (1992) and E.O. 97-A s. 1993 Unlimited purchase as long as these are for consumption
within these freeports.
The term "Residents" mentioned in item c above shall refer to individuals who, by virtue of domicile
or employment, reside on permanent basis within the freeport area. The term excludes (1) nonresidents who have entered into short- or long-term property lease inside the freeport, (2)
outsiders engaged in doing business within the freeport, and (3) members of private clubs (e.g.,
yacht and golf clubs) based or located within the freeport. In this regard, duty free privileges
granted to any of the above individuals (e.g., unlimited shopping privilege, tax-free importation of
cars, etc.) are hereby revoked.23
A perusal of the above provisions indicates that effective January 1, 1999, the grant of duty-free
shopping privileges to domestic tourists and to residents living adjacent to SSEZ and the CSEZ had
been revoked. Residents of the fenced-in area of the free port are still allowed unlimited purchase
of consumer goods, "as long as these are for consumption within these freeports." Hence, the only
individuals allowed by law to shop in the duty-free outlets and remove consumer goods out of the
free ports tax-free are tourists and Filipinos traveling to or returning from foreign destinations, and
Overseas Filipino Workers and Balikbayans as defined under Republic Act No. 6768.24
Subsequently, on October 20, 2000, Executive Order No. 303 was issued, amending Executive Order
No. 444. Pursuant to the limited duration of the privileges granted under the preceding issuance,
Section 2 of Executive Order No. 303 declared that "[a]ll special shopping privileges as granted
under Section 3 of Executive Order 444, s. 1997, are hereby deemed terminated. The grant of duty
free shopping privileges shall be restricted to qualified individuals as provided by law."
It bears noting at this point that the shopping privileges currently being enjoyed by Overseas
Filipino Workers, Balikbayans, and tourists traveling to and from foreign destinations, draw
authority not from the issuances being assailed herein, but from Executive Order No. 4625 and
Republic Act No. 6768, both enacted prior to the promulgation of Republic Act No. 7227.
From the foregoing, it appears that petitioners objection to the allowance of tax-free removal of
goods from the special economic zones as previously authorized by the questioned issuances has
become moot and academic.
In any event, Republic Act No. 7227, specifically Section 12 (b) thereof, clearly provides that
"exportation or removal of goods from the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and
Tariff Code and other relevant tax laws of the Philippines."
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Thus, the removal of goods from the SSEZ to other parts of the Philippine territory without payment
of said customs duties and taxes is not authorized by the Act. Consequently, the following italicized
provisions found in the second sentences of paragraphs 1.2 and 1.3, Section 1 of Executive Order
No. 97-A are null and void:
1.2 Residents of the SSEFPZ living outside the Secured Area can enter and consume any quantity of
consumption items in hotels and restaurants within the Secured Area. However, these residents can
purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items
worth not exceeding US $100 per month per person. Only residents age 15 and over are entitled to
this privilege.
1.3 Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of
consumption items in hotels and restaurants within the Secured Area. However, they can purchase
and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not
exceeding US $200 per year per person. Only Filipinos age 15 and over are entitled to this privilege.26
A similar provision found in paragraph 5, Section 4(A) of BCDA Board Resolution No. 93-05-034 is
also null and void. Said Resolution applied the incentives given to the SSEZ under Republic Act No.
7227 to the CSEZ, which, as aforestated, is without legal basis.
Having concluded earlier that the CSEZ is excluded from the tax and duty-free incentives provided
under Republic Act No. 7227, this Court will resolve the remaining arguments only with regard to
the operations of the SSEZ. Thus, the assailed issuance that will be discussed is solely Executive
Order No. 97-A, since it is the only one among the three questioned issuances which pertains to the
SSEZ.
Equal Protection of the Laws
Petitioners argue that the assailed issuance (Executive Order No. 97-A) is violative of their right to
equal protection of the laws, as enshrined in Section 1, Article III of the Constitution. To support this
argument, they assert that private respondents operating inside the SSEZ are not different from the
retail establishments located outside, the products sold being essentially the same. The only
distinction, they claim, lies in the products variety and source, and the fact that private
respondents import their items tax-free, to the prejudice of the retailers and manufacturers located
outside the zone.
Petitioners contention cannot be sustained. It is an established principle of constitutional law that
the guaranty of the equal protection of the laws is not violated by a legislation based on a
reasonable classification.27Classification, to be valid, must (1) rest on substantial distinction, (2) be
germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply
equally to all members of the same class.28
Applying the foregoing test to the present case, this Court finds no violation of the right to equal
protection of the laws. First, contrary to petitioners claim, substantial distinctions lie between the
establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v.
Court of Appeals,29 the constitutionality of Executive Order No. 97-A was challenged for being
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violative of the equal protection clause. In that case, petitioners claimed that Executive Order No.
97-A was discriminatory in confining the application of Republic Act No. 7227 within a secured area
of the SSEZ, to the exclusion of those outside but are, nevertheless, still within the economic zone.
Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial
differences between the retailers inside and outside the secured area, thereby justifying a valid and
reasonable classification:
Certainly, there are substantial differences between the big investors who are being lured to
establish and operate their industries in the so-called "secured area" and the present business
operators outside the area. On the one hand, we are talking of billion-peso investments and
thousands of new jobs. On the other hand, definitely none of such magnitude. In the first, the
economic impact will be national; in the second, only local. Even more important, at this time the
business activities outside the "secured area" are not likely to have any impact in achieving the
purpose of the law, which is to turn the former military base to productive use for the benefit of the
Philippine economy. There is, then, hardly any reasonable basis to extend to them the benefits and
incentives accorded in R.A. 7227. Additionally, as the Court of Appeals pointed out, it will be easier
to manage and monitor the activities within the "secured area," which is already fenced off, to
prevent "fraudulent importation of merchandise" or smuggling.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws.
As long as there are actual and material differences between territories, there is no violation of the
constitutional clause. And of course, anyone, including the petitioners, possessing the requisite
investment capital can always avail of the same benefits by channeling his or her resources or
business operations into the fenced-off free port zone.30
The Court in Tiu found real and substantial distinctions between residents within the secured area
and those living within the economic zone but outside the fenced-off area. Similarly, real and
substantial differences exist between the establishments herein involved. A significant distinction
between the two groups is that enterprises outside the zones maintain their businesses within
Philippine customs territory, while private respondents and the other duly-registered zone
enterprises operate within the so-called "separate customs territory." To grant the same tax
incentives given to enterprises within the zones to businesses operating outside the zones, as
petitioners insist, would clearly defeat the statutes intent to carve a territory out of the military
reservations in Subic Bay where free flow of goods and capital is maintained.
The classification is germane to the purpose of Republic Act No. 7227. As held in Tiu, the real
concern of Republic Act No. 7227 is to convert the lands formerly occupied by the US military bases
into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to
extend economic incentives to the establishments within the zone to attract and encourage foreign
and local investors. This is the very rationale behind Republic Act No. 7227 and other similar special
economic zone laws which grant a complete package of tax incentives and other benefits.
The classification, moreover, is not limited to the existing conditions when the law was
promulgated, but to future conditions as well, inasmuch as the law envisioned the former military
reservation to ultimately develop into a self-sustaining investment center.
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And, lastly, the classification applies equally to all retailers found within the "secured area." As ruled
in Tiu, the individuals and businesses within the "secured area," being in like circumstances or
contributing directly to the achievement of the end purpose of the law, are not categorized further.
They are all similarly treated, both in privileges granted and in obligations required.
With all the four requisites for a reasonable classification present, there is no ground to invalidate
Executive Order No. 97-A for being violative of the equal protection clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special tax exemptions and privileges gave the private
respondents undue advantage over local enterprises which do not operate inside the SSEZ, thereby
creating unfair competition in violation of the constitutional prohibition against unfair competition
and practices in restraint of trade.
The argument is without merit. Just how the assailed issuance is violative of the prohibition against
unfair competition and practices in restraint of trade is not clearly explained in the petition.
Republic Act No. 7227, and consequently Executive Order No. 97-A, cannot be said to be
distinctively arbitrary against the welfare of businesses outside the zones. The mere fact that
incentives and privileges are granted to certain enterprises to the exclusion of others does not
render the issuance unconstitutional for espousing unfair competition. Said constitutional
prohibition cannot hinder the Legislature from using tax incentives as a tool to pursue its policies.
Suffice it to say that Congress had justifiable reasons in granting incentives to the private
respondents, in accordance with Republic Act No. 7227s policy of developing the SSEZ into a selfsustaining entity that will generate employment and attract foreign and local investment. If
petitioners had wanted to avoid any alleged unfavorable consequences on their profits, they should
upgrade their standards of quality so as to effectively compete in the market. In the alternative, if
petitioners really wanted the preferential treatment accorded to the private respondents, they
could have opted to register with SSEZ in order to operate within the special economic zone.
Preferential Use of Filipino Labor, Domestic Materials
and Locally Produced Goods
Lastly, petitioners claim that the questioned issuance (Executive Order No. 97-A) openly violated
the State policy of promoting the preferential use of Filipino labor, domestic materials and locally
produced goods and adopting measures to help make them competitive.
Again, the argument lacks merit. This Court notes that petitioners failed to substantiate their
sweeping conclusion that the issuance has violated the State policy of giving preference to Filipino
goods and labor. The mere fact that said issuance authorizes the importation and trade of foreign
goods does not suffice to declare it unconstitutional on this ground.
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Petitioners cite Manila Prince Hotel v. GSIS31 which, however, does not apply. That case dealt with
the policy enunciated under the second paragraph of Section 10, Article XII of the
Constitution,32 applicable to the grant of rights, privileges, and concessions "covering the national
economy and patrimony," which is different from the policy invoked in this petition, specifically that
of giving preference to Filipino materials and labor found under Section 12 of the same Article of
the Constitution. (Emphasis supplied).
In Taada v. Angara,33 this Court elaborated on the meaning of Section 12, Article XII of the
Constitution in this wise:
[W]hile the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and
enterprises, at the same time, it recognizes the need for business exchange with the rest of the
world on the bases of equality and reciprocity and limits protection of Filipino enterprises only
against foreign competition and trade practices that are unfair. In other words, the Constitution did
not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and
services in the development of the Philippine economy. While the Constitution does not encourage
the unlimited entry of foreign goods, services and investments into the country, it does not prohibit
them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on
foreign competition that is unfair.34
This Court notes that the Executive Department, with its subsequent issuance of Executive Order
Nos. 444 and 303, has provided certain measures to prevent unfair competition. In particular,
Executive Order Nos. 444 and 303 have restricted the special shopping privileges to certain
individuals.35 Executive Order No. 303 has limited the range of items that may be sold in the dutyfree outlets,36 and imposed sanctions to curb abuses of duty-free privileges.37 With these measures,
this Court finds no reason to strike down Executive Order No. 97-A for allegedly being prejudicial to
Filipino labor, domestic materials and locally produced goods.
WHEREFORE, the petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section 4 of
BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and are accordingly
declared of no legal force and effect. Respondents are hereby enjoined from implementing the
aforesaid void provisions. All portions of Executive Order No. 97-A are valid and effective, except
the second sentences in paragraphs 1.2 and 1.3 of said Executive Order, which are hereby declared
INVALID.
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, AustriaMartinez, Carpio-Morales, Callejo, Sr., Tinga, Chico-Nazario, and Garcia, JJ., concur.
Carpio, J., no part.
Corona, J., on official leave.
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Taxation I
Footnotes
1
Executive Order No. 80 is entitled, "Authorizing the Establishment of the Clark

Development Corporation as the Implementing Arm of the Bases Conversion and
Development Authority for the Clark Special Economic Zone, and Directing all Heads of
Departments, Bureaus, Offices, Agencies and Instrumentalities of Government to Support
the Program."
2
BCDA Board Resolution No. 93-05-034 is entitled, "Prescribing the Investment Climate in
the Clark Special Economic Zone for Implementation by the Clark Development
Corporation."
3
Bases Conversion and Development Act of 1992.
Underscoring supplied.
Rollo, pp. 13, 15, 17, and 18.
Bayan (Bagong Alyansang Makabayan) v. Zamora, G.R. No. 138570, October 10, 2000, 342
SCRA 449,citing Kilosbayan v. Guingona, Jr., G.R. No. 113375, May 5, 1994, 232 SCRA 110.
7
Osmea v. Commission on Elections, G.R. Nos. 100318, 100417, and 100420, July 30, 1991,
199 SCRA750.
8
Basco v. Phil. Amusements and Gaming Corporation, G.R. No. 91649, May 14, 1991, 197
SCRA 52.
9
Cawaling, Jr. v. Commission on Elections, G.R. Nos. 146319 and 146342, October 26,
2001, 368 SCRA 453.
10
Association of Small Landowners in the Philippines., Inc., v. Secretary of Agrarian

Reform, G.R. No. 78742, July 14, 1989, 175 SCRA 343.
11
Cawaling, Jr., v. Commission on Elections, supra, note 9.
12
Misolas v. Panga, G.R. No. 83341, January 30, 1990, 181 SCRA 648.
13
14
Eugenio v. Drilon, G.R. No. 109404, January 22, 1996, 252 SCRA 106.
15
Gomez v. Ventura and Board of Medical Examiners, No. 32441, March 29, 1930, 54 Phil.
726.
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Taxation I
16
Dimaporo v. Mitra, Jr., G.R. No. 96859, October 15, 1991, 202 SCRA 779; Primero v. Court
of Appeals, G.R. Nos. 48468-69, November 22, 1989, 179 SCRA 542.
17
Emphasis supplied.
18
Esso Standard Eastern, Inc. v. Commissioner of Internal Revenue, G.R. No. 28508-9, July 7,
1989, 175 SCRA 149.
19
Emphasis supplied.
20
G.R. No. 119775, October 24, 2003, 414 SCRA 356.
21
Section 28(4), Article VI of the Constitution.
22
Supra, note 20, at 377.
23
24
Republic Act No. 6768 entitled, "AN ACT INSTITUTING A BALIKBAYAN PROGRAM."
25
E.O. No. 46, "GRANTING THE MINISTRY OF TOURISM, THROUGH THE PHILIPPINE TOURISM
AUTHORITY (PTA), AUTHORITY TO ESTABLISH AND OPERATE A DUTY AND TAX FREE
MERCHANDISING SYSEM IN THE PHILIPPINES" . . . .
"SEC. 1. The Ministry of Tourism, through the Philippine Tourism Authority (PTA) is hereby
authorized to establish a duty and tax free merchandising system in the Philippines to
augment the service facilities for tourists and to generate foreign exchange and revenue for
the government. Under this system, the Philippine Tourism Authority shall have the
exclusive authority to operate stores and shops that would sell, among others, tax and duty
free merchandise, goods and articles, in international airports and sea ports throughout the
country in accordance with the rules and regulations issued by the Ministry of Tourism."
26
Italics supplied.
27
People v. Cayat, G.R. No. 45987, May 5, 1939, 68 Phil. 12.
28
Tiu v. Court of Appeals, G.R. No. 127410, January 20, 1999, 301 SCRA 278.
29
Ibid.
30
Id. at 291.
31
G.R. No. 122156, February 3, 1997, 267 SCRA 408.
32
Sec. 10, Art. XII, provides that:
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Taxation I
...
In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos. . . .
33
G.R. No. 118295, May 2, 1997, 272 SCRA 18.
34
Id. at 58-59.
35
Executive Order No. 303, Section 3; Executive Order No. 444, Section 4.
36
Executive Order No. 303, Section 3.
37
Executive Order No. 303, Section 5.
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Taxation I
8. LORENZO VS POSADAS
SUPREME COURT
Manila
EN BANC
G.R. No. L-43082
June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo
Lorenzo
and
Delfin
Joven
Office of the Solicitor-General Hilado for defendant-appellant.
for
plaintiff-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount
of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from September 15,
1932, the date when the aforesaid tax was [paid under protest. The defendant set up a
counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not
included in the original assessment. From the decision of the Court of First Instance of Zamboanga
dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to
this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will
(Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922, proceedings
for the probate of his will and the settlement and distribution of his estate were begun in the Court
of First Instance of Zamboanga. The will was admitted to probate. Said will provides, among other
things, as follows:
4. I direct that any money left by me be given to my nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be
directed that the same be used only for the education of my brother's children and their
descendants.
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Taxation I
6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.
xxx
xxx
xxx
8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate
to appoint a trustee to administer the real properties which, under the will, were to pass to
Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924,
appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as
trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his
stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the
estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932,
the defendant filed a motion in the testamentary proceedings pending before the Court of First
Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be
ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On
September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the
same time that unless the amount was promptly refunded suit would be brought for its recovery.
The defendant overruled the plaintiff's protest and refused to refund the said amount hausted,
plaintiff went to court with the result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted
heir, Matthew Hanley, from the moment of the death of the former, and that from the time,
the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on
the estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value of the estate
upon the death of the testator, and not, as it should have been held, upon the value thereof
at the expiration of the period of ten years after which, according to the testator's will, the
property could be and was to be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net amount of the
estate subject to said tax, the amounts allowed by the court as compensation to the
"trustees" and paid to them from the decedent's estate.
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Taxation I
V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April
10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax
assessed by the defendant against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the testator's death, or on its value
ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct
the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of
Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency
in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant
in his appeal be paid by the estate? Other points of incidental importance, raised by the parties in
their briefs, will be touched upon in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, giftmortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil
Code, "the rights to the succession of a person are transmitted from the moment of his death." "In
other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the
deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor
as completely as if the ancestor had executed and delivered to them a deed for the same before his
death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs.
Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491;
Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio,
19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil.,
531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs
of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is
applicable to testate as well as intestate succession, it operates only in so far as forced heirs are
concerned. But the language of article 657 of the Civil Code is broad and makes no distinction
between different classes of heirs. That article does not speak of forced heirs; it does not even use
the word "heir". It speaks of the rights of succession and the transmission thereof from the moment
of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication
and probate of a will as a necessary condition to effect transmission of property does not affect the
general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due
execution but once probated and allowed the transmission is effective as of the death of the
testator in accordance with article 657 of the Civil Code. Whatever may be the time when actual
93
MAS
Taxation I
transmission of the inheritance takes place, succession takes place in any event at the moment of
the decedent's death. The time when the heirs legally succeed to the inheritance may differ from
the time when the heirs actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el
heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho o
poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el
articulo 989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also,
art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be
taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.
In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.
(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be instituted
prior to the expiration of said period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve
per centum per annum shall be added as part of the tax; and to the tax and interest due and
unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.
A certified of all letters testamentary or of admisitration shall be furnished the Collector of
Internal Revenue by the Clerk of Court within thirty days after their issuance.
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Taxation I
It should be observed in passing that the word "trustee", appearing in subsection (b) of section
1543, should read "fideicommissary" or "cestui que trust". There was an obvious mistake in
translation from the Spanish to the English version.
The instant case does fall under subsection (a), but under subsection (b), of section 1544 abovequoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the
tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the real properties in question had a
reasonable value of only P5,787. This amount added to the value of the personal property left by
the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which,
excluding deductions, interest and surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the estate to impose inheritance taxes
takes its being and if, upon the death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the
time of the decedent's death, regardless of any subsequent contingency value of any subsequent
increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft,
Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law.
ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that time of such property as passes to
him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol.
37, pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the
estate vests in possession or the contingency is settled. This rule was formerly followed in New York
and has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This
rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the
property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon
examination of cases and authorities that New York has varied and now requires the immediate
appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on
its out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In
re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519;
Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp.,
1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul.
Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.
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Taxation I
(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net
value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of
only P480.81. This sum represents the expenses and disbursements of the executors until March
10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff
contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C,
AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to determine the net sum which
must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident,
. . . the judicial expenses of the testamentary or intestate proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders,
16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him
may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute
in the Philippines which requires trustees' commissions to be deducted in determining the net value
of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust
has been created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div.,
363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial expenses are expenses of
administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878;
101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the administration
of the estate, but in the management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration expenses. . . . Service
rendered in that behalf have no reference to closing the estate for the purpose of a distribution
thereof to those entitled to it, and are not required or essential to the perfection of the rights of the
heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the
the benefit of those to whom the property ultimately passes, are of voluntary creation, and
intended for the preservation of the estate. No sound reason is given to support the contention
that such expenses should be taken into consideration in fixing the value of the estate for the
purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3
of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law
in force when the testator died on May 27, 1922. The law at the time was section 1544 abovementioned, as amended by Act No. 3031, which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the time of the
death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can
not foresee and ought not to be required to guess the outcome of pending measures. Of course, a
tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation
has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232
Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be
perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257
96
MAS
Taxation I
U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No.
65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due from which have
not been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it
retroactive effect. No such effect can begiven the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal
in nature and, therefore, should operate retroactively in conformity with the provisions of article 22
of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on
both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed
twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay the
tax, instead of ten days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use,
however, this sense has been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p.
1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to
for the collection of taxes are not classed as penal laws, although there are authorities to the
contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468;
12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to
the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a
retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax
does not render one delinqent until and unless the entire period has eplased within which the
taxpayer is authorized by law to make such payment without being subjected to the payment of
penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was
made by the trial court in conformity with the wishes of the testator as expressed in his will. It is
true that the word "trust" is not mentioned or used in the will but the intention to create one is
clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711).
The words "trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of
97
MAS
Taxation I
these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create
a trust by will the testator must indicate in the will his intention so to do by using language
sufficient to separate the legal from the equitable estate, and with sufficient certainty designate the
beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the property or
subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a
concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a
certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C.
J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will
that certain of his properties be kept together undisposed during a fixed period, for a stated
purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry
into effect the provisions of the will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582
in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from
the payment of the inheritance tax. The corresponding inheritance tax should have been paid on or
before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated
that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui
que trust, the beneficiary in this case. A trustee is but an instrument or agent for thecestui que
trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possesson of the trust estate he thereby admitted that the estate
belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p.
692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as
the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p.
542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed or delayed by the creation of a trust of the
type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty
years, or for a longer period which does not offend the rule against petuities. The collection of the
tax would then be left to the will of a private individual. The mere suggestion of this result is a
sufficient warning against the accpetance of the essential to the very exeistence of government.
(Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25
Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co.
vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of
money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is
allowed to object to or resist the payment of taxes solely because no personal benefit to him can be
pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts
will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn, 280
U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a
construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1
98
MAS
Taxation I
Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed
in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs.
McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking
Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When
proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this
way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no
court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578,
Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this
policy of the law. It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on
time and by mutual agreement closed their homes and stores and remained therein, does not
authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the
taxes or to accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment to the public." (Dows
vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of
inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in
such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease
such interest, no matter how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec.
1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector
of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date
fixed for the payment of the tax and interest was November 30, 1931. November 30 being an
official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid
on that date, the estate became liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions we have reached.
99
MAS
Taxation I
At the time of his death, the deceased left real properties valued at P27,920 and personal
properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81,
representing allowable deductions under secftion 1539 of the Revised Administrative Code, we
have P28,904.19 as the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the
tax and interest thus computed should be added the sum of P724.88, representing a surhcarge of
25 per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant
(Exh. 29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that
the plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.
Avancea,
C.J.,
Abad
Villa-Real, J., concurs.
Santos,
Imperial,
100
MAS
Diaz
and
Concepcion,
JJ.,
concur.
Taxation I
9. CIR VS FORTUNE TOBACCO CORP

SECOND DIVISION
COMMISSIONER OF INTERNAL G.R. Nos. 167274-75

REVENUE,
Petitioner, Present:
QUISUMBING, J.,
Chairperson,
YNARES-SANTIAGO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
FORTUNE TOBACCO
CORPORATION, Promulgated:
Respondent.
July 21, 2008
x---------------------------------------------------------------------------x
DECISION
TINGA, J.:
Simple and uncomplicated is the central issue involved, yet whopping is the amount at stake in
this case.
After much wrangling in the Court of Tax Appeals (CTA) and the Court of Appeals, Fortune
Tobacco Corporation (Fortune Tobacco) was granted a tax refund or tax credit representing
specific taxes erroneously collected from its tobacco products. The tax refund is being reclaimed by the Commissioner of Internal Revenue (Commissioner) in this petition.
The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed
Decision[1] dated 28 September 2004:
101
MAS
Taxation I
CAG.R. SP No. 80675

xxxx
Petitioner[2] is a domestic corporation duly organized and existing under
and by virtue of the laws of the Republic of the Philippines, with principal
address at Fortune Avenue, Parang,Marikina City.
Petitioner is the manufacturer/producer of, among others, the following
cigarette brands, with tax rate classification based on net retail price prescribed
by Annex D to R.A. No. 4280, to wit:
Brand Tax Rate
Champion M 100 P1.00
Salem M 100 P1.00
Salem M King P1.00
Camel F King P1.00
Camel Lights Box 20s P1.00
Camel Filters Box 20s P1.00
Winston F Kings P5.00
Winston Lights P5.00
Immediately prior to January 1, 1997, the above-mentioned cigarette
brands were subject to ad valorem tax pursuant to then Section 142 of the Tax
Code of 1977, as amended. However, on January 1, 1997, R.A. No. 8240 took
effect whereby a shift from the ad valorem tax (AVT) system to the specific tax
system was made and subjecting the aforesaid cigarette brands to specific tax
under [S]ection 142 thereof, now renumbered as Sec. 145 of the Tax Code of
1997, pertinent provisions of which are quoted thus:
Section 145. Cigars and Cigarettes(A) Cigars. There shall be levied, assessed and collected on cigars
a tax of One peso (P1.00) per cigar.
102
MAS
Taxation I
(B) Cigarettes packed by hand. There shall be levied, assessesed

and collected on cigarettes packed by hand a tax of Forty
centavos (P0.40) per pack.
(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 valueadded tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve
(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 valueadded tax) is Five pesos (P5.00) but does not exceed Six Pesos and fifty
centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the valueadded tax) is below Five pesos (P5.00) per pack, the tax shall be One peso
(P1.00) per pack;
Variants of existing brands of cigarettes which are introduced in
the domestic market after the effectivity of R.A. No. 8240 shall be taxed
under the highest classification of any variant of that brand.
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 onOctober 1, 1996. Provided,
however, that in cases were (sic) the excise tax rate 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.
103
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Taxation I
Duly registered or existing brands of cigarettes or new brands

thereof packed by machine shall only be packed in twenties.
The rates of excise tax on cigars and cigarettes under paragraphs
(1), (2) (3) and (4) hereof, shall be increased by twelve percent (12%)
on January 1, 2000. (Emphasis supplied)
New brands shall be classified according to their current net retail
price.
For the above purpose, net retail price shall mean the price at
which the cigarette is sold on retail in twenty (20) major supermarkets in
Metro Manila (for brands of cigarettes marketed nationally), excluding
the amount intended to cover the applicable excise tax and value-added
tax. For brands which are marketed only outside Metro [M]anila, the net
retail price shall mean the price at which the cigarette is sold in five (5)
major supermarkets in the region excluding the amount intended to
cover the applicable excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average
retail price as of October 1, 1996, as set forth in Annex D, shall remain in
force until revised by Congress.
Variant of a brand shall refer to a brand on which a modifier is
prefixed and/or suffixed to the root name of the brand and/or a different
brand which carries the same logo or design of the existing brand.
To implement the provisions for a twelve percent (12%) increase of
excise tax on, among others, cigars and cigarettes packed by machines by
January 1, 2000, the Secretary of Finance, upon recommendation of the
respondent Commissioner of Internal Revenue, issued Revenue Regulations No.
17-99, dated December 16, 1999, which provides the increase on the applicable
tax rates on cigar and cigarettes as follows:
SECTION
DESCRIPTION OF
PRESENT
SPECIFIC TAX
RATE PRIOR TO
JAN. 1, 2000
ARTICLES
145
(A)
P1.00/cigar
(B)Cigarettes packed
by machine
104
MAS
NEW SPECIFIC
TAX RATE
EFFECTIVE JAN.
1, 2000
P1.12/cigar
Taxation I
(1) Net retail price P12.00/pack

(excluding VAT and
excise)
exceedsP10.00 per
P8.00/pack
pack
(2) Exceeds P10.00
per pack
P13.44/ pack
P8.96/pack
P5.00/pack
P5.60/pack
P1.00/pack
P1.12/pack
(3) Net retail price

(excluding VAT and
excise)
is P5.00
toP6.50 per pack
(4) Net Retail Price
(excluding VAT and
excise) is belowP5.00
per pack
Revenue Regulations No. 17-99 likewise provides in the last paragraph

of Section 1 thereof, (t)hat the new specific tax rate for any existing brand of
cigars, cigarettes packed by machine, distilled spirits, wines and fermented
liquor shall not be lower than the excise tax that is actually being paid prior
to January 1, 2000.
For the period covering January 1-31, 2000, petitioner allegedly paid
specific taxes on all brands manufactured and removed in the total amounts
of P585,705,250.00.
On February 7, 2000, petitioner filed with respondents Appellate

Division a claim for refund or tax credit of its purportedly overpaid excise tax
for the month of January 2000 in the amount of P35,651,410.00
On June 21, 2001, petitioner filed with respondents Legal Service a
letter dated June 20, 2001 reiterating all the claims for refund/tax credit of its
overpaid excise taxes filed on various dates, including the present claim for the
month of January 2000 in the amount of P35,651,410.00.
105
MAS
Taxation I
As there was no action on the part of the respondent, petitioner filed

the instant petition for review with this Court on December 11, 2001, in order
to comply with the two-year period for filing a claim for refund.
In his answer filed on January 16, 2002, respondent raised the following
Special and Affirmative Defenses;
4. Petitioners alleged claim for refund is subject to administrative
routinary investigation/examination by the Bureau;
5.
The amount of P35,651,410 being claimed by petitioner as

alleged overpaid excise tax for the month of January 2000 was
not properly documented.
6.
In an action for tax refund, the burden of proof is on the

taxpayer to establish its right to refund, and failure to sustain
the burden is fatal to its claim for refund/credit.
7.
Petitioner must show that it has complied with the provisions

of Section 204(C) in relation [to] Section 229 of the Tax Code on
the prescriptive period for claiming tax refund/credit;
8.
Claims for refund are construed strictly against the claimant

for the same partake of tax exemption from taxation; and
9.
The last paragraph of Section 1 of Revenue Regulation[s]

[No.]17-99 is a valid implementing regulation which has the
force and effect of law.
CA G.R. SP No. 83165

The petition contains essentially similar facts, except that the said case
questions the CTAs December 4, 2003 decision in CTA Case No. 6612 granting
respondents[3] claim for refund of the amount of P355,385,920.00 representing
erroneously or illegally collected specific taxes covering the period January 1,
2002 to December 31, 2002, as well as its March 17, 2004 Resolution denying a
reconsideration thereof.
xxxx
In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the Court of Tax Appeals
reduced the issues to be resolved into two as stipulated by the parties, to wit: (1)
106
MAS
Taxation I
Whether or not the last paragraph of Section 1 of Revenue Regulation[s] [No.] 1799 is in accordance with the pertinent provisions of Republic Act [No.] 8240, now
incorporated in Section 145 of the Tax Code of 1997; and (2) Whether or not
petitioner is entitled to a refund of P35,651,410.00 as alleged overpaid excise tax
for the month of January 2000.
xxxx
Hence, the respondent CTA in its assailed October
Decisions[s] disposed in CTA Case Nos. 6365 & 6383:
21,
2002 [twin]
WHEREFORE, in view of the foregoing, the court finds the instant petition
meritorious and in accordance with law. Accordingly, respondent is
hereby ORDERED to REFUND to petitioner the amount
of P35,651.410.00 representing erroneously paid excise taxes for
the period January 1 to January 31, 2000.
SO ORDERED.
Herein petitioner sought reconsideration of the above-quoted decision. In [twin]
resolution[s] [both] dated July 15, 2003, the Tax Court, in an apparent change of
heart, granted the petitioners consolidated motions for reconsideration, thereby
denying the respondents claim for refund.
However, on consolidated motions for reconsideration filed by the respondent in

CTA Case Nos. 6363 and 6383, the July 15, 2002 resolution was set aside, and the
Tax Court ruled, this time with a semblance of finality, that the respondent is
entitled to the refund claimed. Hence, in a resolution dated November 4, 2003, the
tax court reinstated its December 21, 2002 Decision and disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos. 6365 and 6383 are hereby
REINSTATED. Accordingly, respondent is hereby ORDERED to
REFUND petitioner the total amount ofP680,387,025.00
representing erroneously paid excise taxes for the period January
1, 2000 to January 31, 2000 and February 1, 2000 to December
31, 2001.
SO ORDERED.
Meanwhile, on December 4, 2003, the Court of Tax Appeals rendered decision in
CTA Case No. 6612 granting the prayer for the refund of the amount
of P355,385,920.00 representing overpaid excise tax for the period
107
MAS
Taxation I
covering January 1, 2002 to December 31, 2002. The tax court disposed of the case
as follows:
IN
VIEW OF THE FOREGOING, the Petition for Review is

GRANTED. Accordingly, respondent is hereby ORDERED to REFUND
to petitioner the amount of P355,385,920.00 representing
overpaid excise tax for the period covering January 1,
2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a
Resolution dated March 17, 2004.[4] (Emphasis supplied) (Citations omitted)
The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the
grant of refund in the amount of P680,387,025.00 was docketed as CA-G.R. SP No. 80675,
whereas that assailing the grant of refund in the amount of P355,385,920.00 was docketed as
CA-G.R. SP No. 83165. The petitions were consolidated and eventually denied by the Court of
Appeals. The appellate court also denied reconsideration in its Resolution [5] dated 1
March 2005.
In its Memorandum[6] 22 dated November 2006, filed on behalf of the Commissioner, the Office
of the Solicitor General (OSG) seeks to convince the Court that the literal interpretation given
by the CTA and the Court of Appeals of Section 145 of the Tax Code of 1997 (Tax Code) would
lead to a lower tax imposable on 1 January 2000 than that imposable during the transition
period. Instead of an increase of 12% in the tax rate effective on 1 January 2000 as allegedly
mandated by the Tax Code, the appellate courts ruling would result in a significant decrease in
the tax rate by as much as 66%.
The OSG argues that Section 145 of the Tax Code admits of several interpretations, such as:
1.
That by January 1, 2000, the excise tax on cigarettes should be the higher
tax imposed under the specific tax system and the tax imposed under the ad
valorem tax system plus the 12% increase imposed by par. 5, Sec. 145 of the
Tax Code;
108
MAS
Taxation I
2.
The increase of 12% starting on January 1, 2000 does not apply to the
brands of cigarettes listed under Annex D referred to in par. 8, Sec. 145 of
the Tax Code;
3.
The 12% increment shall be computed based on the net retail price as
indicated in par. C, sub-par. (1)-(4), Sec. 145 of the Tax Code even if the
resulting figure will be lower than the amount already being paid at the end
of the transition period. This is the interpretation followed by both the CTA
and the Court of Appeals.[7]
This being so, the interpretation which will give life to the legislative intent to raise revenue
should govern, the OSG stresses.
Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must,
therefore, be construed strictly against the taxpayer, such as Fortune Tobacco.
In its Memorandum[8] dated 10 November 2006, Fortune Tobacco argues that the CTA and the
Court of Appeals merely followed the letter of the law when they ruled that the basis for the
12% increase in the tax rate should be the net retail price of the cigarettes in the market as
outlined in paragraph C, sub paragraphs (1)-(4), Section 145 of the Tax Code. The Commissioner
allegedly has gone beyond his delegated rule-making power when he promulgated, enforced
and implemented Revenue Regulation No. 17-99, which effectively created a separate
classification for cigarettes based on the excise tax actually being paid prior to January 1,
2000.[9]
It should be mentioned at the outset that there is no dispute between the fact of payment of
the taxes sought to be refunded and the receipt thereof by the Bureau of Internal Revenue
(BIR). There is also no question about the mathematical accuracy of Fortune Tobaccos claim
since the documentary evidence in support of the refund has not been controverted by the
revenue agency. Likewise, the claims have been made and the actions have been filed within
the two (2)-year prescriptive period provided under Section 229 of the Tax Code.
109
MAS
Taxation I
The power to tax is inherent in the State, such power being inherently legislative, based
on the principle that taxes are a grant of the people who are taxed, and the grant must be
made by the immediate representatives of the people; and where the people have laid the
power, there it must remain and be exercised.[10]
This entire controversy revolves around the interplay between Section 145 of the Tax
Code and Revenue Regulation 17-99. The main issue is an inquiry into whether the revenue
regulation has exceeded the allowable limits of legislative delegation.
For ease of reference, Section 145 of the Tax Code is again reproduced in full as follows:
Section 145. Cigars and Cigarettes(A) Cigars.There shall be levied, assessed and collected on cigars a tax of
One peso (P1.00) per cigar.
(B). Cigarettes packed by hand.There shall be levied, assessed and
collected on cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.
(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.
tax) is Five pesos (P5.00) but does not exceed Six Pesos and fifty centavos
(P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per
pack;
110
MAS
Taxation I
Variants of existing brands of cigarettes which are introduced in the

domestic market after the effectivity of R.A. No. 8240 shall be taxed under the
highest classification of any variant of that brand.
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. Provided, however, That in cases
where the excise 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.
Duly registered or existing brands of cigarettes or new brands thereof

packed by machine shall only be packed in twenties.
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2)
(3) and (4) hereof, shall be increased by twelve percent (12%) on January 1,
2000.
New brands shall be classified according to their current net retail price.
For the above purpose, net retail price shall mean the price at which the
cigarette is sold on retail in twenty (20) major supermarkets in Metro Manila
(for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and value-added tax. For brands which are
marketed only outside Metro Manila, the net retail price shall mean the price at
which the cigarette is sold in five (5) major intended to cover the applicable
excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average retail
price as of October 1, 1996, as set forth in Annex D, shall remain in force until
revised by Congress.
Variant of a brand shall refer to a brand on which a modifier is prefixed
and/or suffixed to the root name of the brand and/or a different brand which
carries the same logo or design of the existing brand.[11](Emphasis supplied)
Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the
Secretary of Finance to promulgate rules and regulations for the effective implementation of
111
MAS
Taxation I
the Tax Code,[12] interprets the above-quoted provision and reflects the 12% increase in excise
taxes in the following manner:
SECTION
DESCRIPTION OF
ARTICLES
145
(A) Cigars
PRESENT
SPECIFIC TAX
RATES PRIOR TO
JAN. 1, 2000
P1.00/cigar
NEW SPECIFIC
TAX RATE
Effective Jan..
1, 2000
P1.12/cigar
(B)Cigarettes packed
by Machine
(excluding VAT and P12.00/pack
Excise)
exceedsP10.00 per
pack
P8.00/pack
(excluding VAT and
Excise) is P6.51 up
to P10.00 per pack
P5.00/pack
(excluding VAT and
excise)
is P5.00
toP6.50 per pack
(4) Net Retail Price P1.00/pack
(excluding VAT and
excise) is belowP5.00
per pack)
P13.44/pack
P8.96/pack
P5.60/pack
P1.12/pack
This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective
on 1 January 2000 based on the taxes indicated under paragraph C, sub-paragraph (1)(4). However, Revenue Regulation No. 17-99 went further and added that [T]he new specific tax
rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and
112
MAS
Taxation I
fermented liquor shall not be lower than the excise tax that is actually being paid prior to
January 1, 2000.[13]
Parenthetically, Section 145 states that during the transition period, i.e., within the next three
(3) years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall
not be lower than the tax due from each brand on 1 October 1996. This qualification, however,
is conspicuously absent as regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and
unmistakably, Section 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, subparagraph (1)-(4), as increased by 12%a situation not supported by the plain wording of Section
145 of the Tax Code.
This is not the first time that national revenue officials had ventured in the area of unauthorized
administrative legislation.
In Commissioner of Internal Revenue v. Reyes,[14] respondent was not informed in
writing of the law and the facts on which the assessment of estate taxes was made pursuant to
Section 228 of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 8424. She was merely
notified of the findings by the Commissioner, who had simply relied upon the old provisions of
the law and Revenue Regulation No. 12-85 which was based on the old provision of the law.
The Court held that in case of discrepancy between the law as amended and the implementing
regulation based on the old law, the former necessarily prevails. The law must still be followed,
even though the existing tax regulation at that time provided for a different procedure.[15]
113
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Taxation I
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,[16] the tax authorities
gave the term tax credit in Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly
disparate from what R.A. No. 7432 provides. Their interpretation muddled up the intent of
Congress to grant a mere discount privilege and not a sales discount. The Court, striking down
the revenue regulation, held that an administrative agency issuing regulations may not enlarge,
alter or restrict the provisions of the law it administers, and it cannot engraft additional
requirements not contemplated by the legislature. The Court emphasized that tax
administrators are not allowed to expand or contract the legislative mandate and that the plain
meaning rule or verba legis in statutory construction should be applied such that where the
words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning
and applied without attempted interpretation.
As we have previously declared, rule-making power must be confined to details for regulating
the mode or proceedings in order to carry into effect the law as it has been enacted, and it
cannot be extended to amend or expand the statutory requirements or to embrace matters not
covered by the statute. Administrative regulations must always be in harmony with the
provisions of the law because any resulting discrepancy between the two will always be
resolved in favor of the basic law.[17]
In Commissioner
of
Internal
Revenue
v.
Michel
J.
Lhuillier
Pawnshop,
Inc.,[18] Commissioner Jose Ong issued Revenue Memorandum Order (RMO) No. 15-91, as well
as the clarificatory Revenue Memorandum Circular (RMC) 43-91, imposing a 5% lending
investors tax under the 1977 Tax Code, as amended by Executive Order (E.O.) No. 273, on
pawnshops. The Commissioner anchored the imposition on the definition of lending investors
provided in the 1977 Tax Code which, according to him, was broad enough to include
pawnshop operators. However, the Court noted that pawnshops and lending investors were
subjected to different tax treatments under the Tax Code prior to its amendment by the
executive order; that Congress never intended to treat pawnshops in the same way as lending
investors; and that the particularly involved section of the Tax Code explicitly subjected lending
investors and dealers in securities only to percentage tax. And so the Court affirmed the
invalidity of the challenged circulars, stressing that administrative issuances must not override,
supplant or modify the law, but must remain consistent with the law they intend to carry
out.[19]
114
MAS
Taxation I
In Philippine Bank of Communications v. Commissioner of Internal Revenue,[20] the then

acting Commissioner issued RMC 7-85, changing the prescriptive period of two years to ten
years for claims of excess quarterly income tax payments, thereby creating a clear inconsistency
with the provision of Section 230 of the 1977 Tax Code. The Court nullified the circular, ruling
that the BIR did not simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress. The Court held:
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. 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 Commissioner of Internal Revenue v. CA, et al.,[22] the central issue was the validity of RMO 487 which had construed the amnesty coverage under E.O. No. 41 (1986) to include only
assessments issued by the BIR after the promulgation of the executive order on 22 August 1986
and not assessments made to that date. Resolving the issue in the negative, the Court held:
x x x all such issuances must not override, but must remain consistent
and in harmony with, the law they seek to apply and implement. Administrative
rules and regulations are intended to carry out, neither to supplant nor to
modify, the law.[23]
xxx
If, as the Commissioner argues, Executive Order No. 41 had not been
intended to include 1981-1985 tax liabilities already assessed (administratively)
prior to 22 August 1986, the law could have simply so provided in its
exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the
executive order has been designed to be in the nature of a general grant of tax
amnesty subject only to the cases specifically excepted by it.[24]
In the case at bar, the OSGs argument that by 1 January 2000, the excise tax on cigarettes
should be the higher tax imposed under the specific tax system and the tax imposed under
115
MAS
Taxation I
the ad valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the
Tax Code, is an unsuccessful attempt to justify what is clearly an impermissible incursion into
the limits of administrative legislation. Such an interpretation is not supported by the clear
language of the law and is obviously only meant to validate the OSGs thesis that Section 145 of
the Tax Code is ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply to the
brands of cigarettes listed under Annex D is likewise unmeritorious, absurd even.Paragraph 8,
Section 145 of the Tax Code simply states that, [T]he classification of each brand of cigarettes
based on its average net retail price as of October 1, 1996, as set forth in Annex D, shall remain
in force until revised by Congress. This declaration certainly does not lend itself to the
interpretation given to it by the OSG. As plainly worded, the average net retail prices of the
listed brands under Annex D, which classify cigarettes according to their net retail price into
low, medium or high, obviously remain the bases for the application of the increase in excise
tax rates effective on 1 January 2000.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed indefensibly
flawed. The Commissioner cannot seek refuge in his claim that the purpose behind the passage
of the Tax Code is to generate additional revenues for the government. Revenue generation has
undoubtedly been a major consideration in the passage of the Tax Code. However, as borne by
the legislative record,[25] the shift from the ad valorem system to the specific tax system
is likewise meant to promote fair competition among the players in the industries concerned,
to ensure an equitable distribution of the tax burden and to simplify tax administration by
classifying cigarettes, among others, into high, medium and low-priced based on their net retail
price and accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as we have
held, the meaning of the law is clear on its face and free from the ambiguities that the
Commissioner imputes. We simply cannot disregard the letter of the law on the pretext of
pursuing its spirit.[26]
Finally, the Commissioners contention that a tax refund partakes the nature of a tax
exemption does not apply to the tax refund to which Fortune Tobacco is entitled. There is
parity between tax refund and tax exemption only when the former is based either on a tax
116
MAS
Taxation I
exemption statute or a tax refund statute. Obviously, that is not the situation here.Quite the
contrary, Fortune Tobaccos claim for refund is premised on its erroneous payment of the tax, or
better still the governments exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an exemption from the
burden of taxation must justify his claim by showing that the legislature intended to exempt
him by words too plain to be mistaken.[27] The rule is that tax exemptions must be strictly
construed such that the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.[28]
A claim for tax refund may be based on statutes granting tax exemption or tax refund. In
such case, the rule of strict interpretation against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, a legislative grace, which cannot be allowed
unless granted in the most explicit and categorical language. The taxpayer must show that the
legislature intended to exempt him from the tax by words too plain to be mistaken.[29]
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative grace
but on the legal principle which underlies all quasi-contracts abhorring a persons unjust
enrichment at the expense of another.[30] The dynamic of erroneous payment of tax fits to a tee
the prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact but also
mistake in law.[31]
The Government is not exempt from the application of solutio indebiti.[32] Indeed, the
taxpayer expects fair dealing from the Government, and the latter has the duty to refund
without any unreasonable delay what it has erroneously collected.[33] If the State expects its
taxpayers to observe fairness and honesty in paying their taxes, it must hold itself against the
same standard in refunding excess (or erroneous) payments of such taxes. It should not unjustly
enrich itself at the expense of taxpayers.[34] And so, given its essence, a claim for tax refund
necessitates only preponderance of evidence for its approbation like in any other ordinary civil
case.
117
MAS
Taxation I
Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract
principle, a claim for tax refund may be based on the following: (a) erroneously or illegally
assessed or collected internal revenue taxes; (b) penalties imposed without authority; and (c)
any sum alleged to have been excessive or in any manner wrongfully collected.[35]
What is controlling in this case is the well-settled doctrine of strict interpretation in the
imposition of taxes, not the similar doctrine as applied to tax exemptions. The rule in the
interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does
so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and express
words for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act
are not to be extended by implication. In answering the question of who is subject to tax
statutes, it is basic that in case of doubt, such statutes are to be construed most strongly
against the government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly import. [36] As
burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax
laws.[37]
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No.
80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
Associate Justice
118
MAS
Taxation I
Chairperson
CONSUELO YNARES-SANTIAGO CONCHITA CARPIO MORALES

Associate Justice Associate Justice
PRESBITERO J. VELASCO, JR.

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
119
MAS
Taxation I
[1]
Rollo, pp. 59-93; penned by Associate Justice Jose L. Sabio, Jr. and concurred in by Associate
Justices Eubulo G. Verzola and Monina Arevalo-Zenarosa.
[2]
Herein respondent, Fortune Tobacco Corporation.

[3]
Herein respondent, Fortune Tobacco Corporation.
[4]
Rollo, pp. 60-73.
[5]
Id. at 95-101.
[6]
Id. at 456-495.
[7]
[8]
Rollo,, pp. 484, 486 and 487.
Id. at 407-455.
[9]
Id. at 409.
[10]
1 COOLEY TAXATION, 3rd Ed., p. 43 cited in DIMAAMPAO, TAX PRINCIPLE AND REMEDIES, p.
13.
[11]
TAX CODE, Sec. 145.
[12]
TAX CODE, Sec. 244, provides:

Sec. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations.The Secretary
of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of the provisions of this Code.
See ABAKADA Guro Party List Officers v. Ermita, G.R. No. 168056, 1 September 2005, 469 SCRA
1.
[13]
Rollo, p. 104.
[14]
G.R. No. 159694, 27 January 2006, 480 SCRA 382.
[15]
Id. at 396. Citing Philippine Petroleum Corp. v. Municipality of Pililla, Rizal, 198 SCRA
82, 88, 3 June 1991, citing Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628,
634, 27 June 1988.
120
MAS
Taxation I
[16]
G.R. No. 159647, 15 April 2005, 456 SCRA 414.
[17]
Landbank of the Philippines v. Court of Appeals, 327 Phil. 1047, 1052 (1996).
[18]
453 Phil. 1043 (2003).
[19]
Id. at 1052. Citing Commissioner of Internal Revenue v. Court of Appeals, G.R. No.
108358, 20 January 1995, 240 SCRA 368, 372; Romulo, Mabanta, Buenaventura, Sayoc & De los
Angeles v. Home Development Mutual Fund, G.R. No. 131082, 19 June 2000; 333 SCRA 777,
786.
[20]
361 Phil. 916 (1999).

[21]
[22]
[23]
Id. at 928-929.
310 Phil. 392 (1995).
Id. at 399. This ruling was reiterated in Republic v. Court of Appeals, 381 Phil. 248
(2000).
[24]
Id. at 397.
[25]
Record of the Senate, pp. 224-225.
[26]
Taada and Macapagal v. Cuenco, et al., 103 Phil. 1051, 1086 (1957), citing 82 C.J.S., 613.
[27]
Surigao Consolidated Mining Co. Inc. v. Commissioner of Internal Revenue and Court
of Tax Appeals, 119 Phil. 33, 37 (1963).
[28]
Phil. Acetylene Co. v. Commission of Internal Revenue, et al., 127 Phil. 461, 472
(1967); Manila Electric Company v. Vera, G.R. No. L-29987, 22 October 1975, 67 SCRA 351, 357358; Surigao Consolidated Mining Co. Inc. v. Commissioner of Internal Revenue, supra.
[29]
See Surigao Consolidated Mining Co. Inc. v. CIR, supra at 732-733; Philex Mining Corp.
v. . Commissioner of Internal Revenue, 365 Phil. 572, 579 (1999); Davao Gulf Lumber Corp. v. .
Commissioner of Internal Revenue, 354 Phil. 891-892 (1998); . Commissioner of Internal
Revenue v. Tokyo Shipping Co., Ltd., 314 Phil. 220, 228 (1995).
[30]
Ramie Textiles, Inc. v. Hon. Mathay, Sr., 178 Phil. 482 (1979); Puyat & Sons v. City
of Manila, et al., 117 Phil. 985 (1963).
121
MAS
Taxation I
[31]
CIVIL CODE, Arts. 2142, 2154 and 2155.
[32]
Commissioner of Internal Revenue v. Firemans Fund Insurance Co., G.R. No. L-30644, 9
March 1987, 148 SCRA 315, 324-325; Ramie Textiles, Inc. v. Mathay, supra; Gonzales Puyat &
Sons v. City of Manila, supra.
[33]
Commissioner of Internal Revenue v. Tokyo Shipping Co., supra at 338.
[34]
AB Leasing and Finance Corporation v. . Commissioner of Internal Revenue, 453 Phil.

297.. Citing BPI-Family Savings Bank, Inc. v. Court of Appeals, 330 SCRA 507, 510, 518 (200).
[35]
[36]
TAX CODE (1997), Secs. 204(c) and 229.
CIR v. Court of Appeals, 338 Phil. 322, 330-331 (1997).
[37]
CIR v. Philippine American Accident Insurance Company, Inc., G.R. No. 141658, March 18,
2005, 453 SCRA 668, 680.
122
MAS
Taxation I
10. CALTEX PHILS. COA

SUPREME COURT
Manila
EN BANC
G.R. No. 92585 May 8, 1992

CALTEX
PHILIPPINES,
INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.
DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the
authority of the Commission on Audit (COA) in disallowing petitioner's claims for
reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said
Commission's decision denying its claims for recovery of financing charges from the Fund and
reimbursement of underrecovery arising from sales to the National Power Corporation, Atlas
Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining
Corporation (MAR-COPPER), preventing it from exercising the right to offset its remittances
against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending
resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty
(30) days from receipt of a copy thereof. The certiorari referred to is the special civil action
for certiorari under Rule 65 of the Rules of Court. 4
Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the
findings and rulings of the administrator of the fund itself and in disallowing a claim which is
still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely
without jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount
that it may be required under the law to remit to the OPSF against any amount that it may
receive by way of reimbursement therefrom are sufficient to bring this petition within Rule 65
123
MAS
Taxation I
of the Rules of Court, and, considering further the importance of the issues raised, the error in
the designation of the remedy pursued will, in this instance, be excused.
The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.)
No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as
follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization Fund may be sourced from any of
the following:
a) Any increase in the tax collection from ad valorem tax or
customs duty imposed on petroleum products subject to tax
under this Decree arising from exchange rate adjustment, as may
be determined by the Minister of Finance in consultation with the
Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined
by the Minister of Finance in consultation with the Board of
Energy;
c) Any additional amount to be imposed on petroleum products
to augment the resources of the Fund through an appropriate
Order that may be issued by the Board of Energy requiring
payment by persons or companies engaged in the business of
importing, manufacturing and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso
costs paid by oil companies in the importation of crude oil and
petroleum products is less than the peso costs computed using
the reference foreign exchange rate as fixed by the Board of
Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude oil
and imported petroleum products resulting from exchange rate
adjustment and/or increase in world market prices of crude oil;
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MAS
Taxation I
2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices
of petroleum products. The magnitude of the underrecovery, if
any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:
i. Reduction in oil company take as directed by the
Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time of
the price change;
ii. Reduction in internal ad valorem taxes as a result
of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of
Energy.
The material operative facts of this case, as gathered from the pleadings of the parties, are not
disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred
to as Petitioner, directing the latter to remit to the OPSF its collection, excluding that
unremitted for the years 1986 and 1988, of the additional tax on petroleum products
authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987,
amounted to P335,037,649.00 and informing it that, pending such remittance, all of its claims
for reimbursement from the OPSF shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification
with the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:
1986
1987
1988 719,412,254.00;
P233,190,916.00
335,065,650.00
directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from
receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from further offsetting the taxes
collected against outstanding claims in 1989 and subsequent periods. 7
125
MAS
Taxation I
In its letter of 3 May 1989, petitioner requested the COA for an early release of its
reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs
since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the
lifting of pre-audit of government transactions of national government agencies and
government-owned or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the
reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to
forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit
action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal
for the payment of the collections and the recovery of claims, since the outright payment of the
sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the
OPSF will cause a very serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement acceptable to COA to facilitate
monitoring of payments and reimbursements will be administered
by the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA, P1.287
billion as payment to OPSF, similarly OEA will deliver to Caltex the
same amount in cash reimbursement from OPSF.
(3) The COA audit will commence immediately and will be
conducted expeditiously.
(4) The review of current claims (1989) will be conducted
expeditiously to preclude further accumulation of reimbursement
from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921
accepting the above-stated proposal but prohibiting petitioner from further offsetting
remittances and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr. Manuel A. Estrella,
President, Petron Corporation, and Mr. Francis Ablan, President and Managing
Director, Caltex (Philippines) Inc., for reconsideration of this Commission's
adverse action embodied in its letters dated February 2, 1989 and March 9,
1989, the former directing immediate remittance to the Oil Price Stabilization
Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O.
126
MAS
Taxation I
No. 137, S. 1987, and the latter reiterating the same directive but further
advising the firms to desist from offsetting collections against their claims with
the notice that "this Commission will hold in abeyance the audit of all . . . claims
for reimbursement from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy
Regulatory Board, the aforenamed oil companies were allowed to offset the
amounts due to the Oil Price Stabilization Fund against their outstanding claims
from the said Fund for the calendar years 1987 and 1988, pending with the then
Ministry of Energy, the government entity charged with administering the OPSF.
This Commission, however, expressing serious doubts as to the propriety of the
offsetting of all types of reimbursements from the OPSF against all categories of
remittances, advised these oil companies that such offsetting was bereft of legal
basis. Aggrieved thereby, these companies now seek reconsideration and in
support thereof clearly manifest their intent to make arrangements for the
remittance to the Office of Energy Affairs of the amount of collections equivalent
to what has been previously offset, provided that this Commission authorizes the
Office of Energy Affairs to prepare the corresponding checks representing
reimbursement from the OPSF. It is alleged that the implementation of such an
arrangement, whereby the remittance of collections due to the OPSF and the
reimbursement of claims from the Fund shall be made within a period of not
more than one week from each other, will benefit the Fund and not unduly
jeopardize the continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this
Commission perceives no further objectionable feature in the proposed
arrangement, provided that 15% of whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same to be answerable for
suspensions or disallowances, errors or discrepancies which may be noted in the
course of audit and surcharges for late remittances without prejudice to similar
future retentions to answer for any deficiency in such surcharges, and provided
further that no offsetting of remittances and reimbursements for the current
and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive
Director Wenceslao R. De la Paz of the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and
based on our initial verification of documents submitted to us by your Office in
support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31,
1989, as well as its outstanding claims against the Oil Price Stabilization Fund
(OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex
127
MAS
Taxation I
(Philippines), Inc. shall be required to remit to OPSF an amount of

P1,505,668,906, representing remittances to the OPSF which were offset against
its claims reimbursements (net of unsubmitted claims). In addition, the
Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to cause
payment of P1,959,182,612 to Caltex, representing claims initially allowed in
audit, the details of which are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled
P387,683,535, which included P130,420,235 representing those claims
disallowed by OEA, details of which is (sic) shown in Schedule 1 as summarized
as follows:
Disallowance
Particulars Amount
of
COA
Recovery
of
financing
charges
P162,728,475
/a
Product
sales
48,402,398
/b
Inventory
losses
Borrow
loan
arrangement
14,034,786
/c
Sales
to
Atlas/Marcopper
32,097,083
/d
Sales
to
NPC
558
P257,263,300
Disallowances
Total P387,683,535
of
OEA
130,420,235
The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate
that recovery of financing charges by oil companies is not among the items for
which the OPSF may be utilized. Therefore, it is our view that recovery of
financing charges has no legal basis. The mechanism for such claims is provided
in DOF Circular 1-87.
b. Product Sales Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order
No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that
(sic) oil companies should pay OPSF impost on export sales of petroleum
products. Effective February 7, 1987 sales to international vessels/airlines should
128
MAS
Taxation I
not be included as part of its domestic sales. Changing the effectivity date of the
resolution from February 7, 1987 to October 20, 1987 as covered by subsequent
ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to
include in their domestic sales volumes to international vessels/airlines and
claim the corresponding reimbursements from OPSF during the period. It is our
opinion that the effectivity of the said resolution should be February 7, 1987.
c. Inventory losses Settlement of Ad Valorem
We reviewed the system of handling Borrow and Loan (BLA) transactions
including the related BLA agreement, as they affect the claims for
reimbursements of ad valorem taxes. We observed that oil companies
immediately settle ad valorem taxes for BLA transaction (sic). Loan balances
therefore are not tax paid inventories of Caltex subject to reimbursements but
those of the borrower. Hence, we recommend reduction of the claim for July,
August, and November, 1987 amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges
whether direct or indirect due and payable by the copper mining companies in
distress to the national and local governments." It is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected by
OEA has no legal basis.
Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the
amount as herein authorized shall be subject to availability of funds of OPSF as
of May 31, 1989 and applicable auditing rules and regulations. With regard to
the disallowances, it is further informed that the aggrieved party has 30 days
within which to appeal the decision of the Commission in accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the
decision based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,
ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE
AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO.
137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF
EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY
129
MAS
Taxation I
BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED
NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY
THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171
reads as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has
the .authority to recover financing charges from the OPSF on the basis of
Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which
allowed oil companies to "recover cost of financing working capital associated
with crude oil shipments," and provided a schedule of reimbursement in terms
of peso per barrel. It appears that on November 6, 1989, the DOF issued a
memorandum to the President of the Philippines explaining the nature of these
financing charges and justifying their reimbursement as follows:
As part of your program to promote economic recovery, . . . oil
companies (were authorized) to refinance their imports of crude
oil and petroleum products from the normal trade credit of 30
days up to 360 days from date of loading . . . Conformably . . ., the
oil companies deferred their foreign exchange remittances for
purchases by refinancing their import bills from the normal 30day payment term up to the desired 360 days. This refinancing of
importations carried additional costs (financing charges) which
then became, due to government mandate, an inherent part of
the cost of the purchases of our country's oil requirement.
We beg to disagree with such contention. The justification that financing charges
increased oil costs and the schedule of reimbursement rate in peso per barrel
(Exhibit 1) used to support alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the same formula which
the DOF used in arriving at the reimbursement rate but using comparable
130
MAS
Taxation I
percentages instead of pesos, the ineluctable conclusion is that the oil

companies are actually gaining rather than losing from the extension of credit
because such extension enables them to invest the collections in marketable
securities which have much higher rates than those they incur due to the
extension. The Data we used were obtained from CPI (CALTEX) Management and
can easily be verified from our records.
With respect to product sales or those arising from sales to international vessels
or airlines, . . ., it is believed that export sales (product sales) are entitled to claim
refund from the OPSF.
As regard your claim for underrecovery arising from inventory losses, . . . It is the
considered view of this Commission that the OPSF is not liable to refund such
surtax on inventory losses because these are paid to BIR and not OPSF, in view of
which CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is represented that you
are entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July
17, 1984, since these copper mining companies did not pay CPI (CALTEX) and
OPSF imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that the
CPI (CALTEX) has no authority to claim reimbursement for this uncollected OPSF
impost because LOI 1416 dated July 17, 1984, which exempts distressed mining
companies from "all taxes, duties, import fees and other charges" was issued
when OPSF was not yet in existence and could not have contemplated OPSF
imposts at the time of its formulation. Moreover, it is evident that OPSF was not
created to aid distressed mining companies but rather to help the domestic oil
industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it
imputes to the COA the commission of the following errors: 16
I
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING
CHARGES FROM THE OPSF.
II
RESPONDENT
COMMISSION
ERRED
IN
DISALLOWING
17
CPI's CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES
TO NPC.
131
MAS
Taxation I
III
RESPONDENT COMMISSION ERRED IN DENYING CPI's
REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.
CLAIMS
FOR
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS
LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-AVIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE
STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the respondents to comment on the
petition within ten (10) days from notice. 18
On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by
the Office of the Solicitor General, filed their Comment. 19
This Court resolved to give due course to this petition on 30 May 1991 and required the parties
to file their respective Memoranda within twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the
Comment filed on 6 September 1990 be considered as the Memorandum for respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added
a second purpose, to wit:
2) To reimburse the oil companies for possible cost underrecovery incurred as a
result of the reduction of domestic prices of petroleum products. The magnitude
of the underrecovery, if any, shall be determined by the Ministry of Finance.
"Cost underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of
Energy without the corresponding reduction in the landed cost of
oil inventories in the possession of the oil companies at the time
of the price change;
132
MAS
Taxation I
ii. Reduction in internal ad valorem taxes as a result of foregoing

government mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance
to result in cost underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now
Department) of Finance may include financing charges for "in essence, financing charges
constitute unrecovered cost of acquisition of crude oil incurred by the oil companies," as
explained in the 6 November 1989 Memorandum to the President of the Department of
Finance; they "directly translate to cost underrecovery in cases where the money market
placement rates decline and at the same time the tax on interest income increases. The
relationship is such that the presence of underrecovery or overrecovery is directly dependent
on the amount and extent of financing charges."
(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on
the
basis
of
Department
of
Finance
Circular
No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital
associated with crude oil shipments, the following guidelines on the utilization of
the Oil Price Stabilization Fund pertaining to the payment of the foregoing (sic)
exchange risk premium and recovery of financing charges will be implemented:
1. The OPSF foreign exchange premium shall be reduced to a flat
rate of one (1) percent for the first (6) months and 1/32 of one
percent per month thereafter up to a maximum period of one
year, to be applied on crude oil' shipments from January 1, 1987.
Shipments with outstanding financing as of January 1, 1987 shall
be charged on the basis of the fee applicable to the remaining
period of financing.
2. In addition, for shipments loaded after January 1987, oil
companies shall be allowed to recover financing charges directly
from the OPSF per barrel of crude oil based on the following
schedule:
F
i
n
a
n
c
i
133
MAS
Taxation I
n
g
P
e
r
i
o
d
R
e
i
m
b
u
r
s
e
m
e
n
t
R
a
t
e
P
e
s
o
s
p
e
r
B
a
r
r
134
MAS
Taxation I
e
l
Less
than
180
days
180
days
to
239
days
241
(sic)
days
to
299
300
days
to
369
(sic)
days
360 days or more 8.28
None
1.90
4.02
6.16
The above rates shall be subject to review every sixty

days. 22
Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised
the Office of Energy Affairs as follows:
HON.
VICENTE
Deputy
Executive
For
Energy
Office
of
Makati, Metro Manila
T.
the
PATERNO
Secretary
Affairs
President
Dear Sir:
This refers to the letters of the Oil Industry dated December 4, 1986 and
February 5, 1987 and subsequent discussions held by the Price Review
committee on February 6, 1987.
On the basis of the representations made, the Department of Finance recognizes
the necessity to reduce the foreign exchange risk premium accruing to the Oil
Price Stabilization Fund (OPSF). Such a reduction would allow the industry to
recover partly associated financing charges on crude oil imports. Accordingly, the
OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for the
first six (6) months plus 1/32% of 1% per month thereafter up to a maximum
period of one year, effective January 1, 1987. In addition, since the prevailing
company take would still leave unrecovered financing charges, reimbursement
may be secured from the OPSF in accordance with the provisions of the attached
Department of Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the
guidelines for the computation of the foreign exchange risk fee and the recovery of financing
charges from the OPSF, to wit:
B. FINANCE CHARGES
135
MAS
Taxation I
1. Oil companies shall be allowed to recover financing charges

directly from the OPSF for both crude and product shipments
loaded after January 1, 1987 based on the following rates:
F
i
n
a
n
c
i
n
g
P
e
r
i
o
d
R
e
i
m
b
u
r
s
e
m
e
n
t
R
a
t
e
(
P
B
b
136
MAS
Taxation I
l
.
)
Less
than
180
days
180
days
to
239
days
240
days
to
229
(sic)
days
300
days
to
359
days
360 days to more 8.28
None
1.90
4.02
6.16
2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing
further guidelines on the recoverability of financing charges, to wit:
Following are the supplemental rules to Department of Finance Circular No. 1-87
dated February 18, 1987 which allowed the recovery of financing charges
directly from the Oil Price Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be on a per shipment basis.
2. The claim shall be filed with the Office of Energy Affairs
together with the claim on peso cost differential for a particular
shipment and duly certified supporting documents provided for
under Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of reimbursement
certificate (Annex A) to be issued by the Office of Energy Affairs.
The said certificate may be used to offset against amounts
payable to the OPSF. The oil companies may also redeem said
certificates in cash if not utilized, subject to availability of funds. 25
The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12017. 26
The COA can neither ignore these issuances nor formulate its own interpretation of the laws in
the light of the determination of executive agencies. The determination by the Department of
Finance and the OEA that financing charges are recoverable from the OPSF is entitled to great
weight and consideration. 27 The function of the COA, particularly in the matter of allowing or
disallowing certain expenditures, is limited to the promulgation of accounting and auditing
rules for, among others, the disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and properties. 28
137
MAS
Taxation I
(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's
claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly
raised and not supported by expert analysis.
In impeaching the validity of petitioner's assertions, the respondents argue that:
1. The Constitution gives the COA discretionary power to disapprove irregular or
unnecessary government expenditures and as the monetary claims of petitioner
are not allowed by law, the COA acted within its jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing
charges from the OPSF;
3. Under the principle of ejusdem generis, the "other factors" mentioned in the
second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors
which are of the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87
of the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations implementing P.D. No. 1956 do
not
likewise
allow
reimbursement
of
financing
29
charges.
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view of its primacy, We find the
theory of petitioner that such does not extend to the disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable expenditures, or use of government funds and
properties, but only to the promulgation of accounting and auditing rules for, among others,
such disallowance to be untenable in the light of the provisions of the 1987 Constitution and
related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:
Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d)
138
MAS
Taxation I
such non-governmental entities receiving subsidy or equity, directly or indirectly,

from or through the government, which are required by law or the granting
institution to submit to such audit as a condition of subsidy or equity. However,
where the internal control system of the audited agencies is inadequate, the
Commission may adopt such measures, including temporary or special pre-audit,
as are necessary and appropriate to correct the deficiencies. It shall keep the
general accounts, of the Government and, for such period as may be provided by
law, preserve the vouchers and other supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to the limitations in
this Article, to define the scope of its audit and examination, establish the
techniques and methods required therefor, and promulgate accounting and
auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or,
unconscionable expenditures, or uses of government funds and properties.
These present powers, consistent with the declared independence of the Commission, 30 are
broader and more extensive than that conferred by the 1973 Constitution. Under the latter, the
Commission was empowered to:
Examine, audit, and settle, in accordance with law and regulations, all accounts
pertaining to the revenues, and receipts of, and expenditures or uses of funds
and property, owned or held in trust by, or pertaining to, the Government, or
any of its subdivisions, agencies, or instrumentalities including governmentowned or controlled corporations, keep the general accounts of the Government
and, for such period as may be provided by law, preserve the vouchers
pertaining thereto; and promulgate accounting and auditing rules and
regulations including those for the prevention of irregular, unnecessary,
excessive, or extravagant expenditures or uses of funds and property. 31
Upon the other hand, under the 1935 Constitution, the power and authority of the COA's
precursor, the General Auditing Office, were, unfortunately, limited; its very role was markedly
passive. Section 2 of Article XI thereofprovided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts
pertaining to the revenues and receipts from whatever source, including trust
funds derived from bond issues; and audit, in accordance with law and
administrative regulations, all expenditures of funds or property pertaining to or
held in trust by the Government or the provinces or municipalities thereof. He
shall keep the general accounts of the Government and the preserve the
vouchers pertaining thereto. It shall be the duty of the Auditor General to bring
to the attention of the proper administrative officer expenditures of funds or
property which, in his opinion, are irregular, unnecessary, excessive, or
139
MAS
Taxation I
extravagant. He shall also perform such other functions as may be prescribed by

law.
As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the
power to issue rules and regulations to prevent the same. His was merely to bring that matter
to the attention of the proper administrative officer.
The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer controlling as the two (2) were decided in
the light of the 1935 Constitution.
There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and property. Our present Constitution
retains that same power and authority, further strengthened by the definition of the COA's
general jurisdiction in Section 26 of the Government Auditing Code of the Philippines 34 and
Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing
rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 7755. Since the COA is responsible for the enforcement of the rules and regulations, it goes
without saying that failure to comply with them is a ground for disapproving the payment of
the proposed expenditure. As observed by one of the Commissioners of the 1986 Constitutional
Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the
1935 Constitution the Auditor General could not correct "irregular, unnecessary,
excessive or extravagant" expenditures of public funds but could only "bring [the
matter] to the attention of the proper administrative officer," under the 1987
Constitution, as also under the 1973 Constitution, the Commission on Audit can
"promulgate accounting and auditing rules and regulations including those for
the prevention and disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures or uses of government funds and
properties." Hence, since the Commission on Audit must ultimately be
responsible for the enforcement of these rules and regulations, the failure to
comply with these regulations can be a ground for disapproving the payment of
a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more
active role and invested it with broader and more extensive powers, they did not intend merely
to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and
independent watchdog of the Government.
140
MAS
Taxation I
The issue of the financing charges boils down to the validity of Department of Finance Circular
No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA,
issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to
determine "other factors" which may result in cost underrecovery and a consequent
reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis, financing
charges are not included in "cost underrecovery" and, therefore, cannot be considered as one
of the "other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not
explicitly define what "cost underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:
i. Reduction in oil company takes as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of
the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in
cost underrecovery.
These "other factors" can include only those which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that
they are in the nature of government mandated price reductions. Hence, any other factor
which seeks to be a part of the enumeration, or which could qualify as a cost underrecovery,
must be of the same class or nature as those specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance
broad and unrestricted authority to determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words are not to
be construed in their widest extent, but are held to be as applying only to persons or things of
the same kind or class as those specifically mentioned. 38A reading of subparagraphs (i) and (ii)
easily discloses that they do not have a common characteristic. The first relates to price
reduction as directed by the Board of Energy while the second refers to reduction in internal ad
valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these
subparagraphs. What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows
141
MAS
Taxation I
cost underrecovery only if such were incurred as a result of the reduction of domestic prices of
petroleum products.
Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in
the sense that such were incurred as a result of the inability to fully offset financing expenses
from yields in money market placements, they do not, however, fall under the foregoing
provision of P.D. No. 1956, as amended, because the same did not result from the reduction of
the domestic price of petroleum products. Until paragraph (2), Section 8 of the decree, as
amended, is further amended by Congress, this Court can do nothing. The duty of this Court is
not to legislate, but to apply or interpret the law. Be that as it may, this Court wishes to
emphasize that as the facts in this case have shown, it was at the behest of the Government
that petitioner refinanced its oil import payments from the normal 30-day trade credit to a
maximum of 360 days. Petitioner could be correct in its assertion that owing to the extended
period for payment, the financial institution which refinanced said payments charged a higher
interest, thereby resulting in higher financing expenses for the petitioner. It would appear then
that equity considerations dictate that petitioner should somehow be allowed to recover its
financing losses, if any, which may have been sustained because it accommodated the request
of the Government. Although under Section 29 of the National Internal Revenue Code such
losses may be deducted from gross income, the effect of that loss would be merely to reduce
its taxable income, but not to actually wipe out such losses. The Government then may consider
some positive measures to help petitioner and others similarly situated to obtain substantial
relief. An amendment, as aforestated, may then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of
the Department of Finance to determine or define "other factors" is to uphold an undue
delegation of legislative power, it clearly appearing that the subject provision does not provide
any standard for the exercise of the authority. It is a fundamental rule that delegation of
legislative power may be sustained only upon the ground that some standard for its exercise
is provided and that the legislature, in making the delegation, has prescribed the manner of the
exercise of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is rendered
irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that petitioner
failed to disprove COA's claim that it had in fact gained in the process. Otherwise stated,
petitioner failed to sufficiently show that it incurred a loss. Such being the case, how can
petitioner claim for reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation, We find for the
petitioner. The respondents themselves admit in their Comment that underrecovery arising
from sales to NPC are reimbursable because NPC was granted full exemption from the payment
of taxes; to prove this, respondents trace the laws providing for such exemption. 40 The last law
cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which
provides, in part, "that the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum
142
MAS
Taxation I
products . . . are restored effective March 10, 1987." In a Memorandum issued on 5 October
1987 by the Office of the President, NPC's tax exemption was confirmed and approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum
products to the NPC is evident in the recently passed Republic Act No. 6952 establishing the
Petroleum Price Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic
Act No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to the following conditions:
(1) That the Fund shall be used to reimburse the oil companies for
(a) cost increases of imported crude oil and finished petroleum
products resulting from foreign exchange rate adjustments and/or
increases in world market prices of crude oil; (b) cost
underrecovery incurred as a result of fuel oil sales to the National
Power Corporation (NPC); and (c) other cost underrecoveries
incurred as may be finally decided by the Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales of petroleum products to the National
Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner
relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether direct or indirect, due and
payable by the copper mining companies in distress to the national government. Pursuant to
this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 8411-22 advising the oil companies that Atlas Consolidated Mining Corporation and Marcopper
Mining Corporation are among those declared to be in distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August
1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI
1416 which implements the exemption from payment of OPSF imposts as effected by OEA has
no legal basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no
authority to claim reimbursement for this uncollected impost because LOI 1416 dated July 17,
1984, . . . was issued when OPSF was not yet in existence and could not have contemplated
OPSF imposts at the time of its formulation." 43 It is further stated that: "Moreover, it is evident
that OPSF was not created to aid distressed mining companies but rather to help the domestic
oil industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have
intended to exempt said distressed mining companies from the payment of OPSF dues for the
following reasons:
143
MAS
Taxation I
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D.
1956 creating the OPSF was promulgated on October 10, 1984, while E.O. 137,
amending P.D. 1956, was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in
line with the government's effort to prevent the collapse of the copper industry.
P.D No. 1956, as amended, was issued for the purpose of minimizing frequent
price changes brought about by exchange rate adjustments and/or changes in
world market prices of crude oil and imported petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other
charges, whether direct or indirect, due and payable by the copper mining
companies in distress to the Notional and Local Governments . . ." On the other
hand, OPSF dues are not payable by (sic) distressed copper companies but by oil
companies. It is to be noted that the copper mining companies do not pay OPSF
dues. Rather, such imposts are built in or already incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed
mining companies, it does not accord petitioner the same privilege with respect to its obligation
to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from such reasons, however, it is
apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of
the Civil Code, which reads:
Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Taada vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to publish in the Official
Gazette all unpublished presidential issuances which are of general application,
and unless so published they shall have no binding force and effect.
Resolving the motion for reconsideration of said decision, this Court, in its Resolution
promulgated on 29 December 1986, 47 ruled:
We hold therefore that all statutes, including those of local application and
private laws, shall be published as a condition for their effectivity, which shall
begin fifteen days after publication unless a different effectivity date is fixed by
the legislature.
144
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Taxation I
Covered by this rule are presidential decrees and executive orders promulgated
by the President in the exercise of legislative powers whenever the same are
validly delegated by the legislature or, at present, directly conferred by the
Constitution. Administrative rules and regulations must also be published if their
purpose is to enforce or implement existing laws pursuant also to a valid
delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as above defined shall
immediately upon their approval, or as soon thereafter as possible, be published
in full in the Official Gazette, to become effective only after fifteen days from
their publication, or on another date specified by the legislature, in accordance
with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official
Gazette after its issuance or at any time after the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on
18 June 1987. As amended, the said provision now reads:
Laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general circulation
in the Philippines, unless it is otherwiseprovided.
We are not aware of the publication of LOI 1416 in any newspaper of general circulation
pursuant to Executive Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim
must still fail. Tax exemptions as a general rule are construed strictly against the grantee and
liberally in favor of the taxing authority. 48 The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so claimed. The party claiming
exemption must therefore be expressly mentioned in the exempting law or at least be within its
purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to
ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI
1416 may suspend the payment of taxes by copper mining companies, it does not give
petitioner the same privilege with respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its
jurisdiction. 49 Respondents, on the other hand, contend that said amount was already
145
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Taxation I
disallowed by the OEA for failure to substantiate it. 50 In fact, when OEA submitted the claims of
petitioner for pre-audit, the abovementioned amount was already excluded.
An examination of the records of this case shows that petitioner failed to prove or substantiate
its contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has
already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said
claim must be upheld.
V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner
contends that it should be allowed to offset its claims from the OPSF against its contributions to
the fund as this has been allowed in the past, particularly in the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which
provides for "Retention of Money for Satisfaction of Indebtedness to
Government." 52 Petitioner also mentions communications from the Board of Energy and the
Department of Finance that supposedly authorize compensation.
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can
be no offsetting of taxes against the claims that a taxpayer may have against the government,
as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed
by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the
Revised Administrative Code, is misplaced because "while this provision empowers the COA to
withhold payment of a government indebtedness to a person who is also indebted to the
government and apply the government indebtedness to the satisfaction of the obligation of the
person to the government, like authority or right to make compensation is not given to the
private person." 54 The reason for this, as stated in Commissioner of Internal Revenue vs.Algue,
Inc., 55 is that money due the government, either in the form of taxes or other dues, is its
lifeblood and should be collected without hindrance. Thus, instead of giving petitioner a reason
for compensation or set-off, the Revised Administrative Code makes it the respondents' duty to
collect petitioner's indebtedness to the OPSF.
Refuting respondents' contention, petitioner claims that the amounts due from it do not arise
as a result of taxation because "P.D. 1956, amended, did not create a source of taxation; it
instead established a special fund . . .," 56 and that the OPSF contributions do not go to the
general fund of the state and are not used for public purpose, i.e., not for the support of the
government, the administration of law, or the payment of public expenses. This alleged lack of
a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in
the Francia case is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the
OPSF; the said law provides in part that:
146
MAS
Taxation I
Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx
(3) That no amount of the Petroleum Price Standby Fund shall be
used to pay any oil company which has an outstanding obligation
to the Government without said obligation being offset first,
subject to the requirements of compensation or offset under the
Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are not for a public
purpose because they go to a special fund of the government. Taxation is no longer envisioned
as a measure merely to raise revenue to support the existence of the government; taxes may
be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of
a threatened industry which is affected with public interest as to be within the police power of
the state. 57 There can be no doubt that the oil industry is greatly imbued with public interest as
it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives
of a majority of the people and cause economic crisis of untold proportions. It would have a
chain reaction in terms of, among others, demands for wage increases and upward spiralling of
the cost of basic commodities. The stabilization then of oil prices is of prime concern which the
state, via its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the claims that he may have against
the government. 58Taxes cannot be the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such
a debt, demand, contract or judgment as is allowed to be set-off. 59
We may even further state that technically, in respect to the taxes for the OPSF, the oil
companies merely act as agents for the Government in the latter's collection since the taxes
are, in reality, passed unto the end-users the consuming public. In that capacity, the
petitioner, as one of such companies, has the primary obligation to account for and remit the
taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship
between the two; petitioner certainly cannot be considered merely as a debtor. In respect,
therefore, to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation
is likewise legally feasible. Firstly, the Government and the petitioner cannot be said to be
mutually debtors and creditors of each other. Secondly, there is no proof that petitioner's claim
is already due and liquidated. Under Article 1279 of the Civil Code, in order that compensation
may be proper, it is necessary that:
(1) each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
147
MAS
Taxation I
(2) both debts consist in a sum of :money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been
stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
That compensation had been the practice in the past can set no valid precedent. Such a practice
has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims
against their OPSF contributions. Instead, it prohibits the government from paying any amount
from the Petroleum Price Standby Fund to oil companies which have outstanding obligations
with the government, without said obligation being offset first subject to the rules on
compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged
decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim
for reimbursement of underrecovery arising from sales to the National Power Corporation,
which is hereby allowed.
With costs against petitioner.
SO ORDERED.
Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Grio-Aquino,
Medialdea, Regalado, Romero and Nocon, JJ., concur.
Footnotes
1 Petitioner explicitly states in the opening paragraph of the petition that its
petition is for review under Section 1, Rule 44 of the Rules of Court.
2 Sec. 7, Subdivision A, Article IX; see also Section 35, Chapter 5, Subtitle B, Title
I, Book V, Administrative Code of 1987.
3 The Civil Service Commission, the Commission on Elections and the
Commission on Audit.
4 Land Bank of the Philippines vs. COA, 190 SCRA 154 [1990].
148
MAS
Taxation I
5 Rollo, 6-7.
6 Rollo, 65.
7 Id., 66.
8 Rollo, 67-68.
9 Id., 76.
10 Id., 77.
11 Rollo, 58-59.
12 Rollo, 60-62.
13 Rollo, 78-89.
14 Id., 89-90.
15 Rollo, 53-56. Commissioner Fernandez is of the opinion that petitioner should
allowed to recover financing charges stating:
I find merit in claimants (sic) reliance on and invocation of Department of
Finance Circular No. 1-87, dated February 18, 1987, in support of such claims. To
my mind, the authority embodied in such circular coupled with the justification
therefor as set forth by the Secretary of Finance in his letter of even date to the
then Deputy Secretary for Energy Affairs as well as the Memorandum for the
President dated November 6, 1989 from the Acting Secretary of Finance, alluded
to and subjoined herein, cannot but deserve full faith and credit. I perceive no
compelling reason for this Commission to overturn or disturb these
pronouncements which treat of a policy matter the resolution which (sic)
appropriately pertains to the executive agency concerned, the Department of
Finance in this case.
16 Rollo, 8-9.
17 Caltex Philippines, Inc., petitioner herein.
18 Op. cit., 124.
19 Rollo, 143-185.
20 Id., 188.
149
MAS
Taxation I
21 Id., 191.
22 Rollo, 23.
23 Rollo, 24-25.
24 Id., 25.
25 Rollo, 25-26.
26 Id., 26.
27 Citing Ramos vs. CIR, 21 SCRA 1282 [1967]; Sagun vs. PHHC, 162 SCRA 411
[1988]; Hijo Plantation, Inc. vs. Central Bank, 164 SCRA 192 [1988]; Beautifont,
Inc. vs. Court of Appeals, 157 SCRA 481 [1988].
28 Citing Section 11, Book V. Administrative Code of 1987; Guevara vs. Gimenez,
6 SCRA 807 [1962].
29 Rollo, 155-164.
30 Sec. 1, Subdivision A, Article IX.
31 Paragraph 1, Section 2, Subdivision D, Article XII.
32 Supra.
33 39 SCRA 641 [1971].
34 P.D. No. 1445.
35 Sec. 11, Chapter 4, Subtitle B, Book V.
36 The 1987 Constitution adds one (1) more category of such expenditure on use
unconscionable.
37 BERNAS, J., The Constitution of the Republic of the Philippines: A Commentary,
vol. II, 1988 ed., 372.
38 Smith Bell and Co., Ltd. vs. Register of Deeds of Davao, 96 Phil. 53
[1954], citing BLACK onInterpretation of Law. 2nd ed., 203; see also Republic vs.
Migrino, 189 SCRA 289 [1990].
39 Philippine Communications Satellite Corp. vs. Alcuaz, et al., 180 SCRA 218
[1989].
150
MAS
Taxation I
40 Rollo, 176-177.
41 Id., 184.
42 Rollo, 62; Annex "C," 3.
43 Id., 56; Annex "A."
44 Rollo, 174-176.
45 As verified from the National Printing Office. A certification to this effect,
dated 19 November 1991, signed by Heriberto Bacalla, Chief, Official Gazette
Publication, of the National Printing Office, is attached to the rollo.
46 136 SCRA 27 [1985].
47 146 SCRA 446 [1986].
48 CIR vs. Mitsubishi Corp., 181 SCRA 214 [1990]; CIR vs. P.J. Kiener Co., Ltd., 65
SCRA 142 [1975].
49 Rollo, 49.
50 Id., 173.
51 Rollo, 42-47.
52 Id., 48-49.
53 162 SCRA 753 [1988].
54 Op. cit., 171.
55 158 SCRA 9 [1988].
56 Petitioner's Memorandum, 8.
57 Lutz vs. Araneta, 98 Phil. 148 [1955]; Gaston vs. Republic Planters Bank, 158
SCRA 626 [1988].
58 Francia vs. IAC, supra.; Republic vs. Mambulao Lumber Co., 4 SCRA 622
[1962].
59 Cordero vs. Gonda, 18 SCRA 331 [1966].
151
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Taxation I
11. OSMEA VS ORBOS

SUPREME COURT
Manila
EN BANC
G.R. No. 99886 March 31, 1993

JOHN
H.
OSMEA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as
Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy
Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.
NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the Rules of
2
Court, upon the following posited grounds, viz.:
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4
2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;" 5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, 6 because
it
contravenes
8,
paragraph
2
(2)
of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF
152
MAS
Taxation I
was designed to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world market prices
of crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also authorized
the investment of the fund in government securities, with the earnings from such placements accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion; 8 that to abate the worsening deficit, "the Energy Regulatory Board .
. issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of recoupment, the OPSF deficit
should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar Orbos, in his capacity as Executive
Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman
Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept, process and pay claims not authorized under P.D. 1956."
The petition further avers that the creation

29(3), Article VI of the Constitution, reading as follows:
of
the
trust
fund
violates
(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special
fund' to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected through the
taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special
11
purpose/objective for which it was created."
He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:
(2) 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;
and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how
153
MAS
Taxation I
to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the
monies collected, which form part of the OPSF, should be maintained in a special account of the
general fund for the reason that the Constitution so provides, and because they are,
supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from a tax
undoubtedly because a portion thereof is taken from collections of ad valoremtaxes and the
increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the Court recalls
its holding inValmonte v. Energy Regulatory Board, et al. 14
The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established "for
the purpose of minimizing the frequent price changes brought about by exchange
rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order No. 137 dated
27 February 1987, this Trust Account may be funded from any of the following sources:
a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:
c) Any additional amount to be imposed on petroleum products to
augment the resources of the Fund through an appropriate Order
that may be issued by the Board of Energy requiring payment of
persons or companies engaged in the business of importing,
manufacturing and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.
154
MAS
Taxation I
xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the pesovis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices
which vary from day to day or even only from week to week would result in a
chaotic market with unpredictable effects upon the country's economy in
general. The OPSF was established precisely to protect local consumers from the
adverse consequences that such frequent oil price adjustments may have upon the
economy.Thus, the OPSF serves as a pocket, as it were, into which a portion of the
purchase price of oil and petroleum products paid by consumers as well as some tax
revenues are inputted and from which amounts are drawn from time to time to
reimburse oil companies, when appropriate situations arise, for increases in, as well
as underrecovery of, costs of crude importation. The OPSF is thus a buffer
mechanism through which the domestic consumer prices of oil and petroleum
products are stabilized, instead of fluctuating every so often, and oil companies are
allowed to recover those portions of their costs which they would not otherwise
recover given the level of domestic prices existing at any given time. To the extent
that some tax revenues are also put into it, the OPSF is in effect a device through
which the domestic prices of petroleum products are subsidized in part. It appears to
the Court that the establishment and maintenance of the OPSF is well within that
pervasive and non-waivable power and responsibility of the government to secure
the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State.
The stabilization, and subsidy of domestic prices of petroleum products and fuel oil
clearly critical in importance considering, among other things, the continuing high
level of dependence of the country on imported crude oil are appropriately
regarded as public purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which
is not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality of
the sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power
of the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98
Phil. 148). . . . The tax collected is not in a pure exercise of the taxing power. It is
levied with a regulatory purpose, to provide a means for the stabilization of the
sugar industry. The levy is primarily in the exercise of the police power of the State
(Lutz v. Araneta, supra).
xxx xxx xxx
155
MAS
Taxation I
The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17
The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the
funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys
from which may be paid out only in pursuance of an appropriation made by law (1987)
Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).
(Emphasis supplied).
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject
to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products
provides a sufficient standard by which the authority must be exercised. In addition to the general
policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates,
8(c) of P.D. 1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit
on how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so
much the power of taxation as police power. Although the provision authorizing the ERB to impose additional
amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding
consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are
embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the determination of the
price of oil and petroleum products, and the frequently shifting need to either augment or exhaust
the Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed
by the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed,
156
MAS
Taxation I
suffices to guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must
fix
a
standard
limits
of
which
are sufficiently determinate or determinable to which the delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may
be carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a
determinable standard which guides the exercise of the power granted to the ERB. By the same
token, the proper exercise of the delegated power may be tested with ease. It seems obvious that
what the law intended was to permit the additional imposts for as long as there exists a need to
protect the general public and the petroleum industry from the adverse consequences of pump rate
fluctuations. "Where the standards set up for the guidance of an administrative officer and the
action taken are in fact recorded in the orders of such officer, so that Congress, the courts and the
public are assured that the orders in the judgment of such officer conform to the legislative
standard, there is no failure in the performance of the legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund
are readily discernible, and they constitute a sufficient standard upon which the delegation of
power may be justified.
In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2
(2) of P.D. 1956, amended 23 the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
157
MAS
Taxation I
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the OPSF
25
should not have responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." It
is argued "that under the principle of ejusdem generis . . . the term 'other factors' (as used in 8 of P.D. 1956) . .
can only include such 'other factors' which necessarily result in the reduction of domestic prices of petroleum
26
products."
The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive
confines of the rule ofejusdem generis would reduce (E.O. 137) to a meaningless provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed upon
the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:
The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy while the
second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii) cannot be
limited by the enumeration in these subparagraphs. What should be considered for purposes of
determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the
Section which explicitly allows the cost underrecovery only if such were incurred as a result of the
reduction of domestic prices of petroleum products.
The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of
domestic prices of petroleum products. Under the same provision, however, the payment of
inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher
price.
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held inCaltex 29 and which have been pointed to by the Solicitor General. At any rate, doubts
about the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952, establishing the
Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement of "cost underrecovery
incurred as a result of fuel oil sales to the National Power Corporation."
Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any
effort to defend the propriety of this refund. In fine, neither of the parties, beyond the mere
mention of overpayment refunds, has at all bothered to discuss the arguments for or against the
legality of the so-called overpayment refunds. To be sure, the absence of any argument for or
against the validity of the refund cannot result in its disallowance by the Court. Unless the
impropriety or illegality of the overpayment refund has been clearly and specifically shown, there
can be no basis upon which to nullify the same.
158
MAS
Taxation I
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.
SO ORDERED.
Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo,
Campos, Jr., and Quiason, JJ., concur.
Gutierrez, Jr., J., is on leave.
# Footnotes
1 The writ of certiorari is, of course, available only as against tribunals, boards or
officers exercisingjudicial or quasi-judicial functions.
2 The petition alleges separate causes or grounds for each extraordinary writ
sought.
3 Rollo, pp. 1 to 4.
4 Rollo, p. 2.
5 Id.
6 When this petition was filed, the amount involved was P5,277.4 million.
7 Issued on 9 May 1985.
8 Rollo, pp. 8-9.
9 Rollo, p. 11; emphasis supplied.
10 Id., pp. 13-4.
11 Id., p. 15.
12 Rollo, p. 17.
13 Comment of the Respondents; Rollo, p. 63.
159
MAS
Taxation I
14 G.R. Nos. L-79501-03 [23 June 1988] 162 SCRA 521; Decided jointly with Citizen's
Alliance for Consumer Protection v. Energy Regulatory Board et al., G.R. Nos. L78888-90, and Kilusang Mayo Uno Labor Center v. Energy Regulatory Board, et al.,
G.R. Nos. L-79590-92; emphasis supplied.
15 Citing E.O. No. 137, Sec. 1 (amending 8 of P.D. 1956).
16 158 SCRA 626, emphasis supplied.
17 "(3) All money collected on any tax levied for a special purpose shall be treated as
a special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the government." (1987 Constitution, Art. VI,
Sec. 28[3]).
18 Supra; see footnote 14 and related text.
19 Rollo, p. 17.
20 SEE Vigan Electric Light Co., Inc. v. Public Service Commission, G.R. No.
L-19850, 30 January 1964 and Pelaez v. Auditor General, G.R. No. L-23825, 24
December 1965;see also Gonzales, N. Administrative Law A Text, (1979) at 29.
21 De La Llana v. Alba, 112 SCRA 294, citing Edu v. Ericta, 35 SCRA 481: Cf. Agustin v.
Edu, 88 SCRA 195.
22 Hirabayashi v. U.S., 390 U.S. 99.
23 When this petition was filed, the amount involved was P5,277.4 million.
24 Rollo, p. 20.
25 Id., p. 21.
26 Id., p. 20.
27 Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., G.R. No.
92585, 8 May 1992, En Banc. N.B. The Solicitor General seems to have taken a
different position in this case, with respect to the application of ejusdem generis.
28 Smith Bell and Co., Ltd. v. Register of Deeds of Davao, 96 Phil. 53
[1954], citing BLACK on Interpretation of Law, 2nd ed. at 203: see also Republic v.
Migrio 189 SCRA 289 [1990].
29 Supra at note 25; SEE also Maceda v. Hon. Catalino Macaraig, Jr., et al., G.R. No.
88291, 197 SCRA 771 (1991).
160
MAS
Taxation I
12. SOUTHERN CROSS CEMENT CORP. VS CEMENT MANUFACTURERS

ASSOCIATION
SUPREME COURT
EN BANC
G.R. No. 158540. August 3, 2005
SOUTHERN
CROSS
CEMENT
CORPORATION, Petitioners,
vs.
CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, THE SECRETARY OF THE
DEPARTMENT OF TRADE AND INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE and
THE COMMISSIONER OF THE BUREAU OF CUSTOMS, Respondent.
RESOLUTION
TINGA, J.:
Cement is hardly an exciting subject for litigation. Still, the parties in this case have done their best
to put up a spirited advocacy of their respective positions, throwing in everything including the
proverbial kitchen sink. At present, the burden of passion, if not proof, has shifted to public
respondents Department of Trade and Industry (DTI) and private respondent Philippine Cement
Manufacturers Corporation (Philcemcor),1 who now seek reconsideration of our Decision dated 8
July 2004 (Decision), which granted the petition of petitioner Southern Cross Cement Corporation
(Southern Cross).
This case, of course, is ultimately not just about cement. For respondents, it is about love of country
and the future of the domestic industry in the face of foreign competition. For this Court, it is about
elementary statutory construction, constitutional limitations on the executive power to impose
tariffs and similar measures, and obedience to the law. Just as much was asserted in the Decision,
and the same holds true with this presentResolution.
An extensive narration of facts can be found in the Decision.2 As can well be recalled, the case
centers on the interpretation of provisions of Republic Act No. 8800, the Safeguard Measures Act
("SMA"), which was one of the laws enacted by Congress soon after the Philippines ratified 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
161
MAS
Taxation I
A brief summary as to how the present petition came to be filed by Southern Cross. Philcemcor, an
association of at least eighteen (18) domestic cement manufacturers filed with the DTI a petition
seeking the imposition of safeguard measures on gray Portland cement,5 in accordance with the
SMA. After the DTI issued a provisional safeguard measure,6 the application was referred to the
Tariff Commission for a formal investigation pursuant to Section 9 of the SMA and its Implementing
Rules and Regulations, in order to determine whether or not to impose a definitive safeguard
measure on imports of gray Portland cement. The Tariff Commission held public hearings and
conducted its own investigation, then on 13 March 2002, issued its Formal Investigation Report
("Report"). The Report determined as follows:
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.7
The DTI sought the opinion of the Secretary of Justice whether it could still impose a definitive
safeguard measure notwithstanding the negative finding of the Tariff Commission. After the
Secretary of Justice opined that the DTI could not do so under the SMA, 8 the DTI Secretary then
promulgated a Decision9 wherein he expressed the DTIs disagreement with the conclusions of the
Tariff Commission, but at the same time, ultimately denying Philcemcors application for safeguard
measures on the ground that the he was bound to do so in light of the Tariff Commissions negative
findings.10
Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of Appeals
a Petition for Certiorari, Prohibition and Mandamus11 seeking to set aside the DTI Decision, as well
as the Tariff Commissions 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.12
The Court of Appeals Twelfth Division, in a Decision13 penned by Court of Appeals Associate Justice
Elvi John Asuncion,14 partially granted Philcemcors petition. The appellate court ruled that it had
jurisdiction over the petition for certiorari since it alleged grave abuse of discretion. While it refused
to annul the findings of the Tariff Commission,15 it also held that the DTI Secretary was not bound by
the factual findings of the Tariff Commission since such findings are merely recommendatory and
they fall within the ambit of the Secretarys discretionary review. It determined that the legislative
intent is to grant the DTI Secretary the power to make a final decision on the Tariff Commissions
recommendation.16
On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of Appeals has
no jurisdiction over Philcemcors petition, as the proper remedy is 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 of conditions warranting the imposition of general safeguard measures
are binding upon the DTI Secretary.
162
MAS
Taxation I
Despite the fact that the Court of Appeals Decision had not yet become final, its binding force was
cited by the DTI Secretary when he issued a new Decision on 25 June 2003, wherein he ruled that
that in light of the appellate courts Decision, there was no longer any legal impediment to his
deciding Philcemcors application for definitive safeguard measures.17 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.18 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.19
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 hisDecision 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
Secretarys 25 June 2003 Decision which imposed the definite safeguard measure. Yet Southern
Cross did not promptly inform this Court about this filing. The first time the Court would learn about
this Petition with the CTA was when Southern Cross mentioned such fact in a pleading dated 11
August 2003 and filed the next day with this Court.20
Philcemcor argued before this Court that Southern Cross had deliberately and willfully resorted to
forum-shopping; 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.21
After giving due course to Southern Crosss Petition, the Court called the case for oral argument on
18 February 2004.22 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 itsDecision is in accordance with law; and, whether
a Temporary Restraining Order is warranted.23
After the parties had filed their respective memoranda, the Courts Second Division, to which the
case
had
been
assigned,
promulgated
its Decision granting
Southern
24
Crosss Petition. The Decision was unanimous, without any separate or concurring opinion.
The Court ruled that the Court of Appeals had no jurisdiction over Philcemcors Petition, the proper
remedy under Section 29 of the SMA being a petition for review with the CTA; and that the Court of
Appeals erred in ruling that the DTI Secretary was not bound by the negative determination of the
Tariff Commission and could therefore impose the general safeguard measures, since Section 5 of
the SMA precisely required that the Tariff Commission make a positive final determination before
the DTI Secretary could impose these measures. Anent the argument that Southern Cross had
committed forum-shopping, the Court concluded that there was no evident malicious intent to
subvert procedural rules so as to match the standard under Section 5, Rule 7 of the Rules of Court
163
MAS
Taxation I
of willful and deliberate forum shopping. Accordingly, the Decision of the Court of Appeals dated 5
June 2003 was declared null and void.
The Court likewise found it necessary to nullify the Decision of the DTI Secretary dated 25 June
2003, rendered after the filing of this present Petition. This Decision by the DTI Secretary had cited
the obligatory force of the null and void Court of Appeals Decision, notwithstanding the fact that
the decision of the appellate court was not yet final and executory. Considering that the decision of
the Court of Appeals was a nullity to begin with, the inescapable conclusion was that the new
decision of the DTI Secretary, prescinding as it did from the imprimatur of the decision of the Court
of Appeals, was a nullity as well.
After the Decision was reported in the media, there was a flurry of newspaper articles citing alleged
negative reactions to the ruling by the counsel for Philcemcor, the DTI Secretary, and others.25 Both
respondents promptly filed their respective motions for reconsideration.
On 21 September 2004, the Court En Banc resolved, upon motion of respondents, to accept the
petition and resolve the Motions for Reconsideration.26 The case was then reheard27 on oral
argument on 1 March 2005. During the hearing, the Court elicited from the parties their arguments
on the two central issues as discussed in the assailed Decision, pertaining to the jurisdictional aspect
and to the substantive aspect of whether the DTI Secretary may impose a general safeguard
measure despite a negative determination by the Tariff Commission. The Court chose not to hear
argumentation on the peripheral issue of forum-shopping,28 although this question shall be tackled
herein shortly. Another point of concern emerged during oral arguments on the exercise of quasijudicial powers by the Tariff Commission, and the parties were required by the Court to discuss in
their respective memoranda whether the Tariff Commission could validly exercise quasi-judicial
powers in the exercise of its mandate under the SMA.
The Court has likewise been notified that subsequent to the rendition of the Courts Decision,
Philcemcor filed aPetition for Extension of the Safeguard Measure with the DTI, which has been
referred to the Tariff Commission.29 In an Urgent Motion dated 21 December 2004, Southern Cross
prayed that Philcemcor, the DTI, the Bureau of Customs, and the Tariff Commission be directed to
"cease and desist from taking any and all actions pursuant to or under the null and void CA Decision
and DTI Decision, including proceedings to extend the safeguard measure.30 In a Manifestation and
Motion dated 23 June 2004, the Tariff Commission informed the Court that since no prohibitory
injunction or order of such nature had been issued by any court against the Tariff Commission, the
Commission proceeded to complete its investigation on the petition for extension, pursuant to
Section 9 of the SMA, but opted to defer transmittal of its report to the DTI Secretary pending
"guidance" from this Court on the propriety of such a step considering this pending Motion for
Reconsideration. In a Resolution dated 5 July 2005, the Court directed the parties to maintain the
status quo effective of even date, and until further orders from this Court. The denial of the pending
motions for reconsideration will obviously render the pending petition for extension academic.
I. Jurisdiction of the Court of Tax Appeals
Under Section 29 of the SMA
164
MAS
Taxation I
The first core issue resolved in the assailed Decision was whether the Court of Appeals had
jurisdiction over the special civil action for certiorari filed by Philcemcor assailing the 5 April
2002 Decision of the DTI Secretary. The general jurisdiction of the Court of Appeals over special civil
actions for certiorari is beyond doubt. The Constitution itself assures that judicial review avails to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. At the same time, the
special civil action of certiorari is available only when there is no plain, speedy and adequate
remedy in the ordinary course of law.31 Philcemcors recourse of special civil action before the Court
of Appeals to challenge the Decision of the DTI Secretary not to impose the general safeguard
measures is not based on the SMA, but on the general rule on certiorari. Thus, the Court proceeded
to inquire whether indeed there was no other plain, speedy and adequate remedy in the ordinary
course of law that would warrant the allowance of Philcemcors special civil action.
The answer hinged on the proper interpretation of Section 29 of the SMA, which 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.32 (Emphasis supplied)
The matter is crucial for if the CTA properly had jurisdiction over the petition challenging the DTI
Secretarys ruling not to impose a safeguard measure, then the special civil action of certiorari
resorted to instead by Philcemcor would not avail, owing to the existence of a plain, speedy and
adequate remedy in the ordinary course of law.33The Court of Appeals, in asserting that it had
jurisdiction, merely cited the general rule on certiorari jurisdiction without bothering to refer to, or
possibly even study, the import of Section 29. In contrast, this Court duly considered the meaning
and ramifications of Section 29, concluding that it provided for a plain, speedy and adequate
remedy that Philcemcor could have resorted to instead of filing the special civil action before the
Court of Appeals.
Philcemcor still holds on to its hypothesis that the petition for review allowed under Section 29 lies
only if the DTI Secretarys ruling imposes a safeguard measure. If, on the other hand, the DTI
Secretarys ruling is not to impose a safeguard measure, judicial review under Section 29 could not
be resorted to since the provision refers to rulings "in connection with the imposition" of the
safeguard measure, as opposed to the non-imposition. Since the Decision dated 5 April 2002
resolved against imposing a safeguard measure, Philcemcor claims that the proper remedial
recourse is a petition for certiorari with the Court of Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March 2004, expressly vests unto the CTA
jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural
165
MAS
Taxation I
product, commodity or article . . . involving . . . safeguard measures under Republic Act No. 8800,
where either party may appeal the decision to impose or not to impose said duties."34 It is clear
that any future attempts to advance the literalist position of the respondents would consequently
fail. However, since Republic Act No. 9282 has no retroactive effect, this Court had to decide
whether Section 29 vests jurisdiction on the CTA over rulings of the DTI Secretary not to impose a
safeguard measure. And the Court, in its assailed Decision, ruled that the CTA is endowed with such
jurisdiction.
Both respondents reiterate their fundamentalist reading that Section 29 authorizes the petition for
review before the CTA only when the DTI Secretary decides to impose a safeguard measure, but not
when he decides not to. In doing so, they fail to address what the Court earlier pointed out would
be the absurd consequences if their interpretation is followed to its logical end. But in affirming, as
the Court now does, its previous holding that the CTA has jurisdiction over petitions for review
questioning the non-imposition of safeguard measures by the DTI Secretary, the Court relies on the
plain reading that Section 29 explicitly vests jurisdiction over such petitions on the CTA.
Under Section 29, 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." Obviously, there are
differences between "a ruling for the imposition of a safeguard measure," and one issued "in
connection with the imposition of a safeguard measure." The first adverts to a singular type of
ruling, namely one that imposes a safeguard measure. The second does not contemplate only one
kind of ruling, but a myriad of rulings issued "in connection with the imposition of a safeguard
measure."
Respondents argue that the Court has given an expansive interpretation to Section 29, contrary to
the established rule requiring strict construction against the existence of jurisdiction in specialized
courts.35 But it is the express provision of Section 29, and not this Court, that mandates CTA
jurisdiction to be broad enough to encompass more than just a ruling imposing the safeguard
measure.
The key phrase remains "in connection with." It has connotations that are obvious even to the
layman. A ruling issued "in connection with" the imposition of a safeguard measure would be one
that bears some relation to the imposition of a safeguard measure. Obviously, a ruling imposing a
safeguard measure is covered by the phrase "in connection with," but such ruling is by no means
exclusive. Rulings which modify, suspend or terminate a safeguard measure are necessarily in
connection with the imposition of a safeguard measure. So does a ruling allowing for a provisional
safeguard measure. So too, a ruling by the DTI Secretary refusing to refer the application for a
safeguard measure to the Tariff Commission. It is clear that there is an entire subset of rulings that
the DTI Secretary may issue in connection with the imposition of a safeguard measure, including
those that are provisional, interlocutory, or dispositive in character.36 By the same token, a ruling
not to impose a safeguard measure is also issued in connection with the imposition of a safeguard
measure.
166
MAS
Taxation I
In arriving at the proper interpretation of "in connection with," the Court referred to the U.S.
Supreme Court cases of Shaw v. Delta Air Lines, Inc.37 and New York State Blue Cross Plans v.
Travelers Ins.38 Both cases considered the interpretation of the phrase "relates to" as used in a
federal statute, the Employee Retirement Security Act of 1974. Respondents criticize the citations
on the premise that the cases are not binding in our jurisdiction and do not involve safeguard
measures. The criticisms are off-tangent considering that our ruling did not call for the application
of the Employee Retirement Security Act of 1974 in the Philippine milieu. The American cases are
not relied upon as precedents, but as guides of interpretation. Certainly, if there are applicable local
precedents pertaining to the interpretation of the phrase "in connection with," then these certainly
would have some binding force. But none avail, and neither do the respondents demonstrate a
countervailing holding in Philippine jurisprudence.
Yet we should consider the claim that an "expansive interpretation" was favored in Shaw because
the law in question was an employees benefit law that had to be given an interpretation favorable
to its intended beneficiaries.39 In the next breath, Philcemcor notes that the U.S. Supreme Court
itself was alarmed by the expansive interpretation in Shaw and thus in Blue Cross, the Shaw ruling
was reversed and a more restrictive interpretation was applied based on congressional intent.40
Respondents would like to make it appear that the Court acted rashly in applying a discarded
precedent in Shaw, a non-binding foreign precedent nonetheless. But the Court did make the
following observation in its Decisionpertaining to Blue Cross:
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 U.S.
Supreme Court in New York State Blue Cross Plans v. Travelers Ins.41 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.42 Thus, in the case the U.S. 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." A similar
inquiry into the other provisions of the SMA is in order to determine the scope of review
accorded therein to the CTA.43
In the next four paragraphs of the Decision, encompassing four pages, the Court proceeded to
inquire into the SMA and its objectives as a means to determine the scope of rulings to be deemed
as "in connection with the imposition of a safeguard measure." Certainly, this Court did not resort
to the broadest interpretation possible of the phrase "in connection with," but instead sought to
bring it into the context of the scope and objectives of the SMA. The ultimate conclusion of the
Court was that the phrase includes all rulings of the DTI Secretary which arise from the time an
application or motu proprio initiation for the imposition of a safeguard measure is taken.44This
conclusion was derived from the observation that the imposition of a general safeguard measure is
a process, initiated motu proprio or through application, which undergoes several stages upon
which the DTI Secretary is obliged or may be called upon to issue a ruling.
It should be emphasized again that by utilizing the phrase "in connection with," it is the SMA that
expressly vests jurisdiction on the CTA over petitions questioning the non-imposition by the DTI
Secretary of safeguard measures. The Court is simply asserting, as it should, the clear intent of the
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legislature in enacting the SMA. Without "in connection with" or a synonymous phrase, the Court
would be compelled to favor the respondents position that only rulings imposing safeguard
measures may be elevated on appeal to the CTA. But considering that the statute does make use of
the phrase, there is little sense in delving into alternate scenarios.
Respondents fail to convincingly address the absurd consequences pointed out by the Decision had
their proposed interpretation been adopted. Indeed, suffocated beneath the respondents legalistic
tinsel is the elemental questionwhat sense is there in vesting jurisdiction on the CTA over a
decision to impose a safeguard measure, but not on one choosing not to impose. Of course, it is not
for the Court to inquire into the wisdom of legislative acts, hence the rule that jurisdiction must be
expressly vested and not presumed. Yet ultimately, respondents muddle the issue by making it
appear that the Decision has uniquely expanded the jurisdictional rules. For the respondents, the
proper statutory interpretation of the crucial phrase "in connection with" is to pretend that the
phrase did not exist at all in the statute. The Court, in taking the effort to examine the meaning and
extent of the phrase, is merely giving breath to the legislative will.
The Court likewise stated that the respondents position calls for split jurisdiction, which is judicially
abhorred. In rebuttal, the public respondents cite Sections 2313 and 2402 of the Tariff and Customs
Code (TCC), which allegedly provide for a splitting of jurisdiction of the CTA. According to public
respondents, under Section 2313 of the TCC, a decision of the Commissioner of Customs affirming a
decision of the Collector of Customs adverse to the government is elevated for review to the
Secretary of Finance. However, under Section 2402 of the TCC, a ruling of the Commissioner of the
Bureau of Customs against a taxpayer must be appealed to the Court of Tax Appeals, and not to the
Secretary of Finance.
Strictly speaking, the review by the Secretary of Finance of the decision of the Commissioner of
Customs is not judicial review, since the Secretary of Finance holds an executive and not a judicial
office. The contrast is apparent with the situation in this case, wherein the interpretation favored
by the respondents calls for the exercise of judicial review by two different courts over essentially
the same questionwhether the DTI Secretary should impose general safeguard measures.
Moreover, as petitioner points out, the executive department cannot appeal against itself. The
Collector of Customs, the Commissioner of Customs and the Secretary of Finance are all part of the
executive branch. If the Collector of Customs rules against the government, the executive cannot
very well bring suit in courts against itself. On the other hand, if a private person is aggrieved by the
decision of the Collector of Customs, he can have proper recourse before the courts, which now
would be called upon to exercise judicial review over the action of the executive branch.
More fundamentally, the situation involving split review of the decision of the Collector of Customs
under the TCC is not apropos to the case at bar. The TCC in that instance is quite explicit on the
divergent reviewing body or official depending on which party prevailed at the Collector of
Customs level. On the other hand, there is no such explicit expression of bifurcated appeals in
Section 29 of the SMA.
Public respondents likewise cite Fabian v. Ombudsman45 as another instance wherein the Court
purportedly allowed split jurisdiction. It is argued that the Court, in ruling that it was the Court of
Appeals which possessed appellate authority to review decisions of the Ombudsman in
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administrative cases while the Court retaining appellate jurisdiction of decisions of the Ombudsman
in non-administrative cases, effectively sanctioned split jurisdiction between the Court and the
Court of Appeals.46
Nonetheless, this argument is successfully undercut by Southern Cross, which points out the
essential differences in the power exercised by the Ombudsman in administrative cases and nonadministrative cases relating to criminal complaints. In the former, the Ombudsman may impose an
administrative penalty, while in acting upon a criminal complaint what the Ombudsman undertakes
is a preliminary investigation. Clearly, the capacity in which the Ombudsman takes on in deciding an
administrative complaint is wholly different from that in conducting a preliminary investigation. In
contrast, in ruling upon a safeguard measure, the DTI Secretary acts in one and the same role. The
variance between an order granting or denying an application for a safeguard measure is polar
though emanating from the same equator, and does not arise from the distinct character of the
putative actions involved.
Philcemcor imputes intelligent design behind the alleged intent of Congress to limit CTA review only
to impositions of the general safeguard measures. It claims that there is a necessary tax implication
in case of an imposition of a tariff where the CTAs expertise is necessary, but there is no such tax
implication, hence no need for the assumption of jurisdiction by a specialized agency, when the
ruling rejects the imposition of a safeguard measure. But of course, whether the ruling under
review calls for the imposition or non-imposition of the safeguard measure, the common question
for resolution still is whether or not the tariff should be imposed an issue definitely fraught with
a tax dimension. The determination of the question will call upon the same kind of expertise that a
specialized body as the CTA presumably possesses.
In response to the Courts observation that the setup proposed by respondents was novel, unusual,
cumbersome and unwise, public respondents invoke the maxim that courts should not be
concerned with the wisdom and efficacy of legislation.47 But this prescinds from the bogus claim
that the CTA may not exercise judicial review over a decision not to impose a safeguard measure, a
prohibition that finds no statutory support. It is likewise settled in statutory construction that an
interpretation that would cause inconvenience and absurdity is not favored. Respondents do not
address the particular illogic that the Court pointed out would ensue if their position on judicial
review were adopted. According to the respondents, while a ruling by the DTI Secretary imposing a
safeguard measure may be elevated on review to the CTA and assailed on the ground of errors in
fact and in law, a ruling denying the imposition of safeguard measures may be assailed only on the
ground that the DTI Secretary committed grave abuse of discretion. As stressed in the Decision,
"[c]ertiorari is a remedy narrow in its scope and inflexible in its character. It is not a general utility
tool in the legal workshop."48
It is incorrect to say that the Decision bars any effective remedy should the Tariff Commission act or
conclude erroneously in making its determination whether the factual conditions exist which
necessitate the imposition of the general safeguard measure. If the Tariff Commission makes a
negative final determination, the DTI Secretary, bound as he is by this negative determination, has
to render a decision denying the application for safeguard measures citing the Tariff Commissions
findings as basis. Necessarily then, such negative determination of the Tariff Commission being an
integral part of the DTI Secretarys ruling would be open for review before the CTA, which again is
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especially qualified by reason of its expertise to examine the findings of the Tariff Commission.
Moreover, considering that the Tariff Commission is an instrumentality of the government, its
actions (as opposed to those undertaken by the DTI Secretary under the SMA) are not beyond the
pale of certiorari jurisdiction. Unfortunately for Philcemcor, it hinged its cause on the claim that the
DTI Secretarys actions may be annulled on certiorari, notwithstanding the explicit grant of judicial
review over that cabinet members actions under the SMA to the CTA.
Finally on this point, Philcemcor argues that assuming this Courts interpretation of Section 29 is
correct, such ruling should not be given retroactive effect, otherwise, a gross violation of the right
to due process would be had. This erroneously presumes that it was this Court, and not Congress,
which vested jurisdiction on the CTA over rulings of non-imposition rendered by the DTI Secretary.
We have repeatedly stressed that Section 29 expressly confers CTA jurisdiction over rulings in
connection with the imposition of the safeguard measure, and the reassertion of this point in
the Decision was a matter of emphasis, not of contrivance. The due process protection does not
shield those who remain purposely blind to the express rules that ensure the sporting play of
procedural law.
Besides, respondents claim would also apply every time this Court is compelled to settle a novel
question of law, or to reverse precedent. In such cases, there would always be litigants whose
causes of action might be vitiated by the application of newly formulated judicial doctrines.
Adopting their claim would unwisely force this Court to treat its dispositions in unprecedented,
sometimes landmark decisions not as resolutions to the live cases or controversies, but as legal
doctrine applicable only to future litigations.
II. Positive Final Determination
By the Tariff Commission an
Indispensable Requisite to the
Imposition of General Safeguard Measures
The second core ruling in the Decision was that contrary to the holding of the Court of Appeals, the
DTI Secretary was barred from imposing a general safeguard measure absent a positive final
determination rendered by the Tariff Commission. The fundamental premise rooted in this ruling is
based on the acknowledgment that the required positive final determination of the Tariff
Commission exists as a properly enacted constitutional limitation imposed on the delegation of the
legislative power to impose tariffs and imposts to the President under Section 28(2), Article VI of
the Constitution.
Congressional Limitations Pursuant
To Constitutional Authority on the
Delegated Power to Impose
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Safeguard Measures
The safeguard measures imposable under the SMA generally involve duties on imported products,
tariff rate quotas, or quantitative restrictions on the importation of a product into the country.
Concerning as they do the foreign importation of products into the Philippines, these safeguard
measures fall within the ambit of Section 28(2), Article VI of the Constitution, which states:
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.49
The Court acknowledges the basic postulates ingrained in the provision, and, hence, governing in
this case. They are:
(1) It is Congress which authorizes the President to impose tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot come from
the Finance Department, the National Economic Development Authority, or the World Trade
Organization, no matter how insistent or persistent these bodies may be.
(2) The authorization granted to the President must be embodied in a law. Hence, the justification
cannot be supplied simply by inherent executive powers. It cannot arise from administrative or
executive orders promulgated by the executive branch or from the wisdom or whim of the
President.
(3) The authorization to the President can be exercised only within the specified limits set in the
law and is further subject to limitations and restrictions which Congress may
impose. Consequently, if Congress specifies that the tariff rates should not exceed a given amount,
the President cannot impose a tariff rate that exceeds such amount. If Congress stipulates that no
duties may be imposed on the importation of corn, the President cannot impose duties on corn, no
matter how actively the local corn producers lobby the President. Even the most picayune of limits
or restrictions imposed by Congress must be observed by the President.
There is one fundamental principle that animates these constitutional postulates. These
impositions under Section 28(2), Article VI fall within the realm of the power of taxation, a power
which is within the sole province of the legislature under the Constitution.
Without Section 28(2), Article VI, the executive branch has no authority to impose tariffs and
other similar tax levies involving the importation of foreign goods. Assuming that Section 28(2)
Article VI did not exist, the enactment of the SMA by Congress would be voided on the ground that
it would constitute an undue delegation of the legislative power to tax. The constitutional provision
shields such delegation from constitutional infirmity, and should be recognized as an exceptional
grant of legislative power to the President, rather than the affirmation of an inherent executive
power.
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This being the case, the qualifiers mandated by the Constitution on this presidential authority attain
primordial consideration. First, there must be a law, such as the SMA. Second, there must be
specified limits, a detail which would be filled in by the law. And further, Congress is further
empowered to impose limitations and restrictions on this presidential authority. On this last power,
the provision does not provide for specified conditions, such as that the limitations and restrictions
must conform to prior statutes, internationally accepted practices, accepted jurisprudence, or the
considered opinion of members of the executive branch.
The Court recognizes that the authority delegated to the President under Section 28(2), Article VI
may be exercised, in accordance with legislative sanction, by the alter egos of the President, such as
department secretaries. Indeed, for purposes of the Presidents exercise of power to impose tariffs
under Article VI, Section 28(2), it is generally the Secretary of Finance who acts as alter ego of the
President. The SMA provides an exceptional instance wherein it is the DTI or Agriculture Secretary
who is tasked by Congress, in their capacities as alter egos of the President, to impose such
measures. Certainly, the DTI Secretary has no inherent power, even as alter ego of the President, to
levy tariffs and imports.
Concurrently, the tasking of the Tariff Commission under the SMA should be likewise construed
within the same context as part and parcel of the legislative delegation of its inherent power to
impose tariffs and imposts to the executive branch, subject to limitations and restrictions. In that
regard, both the Tariff Commission and the DTI Secretary may be regarded as agents of Congress
within their limited respective spheres, as ordained in the SMA, in the implementation of the said
law which significantly draws its strength from the plenary legislative power of taxation. Indeed,
even the President may be considered as an agent of Congress for the purpose of imposing
safeguard measures. It is Congress, not the President, which possesses inherent powers to
impose tariffs and imposts. Without legislative authorization through statute, the President has
no power, authority or right to impose such safeguard measures because taxation is inherently
legislative, not executive.
When Congress tasks the President or his/her alter egos to impose safeguard measures under the
delineated conditions, the President or the alter egos may be properly deemed as agents of
Congress to perform an act that inherently belongs as a matter of right to the legislature. It is
basic agency law that the agent may not act beyond the specifically delegated powers or disregard
the restrictions imposed by the principal. In short, Congress may establish the procedural
framework under which such safeguard measures may be imposed, and assign the various offices in
the government bureaucracy respective tasks pursuant to the imposition of such measures, the task
assignment including the factual determination of whether the necessary conditions exists to
warrant such impositions. Under the SMA, Congress assigned the DTI Secretary and the Tariff
Commission their respective functions50 in the legislatures scheme of things.
There is only one viable ground for challenging the legality of the limitations and restrictions
imposed by Congress under Section 28(2) Article VI, and that is such limitations and restrictions are
themselves violative of the Constitution. Thus, no matter how distasteful or noxious these
limitations and restrictions may seem, the Court has no choice but to uphold their validity unless
their constitutional infirmity can be demonstrated.
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What are these limitations and restrictions that are material to the present case? The entire SMA
provides for a limited framework under which the President, through the DTI and Agriculture
Secretaries, may impose safeguard measures in the form of tariffs and similar imposts. The
limitation most relevant to this case is contained in Section 5 of the SMA, captioned "Conditions for
the Application of General Safeguard Measures," and stating:
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 non-agricultural products,
the Secretary shall first establish that the application of such safeguard measures will be in the
public interest.51
Positive Final Determination
By Tariff Commission Plainly
Required by Section 5 of SMA
There is no question that Section 5 of the SMA operates as a limitation validly imposed by Congress
on the presidential52 authority under the SMA to impose tariffs and imposts. That the positive final
determination operates as an indispensable requisite to the imposition of the safeguard measure,
and that it is the Tariff Commission which makes such determination, are legal propositions plainly
expressed in Section 5 for the easy comprehension for everyone but respondents.
Philcemcor attributes this Courts conclusion on the indispensability of the positive final
determination to flawed syllogism in that we read the proposition "if A then B" as if it stated "if A,
and only A, then B."53 Translated in practical terms, our conclusion, according to Philcemcor, would
have only been justified had Section 5 read "shall apply a general safeguard measure upon, and only
upon, a positive final determination of the Tariff Commission."
Statutes are not designed for the easy comprehension of the five-year old child. Certainly, general
propositions laid down in statutes need not be expressly qualified by clauses denoting exclusivity in
order that they gain efficacy. Indeed, applying this argument, the President would, under the
Constitution, be authorized to declare martial law despite the absence of the invasion, rebellion or
public safety requirement just because the first paragraph of Section 18, Article VII fails to state the
magic word "only."54
But let us for the nonce pursue Philcemcors logic further. It claims that since Section 5 does not
allegedly limit the circumstances upon which the DTI Secretary may impose general safeguard
measures, it is a worthy pursuit to determine whether the entire context of the SMA, as discerned
by all the other familiar indicators of legislative intent supplied by norms of statutory interpretation,
would justify safeguard measures absent a positive final determination by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly not being as clear as it sounds. It is
advanced that Section 5 does not relate to the legal ability of either the Tariff Commission or the
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DTI Secretary to bind or foreclose review and reversal by one or the other. Such relationship should
instead be governed by domestic administrative law and remedial law. Philcemcor thus would like
to cast the proposition in this manner: Does it run contrary to our legal order to assert, as the Court
did in its Decision, that a body of relative junior competence as the Tariff Commission can bind an
administrative superior and cabinet officer, the DTI Secretary? It is easy to see why Philcemcor
would like to divorce this DTI Secretary-Tariff Commission interaction from the confines of the SMA.
Shorn of context, the notion would seem radical and unjustifiable that the lowly Tariff Commission
can bind the hands and feet of the DTI Secretary.
It can be surmised at once that respondents preferred interpretation is based not on the express
language of the SMA, but from implications derived in a roundabout manner. Certainly, no
provision in the SMA expressly authorizes the DTI Secretary to impose a general safeguard measure
despite the absence of a positive final recommendation of the Tariff Commission. On the other
hand, Section 5 expressly states that the DTI Secretary "shall apply a general safeguard measure
upon a positive final determination of the [Tariff] Commission." The causal connection in Section 5
between the imposition by the DTI Secretary of the general safeguard measure and the positive
final determination of the Tariff Commission is patent, and even respondents do not dispute such
connection.
As stated earlier, the Court in its Decision found Section 5 to be clear, plain and free from ambiguity
so as to render unnecessary resort to the congressional records to ascertain legislative intent. Yet
respondents, on the dubitable premise that Section 5 is not as express as it seems, again latch on to
the record of legislative deliberations in asserting that there was no legislative intent to bar the DTI
Secretary from imposing the general safeguard measure anyway despite the absence of a positive
final determination by the Tariff Commission.
Let us take the bait for a moment, and examine respondents commonly cited portion of the
legislative record. One would presume, given the intense advocacy for the efficacy of these
citations, that they contain a "smoking gun" express declarations from the legislators that the DTI
Secretary may impose a general safeguard measure even if the Tariff Commission refuses to render
a positive final determination. Such "smoking gun," if it exists, would characterize our Decision as
disingenuous for ignoring such contrary expression of intent from the legislators who enacted the
SMA. But as with many things, the anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the interpellation of the late Congressman
Marcial Punzalan Jr., by then (and still is) Congressman Simeon Datumanong.55 Nowhere in these
records is the view expressed that the DTI Secretary may impose the general safeguard measures if
the Tariff Commission issues a negative final determination or otherwise is unable to make a
positive final determination. Instead, respondents hitch on the observations of Congressman
Punzalan Jr., that "the results of the [Tariff] Commissions findings . . . is subsequently submitted to
[the DTI Secretary] for the [DTI Secretary] to impose or not to impose;" and that "the [DTI
Secretary] here iswho would make the final decision on the recommendation that is made by a
more technical body [such as the Tariff Commission]."56
There is nothing in the remarks of Congressman Punzalan which contradict our Decision. His
observations fall in accord with the respective roles of the Tariff Commission and the DTI Secretary
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under the SMA. Under the SMA, it is the Tariff Commission that conducts an investigation as to
whether the conditions exist to warrant the imposition of the safeguard measures. These conditions
are enumerated in Section 5, namely; 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. After the investigation of the Tariff
Commission, it submits a report to the DTI Secretary which states, among others, whether the
above-stated conditions for the imposition of the general safeguard measures exist. Upon a positive
final determination that these conditions are present, the Tariff Commission then is mandated to
recommend what appropriate safeguard measures should be undertaken by the DTI Secretary.
Section 13 of the SMA gives five (5) specific options on the type of safeguard measures the Tariff
Commission recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges 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
Commissions recommendation on the appropriate safeguard measure upon its positive final
determination. Thus, even if the Tariff Commission makes a positive final determination, the DTI
Secretary may opt not to impose a general safeguard measure, or choose a different type of
safeguard measure other than that recommended by the Tariff Commission.
Congressman Punzalan was cited as saying that the DTI Secretary makes the decision "to impose or
not to impose," which is correct since the DTI Secretary may choose not to impose a safeguard
measure in spite of a positive final determination by the Tariff Commission. Congressman Punzalan
also correctly stated that it is the DTI Secretary who makes the final decision "on the
recommendation that is made [by the Tariff Commission]," since the DTI Secretary may choose to
impose a general safeguard measure different from that recommended by the Tariff Commission or
not to impose a safeguard measure at all. Nowhere in these cited deliberations was Congressman
Punzalan, or any other member of Congress for that matter, quoted as saying that the DTI Secretary
may ignore a negative determination by the Tariff Commission as to the existence of the conditions
warranting the imposition of general safeguard measures, and thereafter proceed to impose these
measures nonetheless. It is too late in the day to ascertain from the late Congressman Punzalan
himself whether he had made these remarks in order to assure the other legislators that the DTI
Secretary may impose the general safeguard measures notwithstanding a negative determination
by the Tariff Commission. But certainly, the language of Section 5 is more resolutory to that
question than the recorded remarks of Congressman Punzalan.
Respondents employed considerable effort to becloud Section 5 with undeserved ambiguity in
order that a proper resort to the legislative deliberations may be had. Yet assuming that Section 5
deserves to be clarified through an inquiry into the legislative record, the excerpts cited by the
respondents are far more ambiguous than the language of the assailed provision regarding the key
question of whether the DTI Secretary may impose safeguard measures in the face of a negative
determination by the Tariff Commission. Moreover, even Southern Cross counters with its own
excerpts of the legislative record in support of their own view.57
It will not be difficult, especially as to heavily-debated legislation, for two sides with contrapuntal
interpretations of a statute to highlight their respective citations from the legislative debate in
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support of their particular views.58 A futile exercise of second-guessing is happily avoided if the
meaning of the statute is clear on its face. It is evident from the text of Section 5 that 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. Any disputation to the
contrary is, at best, the product of wishful thinking.
For the same reason that Section 5 is explicit as regards the essentiality of a positive final
determination by the Tariff Commission, there is no need to refer to the Implementing Rules of the
SMA to ascertain a contrary intent. If there is indeed a provision in the Implementing Rules that
allows the DTI Secretary to impose a general safeguard measure even without the positive final
determination by the Tariff Commission, said rule is void as it cannot supplant the express language
of the legislature. Respondents essentially rehash their previous arguments on this point, and there
is no reason to consider them anew. The Decision made it clear that nothing in Rule 13.2 of the
Implementing Rules, even though captioned "Final Determination by the Secretary," authorizes the
DTI Secretary to impose a general safeguard measure in the absence of a positive final
determination by the Tariff Commission.59 Similarly, the "Rules and Regulations to Govern the
Conduct of Investigation by the Tariff Commission Pursuant to Republic Act No. 8800" now cited by
the respondent does not contain any provision that the DTI Secretary may impose the general
safeguard measures in the absence of a positive final determination by the Tariff Commission.
Section 13 of the SMA further bolsters the interpretation as argued by Southern Cross and upheld
by theDecision. The first paragraph thereof states that "[u]pon its positive determination, the
[Tariff] Commission shall recommend to the Secretary an appropriate definitive measure", clearly
referring to the Tariff Commission as the entity that makes the positive determination. On the other
hand, the penultimate paragraph of the same provision states that "[i]n the event of a negative final
determination", the DTI Secretary is to immediately issue through the Secretary of Finance, a
written instruction to the Commissioner of Customs authorizing the return of the cash bonds
previously collected as a provisional safeguard measure. Since the first paragraph of the same
provision states that it is the Tariff Commission which makes the positive determination, it
necessarily follows that it, and not the DTI Secretary, makes the negative final determination as
referred to in the penultimate paragraph of Section 13.60
The Separate Opinion considers as highly persuasive of former Tariff Commission Chairman Abon,
who stated that the Commissions findings are merely recommendatory.61 Again, the considered
opinion of Chairman Abon is of no operative effect if the statute plainly states otherwise, and
Section 5 bluntly does require a positive final determination by the Tariff Commission before the
DTI Secretary may impose a general safeguard measure.62Certainly, the Court cannot give
controlling effect to the statements of any public officer in serious denial of his duties if the law
otherwise imposes the duty on the public office or officer.
Nonetheless, if we are to render persuasive effect on the considered opinion of the members of the
Executive Branch, it bears noting that the Secretary of the Department of Justice rendered an
Opinion wherein he concluded that the DTI Secretary could not impose a general safeguard
measure if the Tariff Commission made a negative final determination.63 Unlike Chairman Abons
impromptu remarks made during a hearing, the DOJ Opinion was rendered only after a thorough
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study of the question after referral to it by the DTI. The DOJ Secretary is the alter ego of the
President with a stated mandate as the head of the principal law agency of the government. 64 As
the DOJ Secretary has no denominated role in the SMA, he was able to render his Opinion from the
vantage of judicious distance. Should not his Opinion, studied and direct to the point as it is, carry
greater weight than the spontaneous remarks of the Tariff Commissions Chairman which do not
even expressly disavow the binding power of the Commissions positive final determination?
III. DTI Secretary has No Power of Review
Over Final Determination of the Tariff Commission
We should reemphasize that it is only because of the SMA, a legislative enactment, that the
executive branch has the power to impose safeguard measures. At the same time, by constitutional
fiat, the exercise of such power is subjected to the limitations and restrictions similarly enforced by
the SMA. In examining the relationship of the DTI and the Tariff Commission as established in the
SMA, it is essential to acknowledge and consider these predicates.
It is necessary to clarify the paradigm established by the SMA and affirmed by the Constitution
under which the Tariff Commission and the DTI operate, especially in light of the suggestions that
the Courts rulings on the functions of quasi-judicial power find application in this case. Perhaps the
reflexive application of the quasi-judicial doctrine in this case, rooted as it is in jurisprudence, might
allow for some convenience in ruling, yet doing so ultimately betrays ignorance of the fundamental
power of Congress to reorganize the administrative structure of governance in ways it sees fit.
The Separate Opinion operates from wholly different premises which are incomplete. Its main
stance, similar to that of respondents, is that the DTI Secretary, acting as alter ego of the President,
may modify and alter the findings of the Tariff Commission, including the latters negative final
determination by substituting it with his own negative final determination to pave the way for his
imposition of a safeguard measure.65 Fatally, this conclusion is arrived at without considering the
fundamental constitutional precept under Section 28(2), Article VI, on the ability of Congress to
impose restrictions and limitations in its delegation to the President to impose tariffs and imposts,
as well as the express condition of Section 5 of the SMA requiring a positive final determination of
the Tariff Commission.
Absent Section 5 of the SMA, the President has no inherent, constitutional, or statutory power to
impose a general safeguard measure. Tellingly, the Separate Opinion does not directly confront the
inevitable question as to how the DTI Secretary may get away with imposing a general safeguard
measure absent a positive final determination from the Tariff Commission without violating Section
5 of the SMA, which along with Section 13 of the same law, stands as the only direct legal authority
for the DTI Secretary to impose such measures. This is a constitutionally guaranteed limitation of
the highest order, considering that the presidential authority exercised under the SMA is inherently
legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether the DTI Secretary, acting
either as alter ego of the President or in his capacity as head of an executive department, may
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review, modify or otherwise alter the final determination of the Tariff Commission under the SMA.
The succeeding discussion shall focus on that question.
Preliminarily, we should note that none of the parties question the designation of the DTI or
Agriculture secretaries under the SMA as the imposing authorities of the safeguard measures, even
though Section 28(2) Article VI states that it is the President to whom the power to impose tariffs
and imposts may be delegated by Congress. The validity of such designation under the SMA should
not be in doubt. We recognize that the authorization made by Congress in the SMA to the DTI and
Agriculture Secretaries was made in contemplation of their capacities asalter egos of the President.
Indeed, in Marc Donnelly & Associates v. Agregado66 the Court upheld the validity of a Cabinet
resolution fixing the schedule of royalty rates on metal exports and providing for their collection
even though Congress, under Commonwealth Act No. 728, had specifically empowered the
President and not any other official of the executive branch, to regulate and curtail the export of
metals. In so ruling, the Court held that the members of the Cabinet were acting as alter egos of the
President.67 In this case, Congress itself authorized the DTI Secretary as alter ego of the President to
impose the safeguard measures. If the Court was previously willing to uphold the alter egos tariff
authority despite the absence of explicit legislative grant of such authority on the alter ego, all the
more reason now when Congress itself expressly authorized the alter ego to exercise these powers
to impose safeguard measures.
Notwithstanding, Congress in enacting the SMA and prescribing the roles to be played therein by
the Tariff Commission and the DTI Secretary did not envision that the President, or his/her alter
ego, could exercise supervisory powers over the Tariff Commission. If truly Congress intended to
allow the traditional "alter ego" principle to come to fore in the peculiar setup established by the
SMA, it would have assigned the role now played by the DTI Secretary under the law instead to the
NEDA. The Tariff Commission is an attached agency of the National Economic Development
Authority,68 which in turn is the independent planning agency of the government.69
The Tariff Commission does not fall under the administrative supervision of the DTI.70 On the other
hand, the administrative relationship between the NEDA and the Tariff Commission is established
not only by the Administrative Code, but similarly affirmed by the Tariff and Customs Code.
Justice Florentino Feliciano, in his ponencia in Garcia v. Executive Secretary71, acknowledged the
interplay between the NEDA and the Tariff Commission under the Tariff and Customs Code when he
cited the relevant provisions of that law evidencing such setup. Indeed, under Section 104 of the
Tariff and Customs Code, the rates of duty fixed therein are subject to periodic investigation by the
Tariff Commission and may be revised by the President upon recommendation of the
NEDA.72 Moreover, under Section 401 of the same law, it is upon periodic investigations by the
Tariff Commission and recommendation of the NEDA that the President may cause a gradual
reduction of protection levels granted under the law.73
At the same time, under the Tariff and Customs Code, no similar role or influence is allocated to the
DTI in the matter of imposing tariff duties. In fact, the long-standing tradition has been for the Tariff
Commission and the DTI to proceed independently in the exercise of their respective functions.
Only very recently have our statutes directed any significant interplay between the Tariff
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Commission and the DTI, with the enactment in 1999 of Republic Act No. 8751 on the imposition of
countervailing duties and Republic Act No. 8752 on the imposition of anti-dumping duties, and of
course the promulgation a year later of the SMA. In all these three laws, the Tariff Commission is
tasked, upon referral of the matter by the DTI, to determine whether the factual conditions exist to
warrant the imposition by the DTI of a countervailing duty, an anti-dumping duty, or a general
safeguard measure, respectively. In all three laws, the determination by the Tariff Commission that
these required factual conditions exist is necessary before the DTI Secretary may impose the
corresponding duty or safeguard measure. And in all three laws, there is no express provision
authorizing the DTI Secretary to reverse the factual determination of the Tariff Commission.74
In fact, the SMA indubitably establishes that the Tariff Commission is no mere flunky of the DTI
Secretary when it mandates that the positive final recommendation of the former be indispensable
to the latters imposition of a general safeguard measure. What the law indicates instead is a
relationship of interdependence between two bodies independent of each other under the
Administrative Code and the SMA alike. Indeed, even the ability of the DTI Secretary to disregard
the Tariff Commissions recommendations as to the particular safeguard measures to be imposed
evinces the independence from each other of these two bodies. This is properly so for two reasons
the DTI and the Tariff Commission are independent of each other under the Administrative Code;
and impropriety is avoided in cases wherein the DTI itself is the one seeking the imposition of the
general safeguard measures, pursuant to Section 6 of the SMA.
Thus, in ascertaining the appropriate legal milieu governing the relationship between the DTI and
the Tariff Commission, it is imperative to apply foremost, if not exclusively, the provisions of the
SMA. The argument that the usual rules on administrative control and supervision apply between
the Tariff Commission and the DTI as regards safeguard measures is severely undercut by the plain
fact that there is no long-standing tradition of administrative interplay between these two entities.
Within the administrative apparatus, the Tariff Commission appears to be a lower rank relative to
the DTI. But does this necessarily mean that the DTI has the intrinsic right, absent statutory
authority, to reverse the findings of the Tariff Commission? To insist that it does, one would have to
concede for instance that, applying the same doctrinal guide, the Secretary of the Department of
Science and Technology (DOST) has the right to reverse the rulings of the Civil Aeronautics Board
(CAB) or the issuances of the Philippine Coconut Authority (PCA). As with the Tariff Commission-DTI,
there is no statutory authority granting the DOST Secretary the right to overrule the CAB or the
PCA, such right presumably arising only from the position of subordinacy of these bodies to the
DOST. To insist on such a right would be to invite department secretaries to interfere in the exercise
of functions by administrative agencies, even in areas wherein such secretaries are bereft of
specialized competencies.
The Separate Opinion notes that notwithstanding above, the Secretary of Department of
Transportation and Communication may review the findings of the CAB, the Agriculture Secretary
may review those of the PCA, and that the Secretary of the Department of Environment and Natural
Resources may pass upon decisions of the Mines and Geosciences Board.75 These three officers may
be alter egos of the President, yet their authority to review is limited to those agencies or bureaus
which are, pursuant to statutes such as the Administrative Code of 1987, under the administrative
control and supervision of their respective departments. Thus, under the express provision of the
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Administrative Code expressly provides that the CAB is an attached agency of the DOTC 76, and that
the PCA is an attached agency of the Department of Agriculture.77 The same law establishes the
Mines and Geo-Sciences Bureau as one of the Sectoral Staff Bureaus78 that forms part of the
organizational structure of the DENR.79
As repeatedly stated, the Tariff Commission does not fall under the administrative control of the
DTI, but under the NEDA, pursuant to the Administrative Code. The reliance made by the Separate
Opinion to those three examples are thus misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created a functional relationship between
the Tariff Commission and the DTI Secretary, sufficient to allow the DTI Secretary to exercise alter
ego powers to reverse the determination of the Tariff Commission. Again, considering that the
power to impose tariffs in the first place is not inherent in the President but arises only from
congressional grant, we should affirm the congressional prerogative to impose limitations and
restrictions on such powers which do not normally belong to the executive in the first place.
Nowhere in the SMA does it state that the DTI Secretary may impose general safeguard measures
without a positive final determination by the Tariff Commission, or that the DTI Secretary may
reverse or even review the factual determination made by the Tariff Commission.
Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff
Commission and the DTI Secretary did not envision that the President, or his/her alter ego could
exercise supervisory powers over the Tariff Commission. If truly Congress intended to allow the
traditional alter ego principle to come to fore in the peculiar setup established by the SMA, it would
have assigned the role now played by the DTI Secretary under the law instead to the NEDA, the
body to which the Tariff Commission is attached under the Administrative Code.
The Court has no issue with upholding administrative control and supervision exercised by the head
of an executive department, but only over those subordinate offices that are attached to the
department, or which are, under statute, relegated under its supervision and control. To declare
that a department secretary, even if acting as alter ego of the President, may exercise such control
or supervision over all executive offices below cabinet rank would lead to absurd results such as
those adverted to above. As applied to this case, there is no legal justification for the DTI Secretary
to exercise control, supervision, review or amendatory powers over the Tariff Commission and its
positive final determination. In passing, we note that there is, admittedly, a feasible mode by which
administrative review of the Tariff Commissions final determination could be had, but it is not the
procedure adopted by respondents and now suggested for affirmation. This mode shall be
discussed in a forthcoming section.
The Separate Opinion asserts that the President, or his/her alter ego cannot be made a mere rubber
stamp of the Tariff Commission since Section 17, Article VII of the Constitution denominates the
Chief Executive exercises control over all executive departments, bureaus and offices.80 But let us be
clear that such "executive control" is not absolute. The definition of the structure of the executive
branch of government, and the corresponding degrees of administrative control and supervision, is
not the exclusive preserve of the executive. It may be effectively be limited by the Constitution, by
law, or by judicial decisions.
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The Separate Opinion cites the respected constitutional law authority Fr. Joaquin Bernas, in support
of the proposition that such plenary power of executive control of the President cannot be
restricted by a mere statute passed by Congress. However, the cited passage from Fr. Bernas
actually states, "Since the Constitution has given the President the power of control, with all its
awesome implications, it is the Constitution alone which can curtail such power."81 Does the
President have such tariff powers under the Constitution in the first place which may be curtailed
by the executive power of control? At the risk of redundancy, we quote Section 28(2), Article VI:
"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." Clearly the power to impose tariffs belongs to Congress and not to
the President.
It is within reason to assume the framers of the Constitution deemed it too onerous to spell out all
the possible limitations and restrictions on this presidential authority to impose tariffs. Hence, the
Constitution especially allowed Congress itself to prescribe such limitations and restrictions itself, a
prudent move considering that such authority inherently belongs to Congress and not the
President. Since Congress has no power to amend the Constitution, it should be taken to mean that
such limitations and restrictions should be provided "by mere statute". Then again, even the
presidential authority to impose tariffs arises only "by mere statute." Indeed, this presidential
privilege is both contingent in nature and legislative in origin. These characteristics, when
weighed against the aspect of executive control and supervision, cannot militate against
Congresss exercise of its inherent power to tax.
The bare fact is that the administrative superstructure, for all its unwieldiness, is mere putty in the
hands of Congress. The functions and mandates of the particular executive departments and
bureaus are not created by the President, but by the legislative branch through the Administrative
Code. 82 The President is the administrative head of the executive department, as such obliged to
see that every government office is managed and maintained properly by the persons in charge of it
in accordance with pertinent laws and regulations, and empowered to promulgate rules and
issuances that would ensure a more efficient management of the executive branch, for so long as
such issuances are not contrary to law.83 Yet the legislature has the concurrent power to reclassify
or redefine the executive bureaucracy, including the relationship between various administrative
agencies, bureaus and departments, and ultimately, even the power to abolish executive
departments and their components, hamstrung only by constitutional limitations. The DTI itself can
be abolished with ease by Congress through deleting Title X, Book IV of the Administrative Code.
The Tariff Commission can similarly be abolished through legislative enactment. 84
At the same time, Congress can enact additional tasks or responsibilities on either the Tariff
Commission or the DTI Secretary, such as their respective roles on the imposition of general
safeguard measures under the SMA. In doing so, the same Congress, which has the putative
authority to abolish the Tariff Commission or the DTI, is similarly empowered to alter or expand
its functions through modalities which do not align with established norms in the bureaucratic
structure. The Court is bound to recognize the legislative prerogative to prescribe such modalities,
no matter how atypical they may be, in affirmation of the legislative power to restructure the
executive branch of government.
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There are further limitations on the "executive control" adverted to by the Separate Opinion. The
President, in the exercise of executive control, cannot order a subordinate to disobey a final
decision of this Court or any courts. If the subordinate chooses to disobey, invoking sole allegiance
to the President, the judicial processes can be utilized to compel obeisance. Indeed, when public
officers of the executive department take their oath of office, they swear allegiance and obedience
not to the President, but to the Constitution and the laws of the land. The invocation of executive
control must yield when under its subsumption includes an act that violates the law.
The Separate Opinion concedes that the exercise of executive control and supervision by the
President is bound by the Constitution and law.85 Still, just three sentences after asserting that the
exercise of executive control must be within the bounds of the Constitution and law, the Separate
Opinion asserts, "the control power of the Chief Executive emanates from the Constitution; no act
of Congress may validly curtail it."86 Laws are acts of Congress, hence valid confusion arises whether
the Separate Opinion truly believes the first proposition that executive control is bound by law. This
is a quagmire for the Separate Opinion to resolve for itself
The Separate Opinion unduly considers executive control as the ne plus ultra constitutional
standard which must govern in this case. But while the President may generally have the power to
control, modify or set aside the actions of a subordinate, such powers may be constricted by the
Constitution, the legislature, and the judiciary. This is one of the essences of the check-and-balance
system in our tri-partite constitutional democracy. Not one head of a branch of government may
operate as a Caesar within his/her particular fiefdom.
Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the
Constitution and the general executive power of control and supervision, the former prevails in the
specific instance of safeguard measures such as tariffs and imposts, and would thus serve to qualify
the general grant to the President of the power to exercise control and supervision over his/her
subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary is "bound" by the Tariff Commission
in the sense the former cannot impose general safeguard measures absent a final positive
determination from the latter the Court is obliged to respect such legislative prerogative, no matter
how such arrangement deviates from traditional norms as may have been enshrined in
jurisprudence. The only ground under which such legislative determination as expressed in statute
may be successfully challenged is if such legislation contravenes the Constitution. No such argument
is posed by the respondents, who do not challenge the validity or constitutionality of the SMA.
Given these premises, it is utterly reckless to examine the interrelationship between the Tariff
Commission and the DTI Secretary beyond the context of the SMA, applying instead traditional
precepts on administrative control, review and supervision. For that reason, the Decision deemed
inapplicable respondents previous citations ofCario v. Commissioner on Human Rights and Lamb
v. Phipps, since the executive power adverted to in those cases had not been limited by
constitutional restrictions such as those imposed under Section 28(2), Article VI.87
A similar observation can be made on the case of Sharp International Marketing v. Court of
Appeals,88 now cited by Philcemcor, wherein the Court asserted that the Land Bank of the
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Philippines was required to exercise independent judgment and not merely rubber-stamp deeds of
sale entered into by the Department of Agrarian Reform in connection with the agrarian reform
program. Philcemcor attempts to demonstrate that the DTI Secretary, as with the Land Bank of the
Philippines, is required to exercise independent discretion and is not expected to just merely accede
to DAR-approved compensation packages. Yet again, such grant of independent discretion is
expressly called for by statute, particularly Section 18 of Rep. Act No. 6657 which specifically
requires the joint concurrence of "the landowner and the DAR and the [Land Bank of the
Philippines]" on the amount of compensation. Such power of review by the Land Bank is a
consequence of clear statutory language, as is our holding in the Decision that Section 5 explicitly
requires a positive final determination by the Tariff Commission before a general safeguard
measure may be imposed. Moreover, such limitations under the SMA are coated by the
constitutional authority of Section 28(2), Article VI of the Constitution.
Nonetheless, is this administrative setup, as envisioned by Congress and enshrined into the SMA,
truly noxious to existing legal standards? The Decision acknowledged the internal logic of the
statutory framework, considering that the DTI cannot exercise review powers over an agency such
as the Tariff Commission which is not within its administrative jurisdiction; that the mechanism
employed establishes a measure of check and balance involving two government offices with
different specializations; and that safeguard measures are the exception rather than the rule,
pursuant to our treaty obligations.89
We see no reason to deviate from these observations, and indeed can add similarly oriented
comments. Corollary to the legislative power to decree policies through legislation is the ability of
the legislature to provide for means in the statute itself to ensure that the said policy is strictly
implemented by the body or office tasked so tasked with the duty. As earlier stated, our treaty
obligations dissuade the State for now from implementing default protectionist trade measures
such as tariffs, and allow the same only under specified conditions.90The conditions enumerated
under the GATT Agreement on Safeguards for the application of safeguard measures by a member
country are the same as the requisites laid down in Section 5 of the SMA.91 To insulate the factual
determination from political pressure, and to assure that it be conducted by an entity especially
qualified by reason of its general functions to undertake such investigation, Congress deemed it
necessary to delegate to the Tariff Commission the function of ascertaining whether or not the
those factual conditions exist to warrant the atypical imposition of safeguard measures. After all,
the Tariff Commission retains a degree of relative independence by virtue of its attachment to the
National Economic Development Authority, "an independent planning agency of the
government,"92 and also owing to its vaunted expertise and specialization.
The matter of imposing a safeguard measure almost always involves not just one industry, but the
national interest as it encompasses other industries as well. Yet in all candor, any decision to
impose a safeguard measure is susceptible to all sorts of external pressures, especially if the
domestic industry concerned is well-organized. Unwarranted impositions of safeguard measures
may similarly be detrimental to the national interest. Congress could not be blamed if it desired to
insulate the investigatory process by assigning it to a body with a putative degree of independence
and traditional expertise in ascertaining factual conditions. Affected industries would have cause to
lobby for or against the safeguard measures. The decision-maker is in the unenviable position of
having to bend an ear to listen to all concerned voices, including those which may speak softly but
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carry a big stick. Had the law mandated that the decision be made on the sole discretion of an
executive officer, such as the DTI Secretary, it would be markedly easier for safeguard measures to
be imposed or withheld based solely on political considerations and not on the factual conditions
that are supposed to predicate the decision.
Reference of the binding positive final determination to the Tariff Commission is of course, not a
fail-safe means to ensure a bias-free determination. But at least the legislated involvement of the
Commission in the process assures some measure of measure of check and balance involving two
different governmental agencies with disparate specializations. There is no legal or constitutional
demand for such a setup, but its wisdom as policy should be acknowledged. As prescribed by
Congress, both the Tariff Commission and the DTI Secretary operate within limited frameworks,
under which nobody acquires an undue advantage over the other.
We recognize that Congress deemed it necessary to insulate the process in requiring that the
factual determination to be made by an ostensibly independent body of specialized competence,
the Tariff Commission. This prescribed framework, constitutionally sanctioned, is intended to
prevent the baseless, whimsical, or consideration-induced imposition of safeguard measures. It
removes from the DTI Secretary jurisdiction over a matter beyond his putative specialized aptitude,
the compilation and analysis of picayune facts and determination of their limited causal relations,
and instead vests in the Secretary the broad choice on a matter within his unquestionable
competence, the selection of what particular safeguard measure would assist the duly beleaguered
local industry yet at the same time conform to national trade policy. Indeed, the SMA recognizes,
and places primary importance on the DTI Secretarys mandate to formulate trade policy, in his
capacity as the Presidents alter ego on trade, industry and investment-related matters.
At the same time, the statutory limitations on this authorized power of the DTI Secretary must
prevail since the Constitution itself demands the enforceability of those limitations and restrictions
as imposed by Congress. Policy wisdom will not save a law from infirmity if the statutory provisions
violate the Constitution. But since the Constitution itself provides that the President shall be
constrained by the limits and restrictions imposed by Congress and since these limits and
restrictions are so clear and categorical, then the Court has no choice but to uphold the reins.
Even assuming that this prescribed setup made little sense, or seemed "uncommonly silly,"93 the
Court is bound by propriety not to dispute the wisdom of the legislature as long as its acts do not
violate the Constitution. Since there is no convincing demonstration that the SMA contravenes the
Constitution, the Court is wont to respect the administrative regimen propounded by the law, even
if it allots the Tariff Commission a higher degree of puissance than normally expected. It is for this
reason that the traditional conceptions of administrative review or quasi-judicial power cannot
control in this case.
Indeed, to apply the latter concept would cause the Court to fall into a linguistic trap owing to the
multi-faceted denotations the term "quasi-judicial" has come to acquire.
Under the SMA, the Tariff Commission undertakes formal hearings,94 receives and evaluates
testimony and evidence by interested parties,95 and renders a decision is rendered on the basis of
the evidence presented, in the form of the final determination. The final determination requires a
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conclusion whether the importation of the product under consideration is causing serious injury or
threat to a domestic industry producing like products or directly competitive products, while
evaluating all relevant factors having a bearing on the situation of the domestic industry.96 This
process aligns conformably with definition provided by Blacks Law Dictionary of "quasi-judicial" as
the "action, discretion, etc., of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them, as a basis for their official action, and to exercise discretion of a judicial
nature."97
However, the Tariff Commission is not empowered to hear actual cases or controversies lodged
directly before it by private parties. It does not have the power to issue writs of injunction or
enforcement of its determination. These considerations militate against a finding of quasi-judicial
powers attributable to the Tariff Commission, considering the pronouncement that "quasi-judicial
adjudication would mean a determination of rights privileges and duties resulting in a decision or
order which applies to a specific situation."98
Indeed, a declaration that the Tariff Commission possesses quasi-judicial powers, even if
ascertained for the limited purpose of exercising its functions under the SMA, may have the
unfortunate effect of expanding the Commissions powers beyond that contemplated by law. After
all, the Tariff Commission is by convention, a fact-finding body, and its role under the SMA,
burdened as it is with factual determination, is but a mere continuance of this tradition. However,
Congress through the SMA offers a significant deviation from this traditional role by tying the
decision by the DTI Secretary to impose a safeguard measure to the required positive factual
determination by the Tariff Commission. Congress is not bound by past traditions, or even by the
jurisprudence of this Court, in enacting legislation it may deem as suited for the times. The sole
benchmark for judicial substitution of congressional wisdom is constitutional transgression, a
standard which the respondents do not even attempt to match.
Respondents Suggested Interpretation
Of the SMA Transgresses Fair Play
Respondents have belabored the argument that the Decisions interpretation of the SMA,
particularly of the role of the Tariff Commission vis--vis the DTI Secretary, is noxious to traditional
notions of administrative control and supervision. But in doing so, they have failed to acknowledge
the congressional prerogative to redefine administrative relationships, a license which falls within
the plenary province of Congress under our representative system of democracy. Moreover,
respondents own suggested interpretation falls wayward of expectations of practical fair play.
Adopting respondents suggestion that the DTI Secretary may disregard the factual findings of the
Tariff Commission and investigatory process that preceded it, it would seem that the elaborate
procedure undertaken by the Commission under the SMA, with all the attendant guarantees of due
process, is but an inutile spectacle. As Justice Garcia noted during the oral arguments, why would
the DTI Secretary bother with the Tariff Commission and instead conduct the investigation
himself.99
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Certainly, nothing in the SMA authorizes the DTI Secretary, after making the preliminary
determination, to personally oversee the investigation, hear out the interested parties, or receive
evidence.100 In fact, the SMA does not even require the Tariff Commission, which is tasked with the
custody of the submitted evidence,101 to turn over to the DTI Secretary such evidence it had
evaluated in order to make its factual determination.102Clearly, as Congress tasked it to be, it is the
Tariff Commission and not the DTI Secretary which acquires the necessary intimate acquaintance
with the factual conditions and evidence necessary for the imposition of the general safeguard
measure. Why then favor an interpretation of the SMA that leaves the findings of the Tariff
Commission bereft of operative effect and makes them subservient to the wishes of the DTI
Secretary, a personage with lesser working familiarity with the relevant factual milieu? In fact, the
bare theory of the respondents would effectively allow the DTI Secretary to adopt, under the
subterfuge of his "discretion", the factual determination of a private investigative group hired by
the industry concerned, and reject the investigative findings of the Tariff Commission as mandated
by the SMA. It would be highly irregular to substitute what the law clearly provides for a dubious
setup of no statutory basis that would be readily susceptible to rank chicanery.
Moreover, the SMA guarantees the right of all concerned parties to be heard, an elemental
requirement of due process, by the Tariff Commission in the context of its investigation. The DTI
Secretary is not similarly empowered or tasked to hear out the concerns of other interested parties,
and if he/she does so, it arises purely out of volition and not compulsion under law.
Indeed, in this case, it is essential that the position of other than that of the local cement industry
should be given due consideration, cement being an indispensable need for the operation of other
industries such as housing and construction. While the general safeguard measures may operate to
the better interests of the domestic cement industries, its deprivation of cheaper cement imports
may similarly work to the detriment of these other domestic industries and correspondingly, the
national interest. Notably, the Tariff Commission in this case heard the views on the application of
representatives of other allied industries such as the housing, construction, and cement-bag
industries, and other interested parties such as consumer groups and foreign governments.103 It is
only before the Tariff Commission that their views had been heard, and this is because it is only the
Tariff Commission which is empowered to hear their positions. Since due process requires a
judicious consideration of all relevant factors, the Tariff Commission, which is in a better position to
hear these parties than the DTI Secretary, is similarly more capable to render a determination
conformably with the due process requirements than the DTI Secretary.
In a similar vein, Southern Cross aptly notes that in instances when it is the DTI Secretary who
initiates motu proprio the application for the safeguard measure pursuant to Section 6 of the SMA,
respondents suggested interpretation would result in the awkward situation wherein the DTI
Secretary would rule upon his own application after it had been evaluated by the Tariff
Commission. Pertinently cited is our ruling in Corona v. Court of Appeals104 that "no man can be at
once a litigant and judge."105 Certainly, this anomalous situation is avoided if it is the Tariff
Commission which is tasked with arriving at the final determination whether the conditions exist to
warrant the general safeguard measures. This is the setup provided for by the express provisions of
the SMA, and the problem would arise only if we adopt the interpretation urged upon by
respondents.
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The Possibility for Administrative Review

Of the Tariff Commissions Determination
The Court has been emphatic that a positive final determination from the Tariff Commission is
required in order that the DTI Secretary may impose a general safeguard measure, and that the DTI
Secretary has no power to exercise control and supervision over the Tariff Commission and its final
determination. These conclusions are the necessary consequences of the applicable provisions of
the Constitution, the SMA, and laws such as the Administrative Code. However, the law is silent
though on whether this positive final determination may otherwise be subjected to administrative
review.
There is no evident legislative intent by the authors of the SMA to provide for a procedure of
administrative review. If ever there is a procedure for administrative review over the final
determination of the Tariff Commission, such procedure must be done in a manner that does not
contravene or disregard legislative prerogatives as expressed in the SMA or the Administrative
Code, or fundamental constitutional limitations.
In order that such procedure of administrative review would not contravene the law and the
constitutional scheme provided by Section 28(2), Article VI, it is essential to assert that the positive
final determination by the Tariff Commission is indispensable as a requisite for the imposition of a
general safeguard measure. The submissions of private respondents and the Separate
Opinion cannot be sustained insofar as they hold that the DTI Secretary can peremptorily ignore or
disregard the determinations made by the Tariff Commission. However, if the mode of
administrative review were in such a manner that the administrative superior of the Tariff
Commission were to modify or alter its determination, then such "reversal" may still be valid within
the confines of Section 5 of the SMA, for technically it is still the Tariff Commissions determination,
administratively revised as it may be, that would serve as the basis for the DTI Secretarys action.
However, and fatally for the present petitions, such administrative review cannot be conducted by
the DTI Secretary. Even if conceding that the Tariff Commissions findings may be administratively
reviewed, the DTI Secretary has no authority to review or modify the same. We have been emphatic
on the reasons such as that there is no traditional or statutory basis placing the Commission
under the control and supervision of the DTI; that to allow such would contravene due process,
especially if the DTI itself were to apply for the safeguard measuresmotu proprio. To hold otherwise
would destroy the administrative hierarchy, contravene constitutional due process, and disregard
the limitations or restrictions provided in the SMA.
Instead, assuming administrative review were available, it is the NEDA that may conduct such
review following the principles of administrative law, and the NEDAs decision in turn is reviewable
by the Office of the President. The decision of the Office of the President then effectively
substitutes as the determination of the Tariff Commission, which now forms the basis of the DTI
Secretarys decision, which now would be ripe for judicial review by the CTA under Section 29 of the
SMA. This is the only way that administrative review of the Tariff Commissions determination may
be sustained without violating the SMA and its constitutional restrictions and limitations, as well as
administrative law.
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In bare theory, the NEDA may review, alter or modify the Tariff Commissions final determination,
the Commission being an attached agency of the NEDA. Admittedly, there is nothing in the SMA or
any other statute that would prevent the NEDA to exercise such administrative review, and
successively, for the President to exercise in turn review over the NEDAs decision.
Nonetheless, in acknowledging this possibility, the Court, without denigrating the bare principle
that administrative officers may exercise control and supervision over the acts of the bodies under
its jurisdiction, realizes that this comes at the expense of a speedy resolution to an application for a
safeguard measure, an application dependent on fluctuating factual conditions. The further delay
would foster uncertainty and insecurity within the industry concerned, as well as with all other
allied industries, which in turn may lead to some measure of economic damage. Delay is certain,
since judicial review authorized by law and not administrative review would have the final say. The
fact that the SMA did not expressly prohibit administrative review of the final determination of the
Tariff Commission does not negate the supreme advantages of engendering exclusive judicial
review over questions arising from the imposition of a general safeguard measure.
In any event, even if we conceded the possibility of administrative review of the Tariff Commissions
final determination by the NEDA, such would not deny merit to the present petition. It does not
change the fact that the Court of Appeals erred in ruling that the DTI Secretary was not bound by
the negative final determination of the Tariff Commission, or that the DTI Secretary acted without
jurisdiction when he imposed general safeguard measures despite the absence of the statutory
positive final determination of the Commission.
IV. Courts Interpretation of SMA
In Harmony with Other
Constitutional Provisions
In response to our citation of Section 28(2), Article VI, respondents elevate two arguments
grounded in constitutional law. One is based on another constitutional provision, Section 12, Article
XIII, which mandates that "[t]he State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods and adopt measures that help make them competitive." By no
means does this provision dictate that the Court favor the domestic industry in all competing claims
that it may bring before this Court. If it were so, judicial proceedings in this country would be
rendered a mockery, resolved as they would be, on the basis of the personalities of the litigants and
not their legal positions.
Moreover, the duty imposed on by Section 12, Article XIII falls primarily with Congress, which in that
regard enacted the SMA, a law designed to protect domestic industries from the possible ill-effects
of our accession to the global trade order. Inconveniently perhaps for respondents, the SMA also
happens to provide for a procedure under which such protective measures may be enacted. The
Court cannot just impose what it deems as the spirit of the law without giving due regard to its
letter.
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In like-minded manner, the Separate Opinion loosely states that the purpose of the SMA is to
protect or safeguard local industries from increased importation of foreign products. 106 This
inaccurately leaves the impression that the SMA ipso facto unravels a protective cloak that shelters
all local industries and producers, no matter the conditions. Indeed, our country has knowingly
chosen to accede to the world trade regime, as expressed in the GATT and WTO Agreements,
despite the understanding that local industries might suffer ill-effects, especially with the easier
entry of competing foreign products. At the same time, these international agreements were
designed to constrict protectionist trade policies by its member-countries. Hence, the median, as
expressed by the SMA, does allow for the application of protectionist measures such as tariffs, but
only after an elaborate process of investigation that ensures factual basis and indispensable need
for such measures. More accurately, the purpose of the SMA is to provide a process for the
protection or safeguarding of domestic industries that have duly established that there is
substantial injury or threat thereof directly caused by the increased imports. In short, domestic
industries are not entitled to safeguard measures as a matter of right or influence.
Respondents also make the astounding argument that the imposition of general safeguard
measures should not be seen as a taxation measure, but instead as an exercise of police power. The
vain hope of respondents in divorcing the safeguard measures from the concept of taxation is to
exclude from consideration Section 28(2), Article VI of the Constitution.
This argument can be debunked at length, but it deserves little attention. The motivation behind
many taxation measures is the implementation of police power goals. Progressive income taxes
alleviate the margin between rich and poor; the so-called "sin taxes" on alcohol and tobacco
manufacturers help dissuade the consumers from excessive intake of these potentially harmful
products. Taxation is distinguishable from police power as to the means employed to implement
these public good goals. Those doctrines that are unique to taxation arose from peculiar
considerations such as those especially punitive effects of taxation,107 and the belief that taxes are
the lifeblood of the state.108 These considerations necessitated the evolution of taxation as a distinct
legal concept from police power. Yet at the same time, it has been recognized that taxation may be
made the implement of the states police power.109
Even assuming that the SMA should be construed exclusively as a police power measure, the Court
recognizes that police power is lodged primarily in the national legislature, though it may also be
exercised by the executive branch by virtue of a valid delegation of legislative power.110 Considering
these premises, it is clear that police power, however "illimitable" in theory, is still exercised within
the confines of implementing legislation. To declare otherwise is to sanction rule by whim instead
of rule of law. The Congress, in enacting the SMA, has delegated the power to impose general
safeguard measures to the executive branch, but at the same time subjected such imposition to
limitations, such as the requirement of a positive final determination by the Tariff Commission
under Section 5. For the executive branch to ignore these boundaries imposed by Congress is to set
up an ignoble clash between the two co-equal branches of government. Considering that the
exercise of police power emanates from legislative authority, there is little question that the
prerogative of the legislative branch shall prevail in such a clash.
V. Assailed Decision Consistent
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With Ruling in Taada v. Angara

Public respondents allege that the Decision is contrary to our holding in Taada v. Angara,111 since
the Court noted therein that the GATT itself provides built-in protection from unfair foreign
competition and trade practices, which according to the public respondents, was a reason "why the
Honorable [Court] ruled the way it did." On the other hand, the Decision "eliminates safeguard
measures as a mode of defense."
This is balderdash, as with any and all claims that the Decision allows foreign industries to ride
roughshod over our domestic enterprises. The Decision does not prohibit the imposition of general
safeguard measures to protect domestic industries in need of protection. All it affirms is that the
positive final determination of the Tariff Commission is first required before the general safeguard
measures are imposed and implemented, a neutral proposition that gives no regard to the
nationalities of the parties involved. A positive determination by the Tariff Commission is hardly the
elusive Shangri-la of administrative law. If a particular industry finds it difficult to obtain a positive
final determination from the Tariff Commission, it may be simply because the industry is still
sufficiently competitive even in the face of foreign competition. These safeguard measures are
designed to ensure salvation, not avarice.
Respondents well have the right to drape themselves in the colors of the flag. Yet these postures
hardly advance legal claims, or nationalism for that matter. The fineries of the costume pageant are
no better measure of patriotism than simple obedience to the laws of the Fatherland. And even
assuming that respondents are motivated by genuine patriotic impulses, it must be remembered
that under the setup provided by the SMA, it is the facts, and not impulse, that determine whether
the protective safeguard measures should be imposed. As once orated, facts are stubborn things;
and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter
the state of facts and evidence.112
It is our goal as judges to enforce the law, and not what we might deem as correct economic policy.
Towards this end, we should not construe the SMA to unduly favor or disfavor domestic industries,
simply because the law itself provides for a mechanism by virtue of which the claims of these
industries are thoroughly evaluated before they are favored or disfavored. What we must do is to
simply uphold what the law says. Section 5 says that the DTI Secretary shall impose the general
safeguard measures upon the positive final determination of the Tariff Commission. Nothing in the
whereas clauses or the invisible ink provisions of the SMA can magically delete the words "positive
final determination" and "Tariff Commission" from Section 5.
VI. On Forum-Shopping
We remain convinced that there was no willful and deliberate forum-shopping in this case by
Southern Cross. The causes of action that animate this present petition for review and the petition
for review with the CTA are distinct from each other, even though they relate to similar factual
antecedents. Yet it also appears that contrary to the undertaking signed by the President of
Southern Cross, Hironobu Ryu, to inform this Court of any similar action or proceeding pending
before any court, tribunal or agency within five (5) days from knowledge thereof, Southern Cross
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informed this Court only on 12 August 2003 of the petition it had filed with the CTA eleven days
earlier. An appropriate sanction is warranted for such failure, but not the dismissal of the petition.
VII. Effects of Courts Resolution
Philcemcor argues that the granting of Southern Crosss Petition should not necessarily lead to the
voiding of theDecision of the DTI Secretary dated 5 August 2003 imposing the general safeguard
measures. For Philcemcor, the availability of appeal to the CTA as an available and adequate
remedy would have made the Court of AppealsDecision merely erroneous or irregular, but not
void. Moreover, the said Decision merely required the DTI Secretary to render a decision, which
could have very well been a decision not to impose a safeguard measure; thus, it could not be said
that the annulled decision resulted from the judgment of the Court of Appeals.
The Court of Appeals Decision was annulled precisely because the appellate court did not have the
power to rule on the petition in the first place. Jurisdiction is necessarily the power to decide a case,
and a court which does not have the power to adjudicate a case is one that is bereft of jurisdiction.
We find no reason to disturb our earlier finding that the Court of Appeals Decision is null and void.
At the same time, the Court in its Decision paid particular heed to the peculiarities attaching to the
5 August 2003Decision of the DTI Secretary. In the DTI Secretarys Decision, he expressly stated that
as a result of the Court of Appeals Decision, "there is no legal impediment for the Secretary to
decide on the application." Yet the truth remained that there was a legal impediment, namely, that
the decision of the appellate court was not yet final and executory. Moreover, it was declared null
and void, and since the DTI Secretary expressly denominated the Court of Appeals Decision as his
basis for deciding to impose the safeguard measures, the latter decision must be voided as well.
Otherwise put, without the Court of Appeals Decision, the DTI Secretarys Decision of 5 August
2003 would not have been rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI Secretarys Decision dated 5 August 2003. As a
necessary consequence, no further action can be taken on Philcemcors Petition for Extension of the
Safeguard Measure. Obviously, if the imposition of the general safeguard measure is void as we
declared it to be, any extension thereof should likewise be fruitless. The proper remedy instead is to
file a new application for the imposition of safeguard measures, subject to the conditions
prescribed by the SMA. Should this step be eventually availed of, it is only hoped that the parties
involved would content themselves in observing the proper procedure, instead of making a
mockery of the rule of law.
WHEREFORE, respondents Motions for Reconsideration are DENIED WITH FINALITY.
Respondent DTI Secretary is hereby ENJOINED from taking any further action on the
pending Petition for Extension of the Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement Corporation, and Angara Abello
Concepcion Regala & Cruz, counsel petitioner, are hereby given FIVE (5) days from receipt of
this Resolution to EXPLAIN why they should not be meted disciplinary sanction for failing to timely
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inform the Court of the filing of Southern CrosssPetition for Review with the Court of Tax Appeals,
as adverted to earlier in this Resolution.
SO ORDERED.
Puno, Quisumbing, Austria-Martinez, Callejo, Sr., Azcuna, Chico-Nazario, and Garcia, JJ., concur.
Davide, Jr., C.J., Ynares-Santiago, Sandoval-Gutierrez, and Carpio-Morales, JJ., joins J. Panganiban in
his Separate Opinion.
Panganiban, J., see separate opinion.
Carpio, J., no part.
Corona, J., on official leave.
Footnotes
1
Since renamed Cement Manufacturers Association of the Philippines. See Rollo, p. 1634.
Considering that the Decision referred to the private respondents by their old name, this
Resolution shall do so as well, for the sake of continuity.
2
See Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corporation,

G.R. No. 158540, 8 July 2004, 434 SCRA 65, 69-80.
3
See Taada v. Angara, 338 Phil. 546, 556 (1997).
Supra note 2 at 69.
Philcemcors application covered gray Portland cement of all types and excluded white
Portland cement, aluminous cement, and masonry cement. Rollo, p. 127.
6
In an Order dated 7 November 2001. Rollo, p. 128.
Id. at 303.
Id. at 334-341.
Id. at 343. Dated 5 April 2003.
10
Id. at 343.
11
Id. at 345-416.
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12
Among other claims, Philcemcor alleged that the Tariff Commission arbitrarily ignored the
nature of the cement industry in evaluating the injury factors. Rollo, p. 394.
13
Dated 5 June 2003.
14
Rollo, pp. 67-84. And concurred in by Justices P. Alio-Hormachuelos and E. F. Sundiam.
15
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.
Rollo, pp. 75-76, citing Litonjua v. Court of Appeals, 286 SCRA 136, and Sta. Ines Melale
Forest Products Corporation v. Macaraig, 299 SCRA 491.
16
Id. at 82.
17
Rollo, p. 685. Prior to the promulgation of this new Decision, Southern Cross was already
apprehensive that the DTI Secretary might act favorably on Philcemcors petition in light of
the Court of Appeals ruling. Southern Cross sent a letter dated 19 June 2003 to DTI
Secretary Roxas, informing him that Southern Cross would be appealing the Court of
Appeals Decision to the Supreme Court, and that "[w]e trust that, in accordance with the
Rules of Court, you will refrain from assuming jurisdiction or from taking any action on the
Application for Safeguard Measures filed by Philcemcor until after the Supreme Court shall
have finally decided on our appeal xxx." See Rollo, pp. 679-680.
18
Id. at 688-690.
19
Id. at 681-699.
20
Id. at 775. The pleadings self-explanatory caption was "Reply to PHILCEMCORs

Opposition (to Petitioners Application for a Temporary Restraining Order And/or Writ of
Preliminary Injunction)."
21
Id. at 952-1005.
22
In a Resolution dated 4 February 2004. See Rollo, p. 1191.
23
TSN, 18 February 2004, p. 3.
24
The Decision was penned by the author of this Resolution, and concurred in by Senior
Associate Justice Reynato S. Puno (Chairman of the Second Division), Associate Justices
Leonardo A. Quisumbing, Alicia Austria-Martinez and Romeo J. Callejo, Sr.
25
Southern Cross filed a Manifestation and Motion dated 20 July 2004, alleging a barrage of
press releases by Philcemcor, the DTI and their allies critical of this Courts Decision,
characterizing such as a "well-orchestrated and malevolent scheme obviously intended to
coerce and pressure this Honorable Court to reverse the Decision and/or to influence its
193
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Taxation I
resolution." Without giving credence to these allegations, the Second Division of the Court
found it prudent to issue a Resolution dated 15 September 2004 enjoining the parties and
their counsels, whether directly or indirectly, from making any public comments in any
public forum until the case was finally adjudicated. See Rollo, pp. 2582-2585.
26
Rollo, p. 2587.
27
See note 22.
28
See TSN dated 1 March 2005, p. 5.
29
A copy of this petition was attached as Annex "E" to Southern Crosss "Urgent Motion"
dated 15 December 2004. Rollo, p. 2970.
30
Id.
31
See Section 1, Rule 65, 1997 Rules of Civil Procedure. See also Building Care Corp. v. NLRC,
335 Phil. 1131, 1138 (1997); Bernardo v. Court of Appeals, 341 Phil. 413, 425 (1997); BF
Corporation v. Court of Appeals, 351 Phil. 507, 519 (1998); Tan v. Sandiganbayan, 354 Phil.
463, 469 (1998).
32
Before the passage of Republic Act No. 9282 on 30 March 2004, appeals from the
decisions of the Court of Tax Appeals was to the Court of Appeals.
33
Interestingly, while the Separate Opinion accedes to the majority ruling that the Court of
Appeals had no jurisdiction over Philcemcors petition considering the availability of appeal
to the Court of Tax Appeals, it makes the curious statement that "[a]ccordingly, the present
Petition, which seeks a review of a void Decision of the CA should, in the ordinary course,
also be dismissed. Generally, this Court cannot review a legally inexistent judgment".
Separate Opinion, infra. In support of this proposition, the case of Velarde v. SJS, G.R. No.
159357, 28 April 2004, 428 SCRA 283, is cited. However, a perusal of Velarde, which was
penned by the Separate Opinions author, reveals the Courts actual statement as follows:
"Indeed, the assailed Decision was rendered in clear violation of the Constitution, because it
made no findings of facts and final disposition. Hence, it is void and deemed legally
inexistent. Consequently, there is nothing for this Court to review, affirm, reverse or even
just modify." Velarde, id. Obviously, the averment in Velarde meant that the Court would be
hard put to review a decision that had no finding of facts to evaluate, or a disposition to
reverse, affirm or modify. However, as transmuted in the Separate Opinion, it would now
conclude that a "legally inexistent" or void decision of the Court of Appeals, or any other
court for that matter, cannot be reviewed by this Court.
34
See Section 7, Republic Act No. 9282 (2004).
35
Rollo, p. 2435.
194
MAS
Taxation I
36
The Separate Opinion characterizes this statement as "loose", citing the legal truism that
interlocutory orders are not subject to an appeal or a petition for review until the main case
is finally resolved on the merits. However, Section 29 does not qualify which rulings of the
DTI Secretary are exempt from judicial review by the CTA. On the other hand, the provision
states that all rulings of the DTI Secretary issued in connection with the imposition of a
general safeguard measure, such as on whether provisional safeguard measures are
warranted even before the matter is referred to the Tariff Commission. A ruling imposing a
provisional safeguard measure is in a sense interlocutory, since such ruling does not finally
dispose of the case. Although pending factual investigation by the Tariff Commission on
referral by the DTI Secretary, the ruling could produce financial damage and by reason
thereof, it is only fair that the party aggrieved may avail of judicial remedies even during the
investigation. The language of Section 29, despite the loose use of the nomenclature
"petition for review", allows such ruling on a provisional safeguard measure, "interlocutory"
as it may be, to fall within the ambit of review of the CTA, which after all has the specialized
competence to adjudge the propriety of the provisional measure.
37
463 U.S. 85 (1983).
38
514 U.S. 645 (1995).
39
Rollo, p. 2437.
40
Ibid.
41
514 US 645 (1995).
42
Id. at 656.
43
Southern Cross, supra note 2, at 87.
44
Id. at 88.
45
Cited as 295 SCRA 470 (1998).
46
Memorandum for Public Respondents dated 1 April 2005, p. 75.
47
Rollo, p. 2509.
48
Southern Cross, supra note 2, at 91.
49
Article VI, Section 28 (2), 1987 Constitution. Emphasis supplied.
50
As delineated under the SMA, the DTI (for non-agricultural products) and Agriculture (for
agricultural products) Secretaries are authorized under Section 5 to impose the general
safeguard measures upon a positive final determination made by the Tariff Commission.
Preliminary to such imposition, the secretaries are authorized under Section 6 to conduct an
195
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Taxation I
initial review of a petition for imposition of such measures, ormotu proprio initiate a
preliminary safeguard investigation, and to impose a provisional safeguard measure under
Section 7 even before transmittal of the application to the Tariff Commission for
investigation. Upon a positive final determination by the Tariff Commission, the Secretaries
may, under Section 13, now choose which appropriate definitive safeguard measures to
adopt. Under Sections 18 and 19, the DTI and Agriculture Secretaries are similarly tasked, in
conjunction with the Tariff Commission, to act upon actions to reduce, modify or terminate
the existing safeguard measures, and to extend or reapply such safeguard measures.
The Tariff Commission is empowered, upon referral of the application by the DTI or
Agriculture Secretaries, to conduct its investigation pursuant to Sections 9 to 11 of the SMA,
and to arrive at its final determination of the existence of the factual conditions listed under
Section 5 and 12. It likewise is tasked to investigate the factual basis for actions to reduce,
modify, terminate, extend or reapply the existing safeguard measures under Sections 18
and 19 of the SMA. Its findings are to be contained in a report submitted to the DTI or
Agriculture Secretaries, under Section 14. Finally, pursuant to Section 20, it likewise
conducts an evaluation of the effectiveness of the actions taken by the domestic industry
after termination of the safeguard measures.
51
Section 5, Rep. Act No. 8800. Emphasis supplied.
52
While Section 5 denominates the DTI or Agriculture Secretary as the officer who imposes
the safeguard measures, it should be understood that they do so as alter egos of the
President, the person who is allowed by the Constitution to be delegated the authority to
impose tariffs and restrictions. Infra.
53
Rollo, p. 2398.
54
See Section 18, Article VII, Constitution, the provision which authorizes the declaration of
martial law. The only time the word "only" is used in the provision is in the context of
limiting the extent of the suspension of the writ of habeas corpus. "The suspension of the
privilege of the writ shall apply only to persons judicially charged for rebellion or offenses
inherent in or directly connected with invasion."
55
Conducted on 28 September 1999. Punzalan, who died in May of 2001, was the author of
House Bill No. 7613, which eventually became the SMA.
56
Rollo, pp. 14-15.
57
Particularly telling are the remarks of then Senator Raul Roco: "But the Secretary does not
act alone. There must be a positive finding by the Commission." Rollo, p. 2818, and that of
then Congressman Sergio Apostol: "The final decision is in the choice of actions to impose
rather than in the choice of whether to impose or not despite a positive determination of
injury." Rollo, p. 2819. Interestingly, Southern Cross likewise cites the comments of
Congressman Punzalan similarly relied on by the petitioner.
196
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Taxation I
58
As noted in the Decision, "it is easy to selectively cite passages, sometimes out of their
proper context, in order to assert a misleading interpretation . . . . 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." Southern Cross, supra note 2, at 95. U.S. Supreme Court Justice
Antonin Scalia has been quoted as saying, "We are governed by laws, not the intention of
legislators." Conroy v. Aniskoff, 507 U.S. 511, 519 (1993), Scalia J., concurring. He added that
statements on the legislative floor even by the bills author or sponsor are not ratified by
the legislative body as a whole and thus do not reflect more than the individual desire of the
person making the statement. Ibid.
59
Southern Cross, supra note 2, at 99-104.
60
See Section 13, Rep. Act No. 8800. Notably, the duty of the DTI Secretary to immediately
issue through the Secretary of Finance, a written instruction to the Commissioner of
Customs authorizing the return of the cash bonds is the only role allocated by the SMA to
the DTI Secretary in the event of a negative final determination.
61
Separate Opinion, infra.
62
In fact, the remarks of Chairman Abon can even be construed the other way. He speaks of
the Commission as making recommendations, and indeed the Tariff Commission is obliged
to recommend what particular safeguard measures to implement. The advice of the
Commission on this point may be highly persuasive, yet it does not bind the DTI Secretary.
Nor would the Tariff Commission have the power to implement the general safeguard
measures. However, the fact remains that the Tariff Commission must come out with a
positive final determination before the DTI Secretary may impose the general safeguard
measures.
63
Southern Cross, supra note 2 at 74.
64
See Section 1, Chapter 1, Title III, Book IV, Administrative Code.
65
66
95 Phil. 142 (1954)
67
"The fact that the resolution was approved by the Cabinet and the collection of the
royalty fees was not decreed by virtue of an order issued by the President himself does not,
in our opinion, invalidate said resolution because it cannot be disputed that the act of the
Cabinet is deemed to be, and essentially is, the act of the President." Marc Donnelly v.
Agregado, id., at 146-147
68
See Section 16, Chapter 4, Subtitle C, Title II, Book V, Administrative Code of 1987.
69
See Section 2, Chapter 1, Subtitle C, Title II, Book V, Administrative Code of 1987.
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70
Respondents point out that the DTI Secretary is a member of the NEDA Board, unto which
the powers and functions of the NEDA are vested. See Section 3, Chapter 4, Subtitle C, Title
II, Book V, Administrative Code of 1987. While this may be so, it cannot mean that the DTI
Secretary, on his own, can exercise the powers and functions of the NEDA, such as
administrative supervision over its attached agencies. The DTI Secretary is only one of
eleven (11) members of the NEDA Board, and it is only in the capacity of NEDA Board
member that the person of the DTI Secretary can execute any act that would be
representative of the NEDA. In such case, such act would require either the concurrence of
the other ten (10) members of the NEDA Board or under a valid delegation of authority by
the NEDA Board. Certainly, the DTI Secretary cannot execute a unilateral act without prior
delegated authority from the NEDA board and then claim that such act was executed by the
NEDA or its Board.
71
G.R. No. 101273, 3 July 1992, 211 SCRA 219.
72
See Section 104, Tariff and Customs Code. See also Garcia v. Executive Secretary, id. at
224.
73
See Section 401, id.
74
The similarities in the procedure as laid down in Rep. Act Nos. 8751, 8752 and 8800 are
striking indeed, especially as they lay down the common limitation of a positive
determination by the Tariff Commission as a requisite to the imposition of the
corresponding duty or safeguard measures. From the beginning, Southern Cross has invoked
the provisions Rep. Act No. 8751 and 8752 as applicable by analogy to the Safeguard
Measures Act. The Court is not wont to rely on indirect analogical justifications if, as in this
case, the law is explicit. Still, the analogy is apropos to the Safeguard Measures Act, and if
anything, reveals a common track of mind on the part of the Tenth Congress which enacted
all three laws.
75
76
See Section 23, Chapter 6, Title XV, Book IV, Administrative Code of 1987.
77
See Section 47, Chapter 6, Title IV, Book IV, Administrative Code of 1987.
78
See Section 16, Chapter 3, Title XIV, Book IV, Administrative Code of 1987, in relation to
Chapter 3, Title XIV, Book IV of the same statute.
79
See Section 5, Chapter 1, Title XIV, Book IV, Administrative Code of 1987.
80
81
See Separate Opinion, infra.
198
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82
Notably, the Administrative Code of 1987, though embodied in an executive order, was
promulgated by President Aquino in the exercise of her then extant legislative powers under
the aegis of the 1987 Constitution. See Phividec v. Capitol Steel, G.R. No. 155692, 23
October 2003, 414 SCRA 327, 331; citingSec. 7, Article XVIII, Constitution.
83
See Phividec v. Capitol Steel, id., at 332; citing Vincent G. Sinco, Philippine Political Law
234-235 (11th ed., 1962), as cited by J. Mendoza, dissenting, in Ople v. Torres, 354 Phil. 948,
1014-1015.
84
Such abolitions of course subject through presidential approval or legislative override of a

presidential veto.
85
86
Ibid.
87
See Southern Cross, supra note 2, at 97-99.
88
G.R. No. 93661, 4 September 1991, 201 SCRA 299.
89
Southern Cross, supra note 2, at 105-106.
90
See also id. at 106.
91
Ibid. Philcemcor argues that the WTO Safeguards Agreement do not require that
conclusive effect be given to the findings of a first-level fact finding body, or that the
Philippines makes it difficult for domestic producers to obtain safeguard measures.
Respondents Memorandum dated 4 April 2005, p. 41. The effectiveness of that argument is
undercut by the fact that even assuming that the Safeguards Agreement does not impose
such requirements, the SMA enacted by Congress, the validity of which respondents do not
question, may anyway require such impositions, as it does in this case, based on Section
28(2), Article VI of the Constitution.
92
Supra note 69.
93
See J. Stewart, dissenting, Griswold v Connecticut, 381 U.S. 479 (1967); J. Thomas,
dissenting, Lawrence v. Texas, 539 U.S. 558 (2003).
94
Section 8, Rep. Act No. 8800.
95
Id.
96
Including, in particular, the rate and amount of the increase in imports of the products
concerned in absolute and relative terms, the share of the domestic market taken by the
increased imports, and changes in the level of sales, production, productivity, capacity
utilization, profits and losses, and employment. See Section 12, Rep. Act No. 8800.
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Moreover, the Tariff Commission is precluded from making a positive determination unless
the investigation demonstrates, on the basis of objective evidence, the existence of the
causal link between the increased imports of the product under consideration and serious
injury or threat thereof to the domestic industry. Id.
97
Blacks Law Dictionary, Sixth Edition (1990), at 1245. Accord H. de Leon & H. de Leon, Jr.,
Administrative Law: Text and Cases, Third Edition (1998) at 144.
98
See Lupangco v. Court of Appeals, G.R. No. L-77372, 29 April 1988; 160 848, 856.
99
See TSN dated 1 March 2005, p. 171.
100
Expressly, the DTI Secretarys role as evaluator of evidence submitted by the concerned
parties is limited to the review documentary evidence attached to the verified petition
requesting for safeguard measures, but only for the purpose of determining whether the
imposition of a provisional safeguard measure is warranted. See Section 7, Rep. Act No.
8800.
101
See Section 10, Rep. Act No. 8800.
102
Under Section 14, Rep. Act No. 8800, the enumerated contents of the Report by the Tariff
Commission is limited to (a) the investigation report; (b) the proposed recommendations;
(c) a copy of the submitted adjustment plan; and (d) the commitments made by the
domestic industry to facilitate positive adjustment to import competition. This is not to
mean that the Tariff Commission is absolutely barred from forwarding such evidence to the
DTI Secretary, but the fact that there is no mandate under Rep. Act No. 8800 for it to do so
further bolsters the apparent legislative intent that it is the Tariff Commission, and not the
DTI Secretary, that is empowered to make the necessary factual determinations that
precede the imposition of the general safeguard measures.
103
See Footnotes No. 15 & 16, Southern Cross, supra note 2, at 71-72 for a list of the parties
who participated in the investigation conducted by the Tariff Commission.
104
G.R. No. 97356, 30 September 1992; 214 SCRA 378.
105
"The aggrieved party should not however, be one and the same official upon w hose lap
the complaint he has filed may eventually fall on appeal. Nemo potest esse simul actor et
Judex. No man can be at once a litigant and judge." Id. at 389.
106
107
As U.S. Chief Justice Marshall once said, the power to tax involves the power to destroy.
McCulloch v. Maryland, 4 Wheaton 316, cited in Sison v. Ancheta, G.R. No. L-59431, July 25,
1984.
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108
"[T]axes being the lifeblood of the government, their prompt and certain availability is of
the essence."Id., citing Vera v. Fernandez, G.R. No. L-31364, March 30, 1979, 89 SCRA 199.
109
Lutz v. Araneta, 98 Phil. 148, 152 (1955); citing Great Atl. & Pac. Tea Co. v. Grosjean, 301
U.S. 412, U.S. v. Butler, 297 U.S. 1; McCulloch v. Maryland, supra note 96.
110
See I. Cruz, Constitutional Law, p. 46.
111
Supra note 3.
112
Attributed to the American President John Adams.
The Lawphil Project - Arellano Law Foundation
SEPARATE OPINION
(Concurring and Dissenting)
PANGANIBAN, J.:
"As a co-equal body, the judiciary has great respect for determinations of the Chief Executive or his
subalterns, especially when the legislature itself has specifically given them enough room on how
the law should be effectively enforced."1
Once again, this Court is faced with a controversy that ultimately affects the economic life of the
country. While on its face, the problem appears to be merely one of legal construction of a statute,
its consequences and implications dig deep into the ability and power of the Executive Department
to protect domestic industries from injurious importations of foreign products.
Indeed, the main substantive issue of this case boils down to the dexterity of the secretary of trade
-- the governments principal official empowered to superintend the nations commercial life and to
promote investments -- to impose safeguard measures to protect the local cement industry from
the onslaught of unfair foreign competition.
I respectfully submit that, absent any patent violation of laws or grave abuse of discretion, the top
trade official should be given the widest discretion to be able to promote the best interest of the
country in the field of trade, industry and investments. I believe that this Court should not interfere
unnecessarily in commercial and economic policies, but allow our executive officials to meet headon the vicissitudes of international trade competition spawned by globalization, deregulation and
liberalization.
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As will be demonstrated later on, I firmly submit that law, justice, equity, reason, logic, national
interest and common sense impel the maintenance of this Courts policy of laissez-faire. In short,
the judiciary should be deferential to the powers residing in, and respectful of the actions taken by,
the top government official who has primary responsibility for the commercial development of the
nation.
Background Information
Before the Court en banc are Motions for Reconsideration of the Decision2 promulgated by this
Courts Second Division, filed by 1) the Office of the Solicitor General (OSG) on behalf of public
respondents and 2) the Philippine Cement Manufacturers Corporation (Philcemcor).3 The assailed
Decision disposed as follows:
"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."
In a Resolution dated September 15, 2004, the Special Second Division referred to the Court en
banc the respective Motions to refer the case to the banc, filed by the solicitor general and private
respondent. On September 21, 2004, the full Court resolved to accept the referral.
On March 1, 2005, the 15 members of the Court heard oral arguments on the two main issues
involved: 1) whether a decision of the secretary of the Department of Trade and Industry (DTI)
denying the imposition of a safeguard measure is appealable to the Court of Tax Appeals (CTA); and
2) whether the DTI secretary may impose a general safeguard measure, only upon a positive final
determination by the Tariff Commission (TC).
To recall, the assailed Decision answered both questions in the affirmative.4 It held that the CTA, not
the Court of Appeals (CA), had the jurisdiction to review the DTI secretarys decision, whether
imposing a safeguard measure or not. It explained that the proviso "in connection with the
imposition of a safeguard measure" in Section 295 of Republic Act (RA) 8800 pertained to "all rulings
of the DTI [s]ecretary x x x which arise from the time an application or motu proprio initiation for
the imposition of a safeguard measure is taken,"6 including the final decision imposing or not
imposing such measure. Because the law clearly provided aggrieved parties with a legal remedy
(petition for review with the CTA), a special civil action for certiorari did not avail. Hence, the CA
Decision was declared void and set aside.
The Decision of the Second Division also ruled that, pursuant to a literal interpretation of Section
57 of the law (RA 8800), the DTI secretary could impose a safeguard measure only upon a positive
final determination by the Tariff Commission. The Decision differentiated between the power to
make a final determination of the presence of serious injury or threat to the domestic
industry and the authority to impose the safeguard measure. It held that the power to make a final
determination was lodged in the Tariff Commission; and the authority to impose the safeguard, in
the DTI secretary.
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The present Resolution written by the esteemed Justice Dante O. Tinga upholds the assailed
Decision in toto. I beg to differ.
While I agree that the CTA has jurisdiction to review the DTI secretarys decision either imposing or
not imposing a safeguard measure, I respectfully disagree, however, that the said cabinet official is
bound by the recommendations of the Tariff Commission and may thus impose a safeguard
measure only when it so recommends. I respectfully submit that the DTI secretary has the power to
impose safeguard measures even if the TC does not recommend such imposition.
The First Issue:
Jurisdiction to Review the
Secretarys Decisions
The OSGs Position
The OSG avers that the Decision, as far as it disposed of the first issue, "was based solely on an
expansive interpretation of x x x Section 29 of [RA] No. 8800." This interpretation allegedly
undermines the rule against the presumption of jurisdiction and could bring about erroneous
interpretations of provisions on jurisdiction that would result in fatal consequences for the parties
or in endless litigation.8
Purportedly, Section 29 expressly limits CTA jurisdiction to cases in which a safeguard measure is
imposed, not when the DTI secretary does not impose the measure. Thus, the OSG submits that the
CTA had no jurisdiction over the April 5, 2002 Decision of the DTI secretary; and that it was proper
for herein private respondent to have resorted to a special civil action for certiorari before the CA.
The government counsel further contends that RA 9282,9 a new law that was enacted on March 30,
2004, now expressly confers upon the CTA jurisdiction over decisions "to impose or not to impose"
safeguard measures. Supposedly, this new explicit provision only shows that RA 8800 did not intend
to include a review of DTI decisions involving the non-imposition of the said measures.
Private Respondents Contentions
Philcemcor similarly contends that Congress limited the power of review of the CTA to the "single
situation of an imposition by the [s]ecretary of safeguard measures to the exclusion of the situation
of non-imposition x x x."
Respondent also argues that the TC is not a quasi-judicial body; it neither determines private rights
nor decides controversies. Thus, its acts "are per se administratively reviewable." Otherwise, an
error on its part will have far-ranging consequences, "cut[ting] across sectoral boundaries in the
national economy, and across industry boundaries within each sector of the economy. Thus, its
recommendations should be subject to review by the DTI secretary whose mandate has a
macroeconomic scope x x x and who has the statutory burden of promoting the development of
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industry and other sectors of the economy."10 Corollarily, not being a quasi-judicial body, its reports
are not appealable to either the CTA or the CA, according to Philcemcor.
Petitioners Arguments
Petitioner, on the other hand, agrees with the assailed Decision holding that the DTI secretarys
ruling in either instance is appealable to the CTA. Petitioner reiterates the interpretation that the
phrase "in connection with" in Section 29 of RA 8800 means "if it has connection with or reference
to." Thus, the DTI secretarys Decision not to impose a safeguard measure is reviewable by the CTA,
because it relates or has reference to the imposition of that measure.
This interpretation is allegedly confirmed by RA 9282, Section 7(a)(7)11 of which provides that the
CTA has exclusive appellate jurisdiction over a decision of the DTI secretary "to impose or not to
impose" safeguard measures. Petitioner posits that this provision merely reflects or reiterates
Section 29 of RA 8800; it does not constitute an expansion of the CTA jurisdiction. Otherwise, an
absurdity would arise: in case the DTI secretary imposes a definitive safeguard measure, the
remedy of the aggrieved party would be to appeal to the CTA; but in case the decision is not to
impose the measure, the remedy would be to appeal to the CA.12
My Submission:
The CTA Has Jurisdiction
A CTA Review of the DTI Secretarys
Rulings Provided for by RA 8800
On the issue of jurisdiction, I agree with the Courts Resolution penned by Justice Tinga that the DTI
secretarys decisions -- whether imposing safeguard measures or not -- are subject to review by the
CTA, pursuant to Section 2913 of RA 8800.
The meaning of the phrase in connection with the imposition of a safeguard measure is not same
as imposing a safeguard measure; otherwise, the law would simply have sufficed without the
qualifying connector. Consequently, all final rulings relating to an application for the measure -whether imposing, extending, terminating or disallowing one -- are in connection with the
imposition of a safeguard measure, and thus appealable to the CTA.
Let me clarify, though, a rather loose statement in the Courts Resolution that the "entire subset of
rulings that the DTI [s]ecretary may issue x x x, including those that are provisional, interlocutory x x
x" are in connection with the imposition of a safeguard measure; and also "the phrase [in
connection with] includes all rulings of the DTI [s]ecretary which arise from the time an application
or motu proprio initiation for the imposition of a safeguard measure is taken." Both statements
seem to imply that all aforementioned rulings are therefore appealable to the CTA pursuant to
Section 29.
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It is a legal truism, however, that interlocutory orders are not subject to an appeal or a petition for
review until the main case is finally resolved on the merits.14 RA 8800 does not explicitly state which
rulings of the DTI secretary are reviewable by way of a petition for review with the CTA. However,
the Rules of Court and settled jurisprudence provide that only judgments or final orders disposing
of the merits of a case may be the subject of appeals or petitions for review.15 Since RA 8800 does
not amend the extant Rules (assuming arguendo that Congress had the power to amend the Rules
of Court), they must be applied to the intended appeals.
In the present case, private respondent did not appeal the DTI secretarys Decision to either the
CTA or the CA, but instead invoked the CAs certiorari power under Rule 65 of the Rules of Court, on
the ground of grave abuse of discretion. But one of the requisites of a special civil action for
certiorari is that there be no appeal; or any plain, speedy and adequate remedy in the ordinary
course of law.16 As discussed, RA 8800 expressly provides for a legal remedy to question the DTI
secretarys decisions -- that of filing a petition for review to the CTA. Given this expedient and
adequate remedy in the ordinary course as provided by law, private respondents recourse to
certiorari before the CA must necessarily fail. As a consequence, it has inopportunely lost its legal
route for a judicial review of the DTI ruling.
In any event, as the determination of the case is dependent on current pertinent econometric data
and their effects on the domestic industry, the peculiar circumstances make a ruling on the merits
inadvisable at this time. The original application for a safeguard measure was filed way back in
2001, and it has been almost four years since the imposition of the provisional safeguard
measure.17 The cement import statistics on record may no longer be relevant at present. I agree
with the Resolution that the available remedy at this time is to file a new application for the
imposition of a definitive safeguard measure, if warranted under the present circumstances.
The CTAs Essential
Technical Expertise
Moreover, I believe that the CTA is the proper and competent body to review the DTI secretarys
decisions involving safeguard measures. By the very nature of its functions, the CTA is a highly
specialized court specifically created for the purpose of reviewing tax and customs cases. It is
dedicated exclusively to the study and consideration of revenue-related problems and has
necessarily developed an expertise on the subject.18 Thus, as a general rule, its findings and
conclusions are accorded great respect and are generally upheld by this Court, unless there is a
clear showing of a reversible error or an improvident exercise of authority.
While primarily intended to protect domestic industries, safeguard measures are incidentally
revenue-generating and generally in the nature of, though not always equivalent to, tariff
impositions. They may consist of a tariff increase, duty, tariff-rate quota, quantitative restriction,
adjustment measure or a combination of these.19 In the determination of their imposition, the
following factors are to be taken into consideration: rate and amount of increase in the importation
of the product concerned; share of the domestic market taken by the increased imports; and
changes in the level of sales, production, productivity, capacity utilization, profits and losses, and
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employment.20 Most of these factors involve data analysis which, by virtue of the highly specialized
technical expertise of the CTA, must be more familiar to it than to the CA.
Thus, as between the two appellate courts, the CTA should have the jurisdiction to review decisions
involving safeguard measures, whether imposed or not. In either case, a review will necessarily
entail a reappraisal of the facts from which the decisions were based. In both instances, a factual
reassessment would encompass the same kind of knowledge and technical expertise. Indeed, it
would be absurd if only a positive decision is reviewable by the CTA, while a negative one is passed
on to the CA.
Basic is the rule in statutory construction that laws should be given a sensible construction, so as to
give effect to their rationale and intent and thus avoid an unjust or absurd
interpretation.21 Interpretatio talis in ambiguis semper frienda est, ut evitatur inconveniens et
absurdum. When there is ambiguity, an interpretation that will avoid inconvenience and absurdity
is to be adopted.22 In other words, a rational interpretation must be effectuated.
Contrary to the contention of the solicitor general, Section 7(a)(7) of RA 9282 merely restates in
clearer language Section 29 of RA 8800. Undeniably, the imperfect craftsmanship of the latter has
spawned some ambiguity. I believe that Congress did not mean to add, via Section 7(a)(7) of RA
9282, a new matter to the jurisdiction of the CTA. For all along, the legislative intent has been to
vest in the CTA the power to review the imposition or non-imposition of safeguard measures.
Between the enactment of RA 8800 in 2000 and RA 9282 in 2004, there has been no significant
supervening change in circumstances in our economic or trade environments or even in our judicial
structure, which would justify Congress to add to the jurisdiction of the CTA the review of the nonimposition of a safeguard measure. The only significant intervening event that seems worth
considering is the present proceeding, which precisely reveals an ambiguity that Congress did not
intend when it enacted RA 8800. Section 7(a)(7) of RA 9282 now explicitly expresses the laws
intent.
Consequences of the
CA Decision
Because the CA wrongly exercised its limited certiorari power, its June 5, 2003 Decision was
rendered without jurisdiction and, hence, null and void.23 Held to be dead limbs on the judicial tree
are void judgments, which should be disregarded or ignored.24
Likewise, the DTI Decision dated June 25, 2003, issued pursuant to the void CA judgment, is
necessarily invalid. A void judgment is worthless and has no legal effect. 25 It cannot be the source of
any right or the creator of any obligation. Thus, all acts performed pursuant to it and all claims
emanating from it have no legal effect.26
Accordingly, the present Petition, which seeks a review of a void Decision of the CA should, in the
ordinary course, also be dismissed. Generally, this Court cannot review a legally inexistent
judgment.27
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Exceptions When Supreme Court

May Exercise Jurisdiction
In not a few cases, though, this Court has exercised its discretionary power to take cognizance of a
petition, if compelling reasons or the nature and importance of the issues raised warrant the
immediate exercise of its jurisdiction.28 For instance, in Pilipinas Kao, Inc. v. Court of Appeals,29 while
recognizing that the Board of Investments had primary jurisdiction over the merits of the case, this
Court nevertheless proceeded to exercise its review powers. It justified its act on the basis of
"procedural expediency and consideration of [the] public interest involved in the questions before
us which bear on the certainty and stability of economic policies and proper implementation
thereof."30
Also in Chavez v. Presidential Commission on Good Government,31 the Court resolved to exercise
primary jurisdiction, inasmuch as the petition involved only "constitutional and legal questions
concerning public interest." It noted that cases that had to be remanded or referred to a lower body
as the proper forum, or as the one that was better equipped to resolve the issues, generally
involved factual questions. Such a remand is merely in accordance with the principle that the
Supreme Court is not a trier of facts. But in taking jurisdiction over the petition, "unnecessary delays
and expenses" would be avoided.
In the present case, it is indisputable that the only issues raised are legal in nature. They relate to
the ability of the Executive Department to exercise its discretionary powers over an economic policy
matter. At the core of the controversy is the correct interpretation of a law enacted to address a
primordial concern of the State. That concern is to serve and protect the Filipino people32 by
developing a self-reliant and independent national economy effectively controlled by them,33 in the
face of global competition brought about by world trade liberalization. It should also be recalled
that the State, in promoting industrialization, is constitutionally mandated to protect Filipino
enterprises against unfair foreign competition and trade practices.34 The Safeguard Measures Law
was precisely enacted to give life to these constitutional policies.
In addition, if the issues before us are left unresolved, they will most likely crop up again in a similar
application under the law. All the parties involved -- the DTI, the Tariff Commission and the private
entities -- would then still be in a quandary with respect to whether the DTI head is bound by or
may review (and modify or reverse) recommendations of the Commission; as well as whether the
latter should make a final determination or simply submit its recommendations. These questions of
law would ineludibly be brought before this Court again, creating unnecessary delays and expenses
-- the undesirable ills sought to be banished by the Courts oft-repeated policy of administering
justice efficiently, effectively and promptly.
Thus, the Court is well within its powers to resolve the main substantive issue at this time, in view
of higher public interests; and the speedy, efficient and proper administration of substantial justice.
The Second Issue:
Reviewability of the
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Tariff Commissions Report

The OSGs Position
With respect to the second main issue, the solicitor general avers that the DTI is not bound by the
recommendation of the Tariff Commission. A careful scrutiny of Section 5 of RA 8800 allegedly
reveals "no indication whatsoever that it is only upon a positive final determination by the Tariff
Commission that a general safeguard may be imposed. x x x. Thus, the law necessarily permits
instances when general safeguard measures may be imposed despite the absence of such
determination" by the Commission.35
The OSG also argues that RA 8800 must be interpreted in congruence with Section 28(2) of Article
VI of the Constitution, which provides that Congress may delegate to the President the authority to
impose tariff rates. Being a mere agency in the Executive Department whose officials serve at the
pleasure of the President, the Tariff Commission could not have been authorized by the law to
impose its views on the Chief Executive. Neither could the law have intended a situation in which
"an alter ego of the President would be a mere rubber stamp that would be compelled to enforce
the recommendations of a mere agency in the Executive Department."36
Furthermore, the OSG claims that under the charter37 of the Commission (and likewise under RA
8800), the latters functions are primarily investigatory and, at most, recommendatory. The TC has
no power to decide or adjudicate. Hence, the Implementing Rules of RA 8800 required that, after
concluding its formal investigation, the TC should submit a report to the DTI. "[T]he act of
submitting documents to another body necessarily implies the power of the receiving body to
review and [to] evaluate the submitted documents x x x."38 Besides, legislative deliberations also
reveal that "[t]he intent of Congress is to vest [the] DTI [s]ecretary with the final authority over
recommendations of the Tariff Commission." Even the TCs own chairman39 concedes that the
Commissions report, made after public consultations, is only recommendatory.40
Finally, the intent and spirit of the law is purportedly to protect domestic industries from the ill
effects of import surges.41 According to the OSG, to hold the DTI secretary bound to the Tariff
Commissions negative determination would deprive of any remedy a domestic industry suffering
from serious injury.42
Private Respondents Arguments
Private Respondent Philcemcor essentially agrees with the OSG. The former claims that the Decision
misreads Section 5 of RA 8800 when it interprets "the proposition if A, then B as if it stated that if
A, and only A, then B."43A textual and contextual analysis of related provisions44 allegedly reveals
otherwise. Even the record of legislative deliberations does not support the Second Divisions
reading of the term "final determination" by the Tariff Commission. Similarly, the SMAs
implementing rules and regulations45 and relevant administrative orders,46 as well as the public
statement made by the Commission chairman,47 uniformly state that the TCs findings and
determinations are not binding or conclusive on, but merely recommendatory to, the DTI secretary.
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The relationship of the Commission and the DTI, according to Philcemcor, is that of recommending
authority and decision-maker, respectively. Accordingly, the DTI secretary may adopt, modify or
reject the TCs Report.
The Commission supposedly cannot make a determination, much less a decision, that would oust
the secretary of jurisdiction over the application for safeguard measures. For "[t]he law has seen fit
to give its findings no more than the legal effect of a report or recommendation."48 In contrast, in
the scheme of government, the DTI secretary is allegedly the alter ego of the President in the
implementation of the States economic goals and is specifically mandated to achieve the
constitutional goals on the national economy and patrimony.49 As the Presidents alter ego in the
discharge of the executive power to implement the SMA, the DTI secretary has the power of
"supervision and control" over the Commissions functions under the law.
In Philcemcors view, "it is unthinkable that the DTI secretary is not free to adopt his own
independent judgment on" matters that "he considers as erroneous conclusions arising from a
flawed framework and methodology."50The department heads function would then be reduced to
performing purely ministerial acts rather than rendering decisions that require the exercise of
discretion.51
Petitioners Contentions
On the other side of the fence, petitioner insists that the DTI secretary is empowered to impose
safeguard measures only if the Tariff Commission makes a positive final determination of the
existence of the "core elements of a safeguard situation."52 Petitioner avers that the presence of
those elements is a conditio sine qua non for the imposition of a safeguard measure. The final
determination of their existence is allegedly conferred by law upon the Commission, which was
established and exists mainly to evaluate and impose tariffs. In contrast, the DTI secretary has no
competence or institutional experience in dealing with tariff-related matters.53
Petitioner also claims that the Tariff Commission exercises quasi-judicial powers, as RA 8800
requires it "to make the final determination of the presence or absence of the core elements for the
imposition of a safeguard measure."54 Such determination supposedly involves the application of
the law to the facts and results in the adjudication of the rights and obligations of the affected
parties.55
My Submission:
DTI Secretary Not Bound
by the TCs Recommendations
I agree with the OSG and private respondent.
The Power to Impose Tariffs
Is Essentially Legislative;
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It is Delegable Only to the President

Briefly, my submission, which I shall expound on presently, is as follows. The application of
safeguard measures, while primarily intended to protect domestic industries, is essentially in the
nature of a tariff imposition. Pursuant to the Constitution, the imposition of tariffs and taxes is a
highly prized legislative prerogative.56 Pursuant also to the Constitution, such power to fix tariffs
may, as an exception, be delegated by Congress to the President.
Section 28 of Article VI of the Constitution provides for that exception, as follows:
"Sec. 28. x x x
(2) 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."
Under this constitutional provision, to no other official, except the President, is the authority to fix
tariff rates, quotas, imposts and other duties allowed to be delegated. However, the Resolution
authored by Justice Tinga theorizes that Congress may delegate such power to fix tariffs to both the
Tariff Commission and the DTI secretary, "as agents of Congress." I believe that this theory plainly
violates the aforequoted Section 28(2) of Article VI of the Constitution.
I respectfully submit that the only constitutional way to uphold the DTI secretarys imposition of
tariffs under RA 8800 is to apply the alter ego principle. In other words, the DTI secretary imposes
safeguard measures (like tariffs, import quotas, quantitative restriction, etc.) only in representation
and as an alter ego of the President in the field of trade and investment matters. Thus, the law must
be construed as delegating to the President -- through the latters alter ego on trade -- the power to
impose safeguard measures.
Under the same Section 28(2) of Article VI of the Constitution, Congress may specify "limitations
and restrictions" on the Presidents authority to impose tariff rates. However, such statutory
limitations and restrictions must themselves conform to the fundamental law. They cannot infringe,
restrict, limit, degrade or dilute the constitutional power of the President to control the entire
Executive Department.
The power of control includes the right to modify or set aside a decision of a subordinate officer.
Since the Tariff Commission is an agency in the Executive Department, it is necessarily subject to
the control and supervision of the President. Hence, its decisions and recommendations cannot tie
the hands of the Chief Executive with finality. Consequently, the DTI head, acting as the Presidents
agent pursuant to RA 8800, may affirm, modify or reverse the Tariff Commissions
recommendation. To repeat, such plenary power of control cannot be restricted by a mere statute
passed by Congress.57
Let me now discuss my proposition in more detail.
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Executive Power Vested

Upon the President
For better clarity, there is a need to put our governments administrative structure in perspective.
Section 1 of Article VII of the Constitution vests executive power upon the President, the highest
official of the land. In the exercise of this power, the President, acting in many capacities, assumes a
plenitude of authority.58 Because of the sheer multitude of the tasks of the Chief Executive,
however, the heads of the various executive agencies act as the formers alter egos or agents in the
performance of multifarious executive and administrative functions.
In Villena v. Secretary of Interior,59 this Court described the role of the Presidents top officials thus:
"Without minimizing the importance of the heads of various departments, their personality is in
reality but the projection of that of the President. x x x [E]ach head of a department is, and must
be, the Presidents alter ego in the matters of that department where the President is required by
law to exercise authority. x x x [Thus,] their acts, performed and promulgated in the regular course
of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of
the Chief Executive."
The DTI Head as Presidents
Alter Ego on Trade Matters
Executive Order 292 (the Administrative Code of 1987) outlines the administrative structure and
functions of the national government. In the realm of trade, industry and investment-related
matters, the Presidents alter ego is the DTI secretary, to whom is given the following mandate:
"Section 2. Mandate. The Department of Trade and Industry shall be the primary coordinative,
promotive, facilitative and regulatory arm of the Executive Branch of government in the area of
trade, industry and investments. It shall promote and develop an industrialization program
effectively controlled by Filipinos and shall act as catalyst for intensified private sector activity in
order to accelerate and sustain economic growth through; (a) comprehensive industrial growth
strategy, (b) a progressive and socially responsible liberalization program, (c) policies designed for
the expansion and diversification of trade, and (d) policies to protect Filipino enterprises against
unfair foreign competition and trade practices."60
In line with the above mandate, the DTI is tasked under RA 8800 to apply general safeguard
measures, when warranted, to protect domestic industries and producers from increased imports.61
On the other hand, the Tariff Commission is primarily tasked to investigate "the administration of,
and the fiscal and industrial effects of the tariff and customs laws of this country x x x [and,] in
general, to investigate the operation of customs and tariff laws, including their relation to the
national revenues, their effect upon the industries and labor of the country, and to submit reports
of its investigations x x x."62 It is also tasked to investigate "the tariff relations between the
Philippines and foreign countries x x x the effect of export bounties and preferential transportation
rates; x x x the volume of importations compared with domestic production and consumption; [as
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well as] conditions, causes and effects relating to competition of foreign industries with those of the
Philippines, including dumping and cost of production."63
Whereas the DTI secretary has to carry out a policy mandate for the President, the Tariff
Commission is but an investigatory arm that submits reports of its investigations as provided under
the law.64 Under RA 8800, it is tasked to conduct a formal investigation upon the DTI secretarys
referral of an application/a petition for a safeguard measure.65 After completion of the
investigation, it submits to the secretary a report that contains its findings and
recommendations.66 Nothing in the law explicitly states that its report or conclusions have the
effect of finality and irrefutability that shall bind the DTI head, or the President for that matter.
As the cabinet official and alter ego of the President on trade, industry and investment-related
matters, the DTI head necessarily has sufficient latitude and discretion in the pursuit of the
Departments mandate. On the other hand, being primarily a fact-finder, the Tariff Commission is
limited to submitting its report and recommendations to the referring agency. In this scheme of
tasking, absent any clear and direct provision of the Constitution, the TCs mere recommendation
cannot bind the cabinet official, much less the President. As the solicitor general aptly suggests, RA
8800 could not have intended that the alter ego of the President be a mere rubber stamp who
would be compelled to enforce the recommendations of a purely investigatory agency in the
Executive Department.67
As Chief Executive of the Republic, the President exercises control over all executive departments,
bureaus and offices.68 Control is defined as "the power of an officer to alter or modify or nullify or
set aside what a subordinate officer ha[s] done in the performance of his duties and to substitute
the judgment of the former for that of the latter."69 The Presidents power extends to "all executive
officers from cabinet member to the lowliest clerk. It is at the heart of the meaning of Chief
Executive."70
Pursuant to the power of control over subalterns, the President may modify or set aside a
recommended action of a subordinate office. Indeed, in accordance with its investigatory findings,
the Tariff Commission may recommend to the National Economic Development Authority (NEDA)
an increase in tariff rates in general; and the latter may in turn endorse the tariff increase to the
President who, however, is not bound to impose such increase. The Chief Executive may, in the
interest of the public, choose not to follow the recommended action. So, too, may the alter ego,
who merely acts as an extension of the President.
The Tinga Resolution states -- erroneously, I submit -- that I advocate the Presidents exercise of
absolute and plenary control over subordinates, such that the Chief Executive could order them to
perform illegal or irregular acts. I do not, and I have made no such preposterous statement.
Needless to state, the exercise of any power must be within the bounds of the Constitution and law.
True, Congress may reorganize the offices under the Executive Department. It may even abolish or
merge some of them. However, it cannot abolish or restrict the Presidents constitutional power of
control over executive agencies and officials. The control power of the Chief Executive emanates
from the Constitution; no act of Congress may validly curtail it.
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Neither am I asserting that the Presidents subalterns may control actions of subordinate officials or
agencies over which they have no direct functional relationship as established by law. Such
outlandish proposition would truly produce absurd results. Indeed, the secretary of the Department
of Science and Technology (DOST) has no right to reverse the rulings of the Civil Aeronautics Board
(CAB) or the issuances of the Philippine Coconut Authority (PCA), because there is no law granting
the DOST secretary any power to do so.
But, it cannot be denied that the secretary of the Department of Transportation and
Communications may review the rulings of the CAB; of the Department of Agriculture, those of the
PCA; and of the Department of Environment and Natural Resources, the decisions of the Mines and
Geosciences Bureau. In doing so, the heads of these departments act as the agents or alter egos of
the President in their respective spheres of authority.
That the TC was placed under the administrative supervision of the NEDA does not give the latter
the sole power to review the Commissions reports. Precisely, RA 8800 creates a functional
relationship between the Commission and the DTI secretary. It provides for the administrative
interplay between the two agencies but only with regard to the application of general safeguard
measures. More precisely, when the DTI secretary reviews (and ultimately affirms, modifies or
reverses) the recommendation of the Commission, he or she does so, not as one who is higher than
the Commission in the administrative stratum, but as the alter ego of the President who, by
constitutional fiat, is the only official to whom the authority to impose such measures may be
delegated by Congress.
Authority to Impose Tariffs
Allowed to be Delegated Only
to the President and Subalterns
Elementary is the rule that the power to tax is inherent upon the State, but can be exercised only by
Congress, unless allowed by the Constitution to be conferred upon another qualified government
instrumentality.71 The power to fix tariff rates also lies in the legislature. However, the delegation of
that power to the President is permissible, under Section 28 of Article VI of the Constitution, as
earlier mentioned.
RA 8800 must be construed in harmony with the said constitutional provision. In delegating to the
DTI secretary the power to impose safeguard measures, Congress could have done so only within
the constitutional restriction. The legislature could not have simply chosen the DTI secretary and
the Tariff Commission as its agents in imposing the measure. Its delegation of the power to impose
tariffs to whomsoever it chose (other than the President) was beyond its constitutional authority.
To read the law in such a manner would inevitably result in the statutes unconstitutionality.
To be consistent with the constitutional clause, the law must be understood to mean that in
delegating the authority to impose safeguard measures, Congress designated the DTI secretary,
being the Presidents subaltern or alter ego on trade matters. Again, Congress could not have
directly constituted the cabinet official as its own agent, because the Constitution categorically
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limited the delegation of such authority to the President. The fundamental law expressly states that
Congress may authorize the President (and names no other official) to impose (subject to
limitations and restrictions that it may specify) tariffs, quotas, duties and other imposts. For the
legislature to delegate the authority to another official or entity, such as the Tariff Commission, and
to completely disregard or do away with the President would be a blatant contravention of the
Constitution.
The constitutionality of RA 8800 on this ground has, however, not been raised by the parties.
Besides, courts should hesitate to rule upon a constitutional question if the controversy may be
resolved on other justifiable grounds.72 In any case, I submit that the law is susceptible of
interpretation in such a manner as to remain consistent with the Constitution.
To reiterate, RA 8800 delegates to the trade secretary, as subaltern of the Chief Executive -- not
Congress own agent -- the power to prescribe safeguard measures.
Clearly then, in imposing a safeguard measure, the DTI secretary acts as the Presidents alter ego.
Because the Presidents power of control over any office in the Executive Department cannot be
restricted or degraded by Congress, by the same reasoning the exercise by the alter ego of such
power of control over actions of the Tariff Commission cannot be constitutionally curtailed by
Congress. Otherwise stated, the President -- through the constitutional power of control over the
Executive Department -- has the prerogative to affirm, modify or reverse any action of the Tariff
Commission. Thus, the DTI secretary -- as the Presidents alter ego on trade matters -- may exercise,
in the Presidents stead, the same prerogative of affirmation, modification or reversal over any
action of the Commission.
Congress Restrictions on the
Imposition of Safeguards
Needless to state, the Presidents (and the subalterns) power of control surely cannot be exercised
on mere whim or caprice. Indeed, in exercising the authority delegated to impose tariffs or other
safeguard measures, the President (and the subalterns) may not do so without rhyme or reason or
just to appease external pressures or political forces. The Chief Executive is indeed bound by the
valid restrictions or limitations laid down in RA 8800.
Section 5 of that law specifies the conditions for the application of safeguard measures, as follows:
(1) the importation of a product in increased quantities, whether absolute or relative to the
domestic production; (2) an actual or a threatened serious injury73 to the domestic industry as a
result of increased importation; and, (3) most important, application of the safeguard measure to
serve the public interest.
These are the substantial conditions or limitations specified by the law for the imposition by the DTI
head (or, principally, the President) of a safeguard measure.74 The Tariff Commission is tasked to
determine the presence of the first two conditions -- matters that may be ascertained by factual
examination. The final factor is left to the discretion of the DTI secretary. Public interest is
something in which the public or community at large has some pecuniary interest affecting their
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legal rights or liabilities.75 Because it concerns the general public, its determination is not
quantifiable in exact terms. There are no definite parameters by which it may be established solely
by judicial authorities. Its determination is indubitably a political question; thus, it is addressed to a
policy maker who is answerable to the people, not a fact finder or investigatory body that has no
electoral mandate.
To emphasize, the congressional limitation on the exercise of the delegated authority to impose
safeguards does NOT refer to the final determination or recommendation of the Tariff Commission
that the first two factual conditions are present or absent. Of course, these are important
considerations that are verifiable from the records of the proceedings undertaken by the
Commission. These data must be weighed accordingly. In the same vein, many immeasurable and
indirect variables have to be assessed in ensuring that public interest is subserved. In the final
analysis, the decision to impose a safeguard measure hinges on public interest, which is a political
question best addressed by our peoples elected officials led by the President.
Contemporaneous Administrative
Construction Prevailing
The interpretation of an administrative government agency, which is tasked to implement a statute,
is generally accorded great respect and ordinarily controls the construction of the courts.76
The crafting of the implementing rules and regulations (IRR) of RA 8800 was a joint undertaking of
several executive agencies -- the Departments of Agriculture, Trade and Industry, and Finance; the
Bureau of Customs; the NEDA; and the Tariff Commission -- after consultations with domestic
industries.77 Rule 13.2 of the final IRR expressly states as follows:
"Rule 13.2. Final Determination by the Secretary
"Rule 13.2.a. Within fifteen (15) days from receipt of the Report of the Commission, the Secretary
shall make a decision, taking into consideration the measures recommended by the Commission."
xxxxxxxxx
Indeed, the very administrative government agencies tasked under the same law to implement its
provisions clearly understood that it is the DTI secretary who makes the final determination or
decision. In making a decision, the secretary merely takes into consideration the recommendations
of the Tariff Commission. On the other hand, the latter, in making its recommendations, does not
determine in an adjudicative manner the rights, privileges and duties of private parties. Hence, its
functions, even under RA 8800, cannot be classified as quasi-judicial.78
If RA 8800 intended to transform the Tariff Commission into a quasi-judicial body, as private
respondent asserts, I think no less than the Commission would have been happiest to don the new
vest. But, aptly, it has shown no such presumptuousness. In its own TC Order No. 00-02, it described
its task as "fact-finding and administrative in nature."79 In interpreting the requirement of the law, it
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fully understood that "[b]ased on its findings, the Commission shall submit to the [s]ecretary x x x
[its] Investigation Report [and] proposed recommendations x x x," among others.
Commission Chairman Edgardo Abon was clearly cognizant of the TCs role in the proceedings on
the original application for a safeguard measure. As the solicitor general submits, during the public
consultation conducted by the Commission in relation to this case, its chairman categorically stated
that their (TC members) "recommendation is but recommendatory. x x x. Thats why the Tariff
Commissions investigation is called fact-finding. x x x. [B]ut of course the recommendation can be
persuasive because the [s]ecretary will have a strong argument, must really have a very, very strong
arguments (sic) for him to overturn the recommendations. It has a persuasive effect, thats what
[Im] saying, but at the end of the day[,] you know the [s]ecretary has, for reason I think in the law
the matter of public interest is left to the discretion of the [s]ecretary x x x."80
Chairman Abon could not have been more precise. Indeed, 1) the role of the Commission is factfinding and recommendatory; 2) its recommendation is persuasive (being based on public
consultations); and 3) the secretary must have very strong and substantial reasons to overturn the
Commissions proposed action.
The last item is important. The DTI secretary could not issue a decision arbitrarily, without
substantial factual and legal bases. In making a final decision -- whether to impose or not to impose
a safeguard measure -- the secretary is still bound by the conditions laid down in Section 5 of RA
8800. As earlier mentioned, those limitations are as follows: the importation of a product in
increased quantities, whether absolute or relative to the domestic production; an actual or a
threatened serious injury to the domestic industry as a result of increased importation; and the
application of the safeguard measure in the public interest.
These parameters should allay petitioners fear of a violation of due process in case of a reversal by
the secretary of the negative determination by the Commission. Both may have the same factual
moorings on the basis of which they may, however, have contrasting conclusions on the need for a
safeguard measure.
In addition, the decision of the secretary, as I have stated at the outset and as provided under RA
8800, is reviewable by the CTA.
In contrast, under petitioners submission (upheld by the Second Division) that the DTI secretary
may impose the measure only upon a positive determination by the Tariff Commission, a violation
of due process would be more probable in case of a negative determination by the latter. Following
the ponencias literal interpretation of the law, the aggrieved party (the applicant) in such a
situation would be left with absolutely no recourse. A negative report will then be not reviewable
by anyone -- not by the DTI secretary who is bound by it; not by the President, who has no direct
role in the proceeding defined under the law; and not by the courts, which may review only the DTI
secretarys decisions. Such a scheme of things constitutes an utter disregard of the guarantee of
due process under the Constitution.
The ponencia even goes further by declaring that "nothing in the SMA obliges the DTI [s]ecretary to
adopt the recommendations made by the Tariff Commission."81 If the trade secretary can reject a
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positive final determination of the Commission, what is the rationale behind binding him to a
negative determination by the same body? I cannot think of more illogic.
Giving Meaning to the
Intent and Purpose of the Law
Moreover, the object and purpose of RA 8800 should be given utmost consideration and effect. The
law was enacted primarily to protect or safeguard local industries and producers from increased
importation of foreign products, which cause or threaten to cause serious domestic injury. RA 8800
was intended to secure our local industry from the ill effects of global trade liberalization. It was
aimed at protecting Filipino interests vis--vis international trade policies.
Toward these ends, I believe this Court must give domestic industries every opportunity to seek
redress through the most expeditious means possible. On matters concerning policy questions, it
must allow the political departments ample chances to make the proper determinations within
their respective spheres of competencies.Be it remembered that in the imposition of safeguard
measures, not only the analysis of technical data is involved but likewise, and perhaps in a more
crucial sense, the determination that it serves the public interest. The proceeding does not merely
relate to the settlement of conflicting claims of private parties but, more important, the
achievement of the national policy to promote the competitiveness of domestic industries as a
whole. In short, we must give essence to the aim of the law to advance the industrial development
of the country.
In line with this aim, the doctrine on the exhaustion of administrative remedies should be made to
work out. After all, the administrative agencies of the government, particularly the Department of
Trade and Industry with respect to safeguard measures, possess the necessary knowledge and
expertise linked up with policy concerns. The Department heads, especially because they serve as
alter egos of the President, should not be needlessly restricted in the exercise of their discretion. It
is they who best know how to address properly the nonjudicial interests of the people. Thus, before
resorting to courts, all possible administrative means should be exhausted.
While on the topic of exhaustion of administrative remedies, may I add my personal belief that the
Decision of the secretary of trade should be appealable to the President.82 After all, the President
cannot be deprived of the power to review, modify or reverse actions of his or her alter egos. In the
present case, the Constitution expressly mentions the "President" as the official whom "Congress
may, by law, authorize" to impose "tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imports." Thus, in the Executive Department, the President should have
the final say on such matters. However, I shall not dwell at length on this point because it was not
raised as an issue by the parties.
Peripheral Issue:
Forum Shopping
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With respect to the question on forum shopping, I also agree with the Resolution of the Court that
petitioner must answer for its failure to give timely information to the Court of the Petition for
Review that the former filed with the CTA while the present case was pending here. But there being
no showing of willful and deliberate forum shopping, the Petition does not deserve outright
dismissal.
It should be recalled that pursuant to the June 5, 2003 Decision of the CA, the DTI secretary
immediately issued on June 25, 2003, a new Decision (this time imposing a definitive safeguard
measure), notwithstanding the Petition for Review filed just two days earlier by Southern Cross
Cement before this Court. Hence, in view of its pending Petition here, petitioner filed with this
Court on July 7, 2003, a Very Urgent Application for a Temporary Restraining Order or Writ of
Preliminary Injunction, seeking to enjoin the DTI secretary from enforcing his new Decision. In
addition, pursuant to Section 29 of RA 8800, petitioner filed before the CTA a Petition for Review of
the June 25, 2003 DTI Decision. Petitioner did not, however, give timely information to this Court of
the CTA Petition, in which the parties, causes of action, and reliefs sought were indeed the same as
those in the instant Petition.83 Hence, private respondent filed a Manifestation and Motion to
Dismiss this Petition, on the ground of forum shopping.
Section 5, Rule 7 of the Rules of Court, provides as follows:
"Sec. 5. Certification against forum shopping.The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore
commenced any action or filed any claim involving the same issues in any court, tribunal or quasijudicial agency and, to the best of his knowledge, no such other action or claim is pending therein;
(b) if there is such other pending action or claim, a complete statement of the present status
thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed
or is pending, he shall report that fact within five (5) days therefrom to the court wherein his
aforesaid complaint or initiatory pleading has been filed.
"Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false
certification or non-compliance with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding administrative and criminal actions. If
the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the
same shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as
well as a cause for administrative sanctions."
The foregoing Rule behooved petitioner to inform this Court of any similar action pending before
any court, tribunal or agency within five days from knowledge of the proceeding. Yet, petitioner did
so only after 11 days, without a satisfactory and justifiable explanation.
Forum shopping has been characterized as an act of malpractice that is prohibited, and condemned
as trifling with the courts and abusing their processes. It constitutes improper conduct, because it
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tends to degrade the administration of justice. It has also been aptly described as deplorable,
because it adds to the congestion of the already heavily burdened court dockets.84
Failure to comply with the non-forum shopping requirements in Section 5 of Rule 7 does not,
however, automatically warrant the dismissal of the case with prejudice. The Rule states that the
dismissal is without prejudice;85 with prejudice, only upon motion and after hearing. And there must
be evidence that the erring party and counsel committed willful and deliberate acts amounting to
forum shopping as to warrant the summary dismissal of the case and the imposition of direct
contempt and the appropriate administrative sanctions.86 In previous cases, the penalties imposed
upon erring lawyers who engaged in forum shopping ranged from severe censure to suspension
from the practice of law, in order to make them realize the seriousness of the consequences and
implications of their abuse of the judicial process and disrespect for judicial authority. 87
Based on the foregoing tenets, I believe that petitioners counsels should be sanctioned with severe
censure.
Summary
In sum, I submit that the CTA has jurisdiction over the DTI secretarys decisions issued pursuant to
RA 8800. Accordingly, the CA acted arbitrarily in giving due course to private respondents Petition
for Certiorari seeking to set aside the DTI secretarys April 5, 2002 Decision. Therefore, its June 5,
2003 Decision is void and has no legal effect.
Having ruled the CA Decision void, this Court should normally dismiss the present Petition.
However, because the remaining issue before it is purely legal and imbued with public interest -touching as it does upon the economic security of our domestic industries -- it is proper for the
Court to resolve it once and for all, as an exception to the general rule. The resolution of this legal
issue now would avoid unnecessary delays and costs, consistent with the Courts policy of prompt
and proper administration of substantial justice.
The application of a safeguard measure, while primarily intended to protect domestic industries, is
essentially in the nature of a tariff imposition. Pursuant to the Constitution, the imposition of tariffs
and taxes may be exercised only by Congress. However, Section 28 of Article VI of the Constitution
provides for an exception: it allows Congress to authorize the President to fix -- subject to such
limitations and restrictions as it may impose -- tariff rates, quotas and other duties. To no official,
other than the President, is that power allowed to be delegated.
Consistent with the foregoing principle, RA 8800 must be construed as having delegated the power
to apply safeguard measures to the President, through the alter ego on trade and investment
matters -- the DTI secretary.
While Congress may specify limitations in the Presidents authority to impose tariffs, such legislative
restrictions must operate within the bounds of the Constitution. These limitations cannot impinge
upon, restrict or overturn the Presidents constitutional power of control over the entire Executive
Department.
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The power of control includes the right to modify or set aside a decision of a subordinate officer.
The Tariff Commission, being a mere agency in the Executive Department, is necessarily subject to
the control and supervision of the President. Hence, its decisions and recommendations cannot tie
the hands of the Chief Executive with finality. Consequently, the DTI head, acting as the Presidents
alter ego pursuant to RA 8800, may affirm, modify or reverse the Tariff Commissions
recommendation.
As I have said at the outset, the DTI secretary, as the prime mover of the countrys trade and
commercial affairs, must be given broad latitude in the pursuit of the agencys mandate. The
countrys topmost trade official, handpicked by the President, is presumed to possess the
competence and the erudition to steer the Department towards the achievement of State goals
within the DTIs sphere. As the Chief Executives alter ego in the area of trade, the secretary must
be allowed to exercise ample discretion on matters vested in the position. And so long as the
Department heads decisions are not reversed or modified by the President, they should be
accorded the highest respect by the courts.
The principal duty of the judiciary is to adjudicate actual controversies involving rights and
obligations of persons; it has no business interfering in the realm of policy making. Basic is the rule
that courts should adopt a hands-off approach with respect to non-judicial concerns of government.
The only ground upon which they can review apparently policy questions is when an act of an
agency or instrumentality of government, including the Presidency and Congress, is blatantly
contrary to law or the Constitution or clearly tainted with grave abuse of discretion.88 In these
exceptional instances, it becomes the bounden duty of the Court to nullify the act.89
Otherwise, the official acts of the Executive and the Legislative Departments are presumed to be
regular and done in good faith. Unless clear and convincing proof is presented to overthrow such
presumption, the Court will resolve every doubt in their favor.90
Whether such acts are beneficial or viable is outside the realm of judicial inquiry and review. That
matter is between the elected policy makers and the people.91 To repeat, the Courts judicial role
comes into play only when those acts are clearly unlawful or unconstitutional or performed with
grave abuse of discretion. In nullifying them, the Court does so merely to uphold the rule of law. For
indeed there can be no meaningful economic and social progress without an effective rule of law in
place.92
This Court should maintain its deferential stance respecting acts emanating from government
agencies, especially those involving the economy. Far from being an unwanted interloper in
economic matters not within its field of expertise, the Court, in recent Decisions nullifying
government contracts,93 steadfastly upholds one of the most revered policy axioms in the business
community -- the "leveling of the playing field."94 To paraphrase what the Court said in a recent
case,95 the "Constitution and the law should be read in broad, life-giving strokes. They should not be
used to strangulate economic growth or to serve narrow, parochial interests." Rather, they should
be construed to grant the President and his or her alter egos sufficient discretion and reasonable
leeway to enable them to secure for our people and our posterity the blessings of prosperity and
peace.
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WHEREFORE, I vote to GRANT the Motion in part and to REVERSE the assailed Decision, insofar as it
held that the secretary of the Department of Trade and Industry (DTI) was bound by the
recommendations of the Tariff Commission. More emphatically, I vote to UPHOLD the authority of
the secretary to impose safeguard measures, even if the Tariff Commission does not recommend
their imposition. I also vote that, for violation of the anti-forum shopping rule, petitioners counsels
should be sanctioned with SEVERE CENSURE.
Footnotes
1
Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386, 393, June 30,
1988, per Sarmiento, J.
2
434 SCRA 65, July 8, 2004.
Now the "Cement Manufacturers Association of the Philippines."
In brief, the antecedents of the Second Divisions Decision are as follows:
1. May 22, 2001 Private respondent Philcemcor filed before the DTI an application for the
imposition of a safeguard measure on the importation of gray Portland cement.
2. Nov. 7, 2001 DTI issued an Order imposing a provisional measure equivalent to P20.60
per 40-kg bag of imported gray Portland cement, effective for 200 days from issuance by the
Bureau of Customs (BOC) of the implementing Customs Memorandum Order.
3. Dec. 10, 2001 BOC issued the pertinent Customs Memorandum Order.
4. Mar. 13, 2002 The Tariff Commission came out with its Formal Investigation Report, in
which it concluded that "[t]he 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."
5. Apr. 5, 2002 After noting that it was in disagreement with the TCs recommendation,
the DTI issued its Decision denying the application for a safeguard measure, in accordance
with that recommendation.
6. Apr. 22, 2002 Philcemcor filed before the CA a Petition for Certiorari, Prohibition and
Mandamus, praying that the DTI Decision and TC Report be set aside; and that the DTI
secretary be directed to render an independent judgment.
7. June 5, 2003 The CA promulgated its Decision holding that (a) it had jurisdiction over
the Petition for Certiorari, allegedly because of grave abuse of discretion; and (b) the DTI
secretary was not bound by the factual findings of the TC, which were merely
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recommendatory. The CA remanded the case to the DTI secretary for the latter to render a
final decision in accordance with RA 8800 and the Implementing Rules.
8. June 23, 2003 Southern Cross filed the present Petition, grounded on the following: (1)
the CA had no jurisdiction, the proper remedy being a petition for review with the CTA; and
(2) the TCs factual findings are binding upon the DTI secretary.
9. June 25, 2003 the DTI secretary issued a new Decision, prescinding from the CA Decision
that it was not bound by the TC recommendation imposing a safeguard duty of P20.60 per
40-kg bag of imported gray Portland cement for 3 years.
10. July 7, 2003 Southern Cross filed with the SC a Very Urgent Application for a TRO or
Writ of Preliminary Injunction, seeking to enjoin the DTI secretary from enforcing the
Departments June 25, 2003 Decision, in view of the pending Petition before this Court.
11. Aug. 1, 2003 Southern Cross filed with CTA a Petition for Review of the June 25, 2003
DTI Decision.
12. Subsequently, Philcemcor filed before this Court a Manifestation and Motion to Dismiss
this Petition, on the ground of forum shopping.
5
"SEC. 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
Court of Tax Appeals, 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."
6
Emphasis in the original.
"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
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."
8
Citing Arevalo v. Benedicto, 58 SCRA 186, July 31, 1974, the solicitor general claims as
follows:
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"x x x. For the want of jurisdiction by a court over the subject matter renders the judgment
void and a mere nullity. Considering that a void judgment is in legal effect no judgment, by
which no rights are divested, from which no rights can be obtained, which neither binds nor
bars anyone, and under which all acts performed and all claims flowing out of are void, and
considering, further, that the decision, for want of jurisdiction of the court, is not a decision
in contemplation of law, and hence, can never become executory, it follows that such a void
judgment cannot constitute a bar to another case by reason of res judicata. Not being
barred by res judicata, there can be no end to litigation and thus, the administration of
justice will severely be prejudiced." OSGs Motion for Reconsideration, p. 9.
9
An Act Expanding the Jurisdiction of the CTA.
10
Philcemcors Memorandum, p. 50.
11
"SEC. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

xxxxxxxxx
"(7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and counter vailing duties under Sections 301 and
302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic
Act No. 8800, where either party may appeal the decision to impose or not to impose said
duties."
12
The following reasons are mentioned. First, both instances involve a tax aspect or the
propriety of enforcing a safeguard measure. Second, in either case, a private party will be
aggrieved. Third, the same issues -- the factual basis of and/or the methodology used in the
determination -- will be raised in either case. Fourth, the CTA has specialized expertise in tax
and customs laws. Fifth, the parties right to equal protection of the law would in effect be
violated by the difference between the proceedings before the CTA, which are in the nature
of trial de novo; and those in the CA, which are not. Lastly, there is no sound and cogent
reason to split the jurisdiction over appeals from the DTI secretarys decision and, indeed,
the legislature did not intend any distinction. Philcemcors Memorandum, pp. 48-51.
13
See footnote 5.
14
Villegas v. Fernando, 27 SCRA 1119, April 28, 1969; Go v. Court of Appeals, 358 Phil. 214,
October 8, 1998; Indiana Aerospace University v. Commission on Higher Education, 356
SCRA 767, April 4, 2001.
15
Augusto v. Risos, 417 SCRA 408, December 10, 2003.
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16
Cuison v. Court of Appeals, 351 Phil. 1089, April 15, 1998; Del Mar v. Court of Appeals, 429
Phil. 19, March 13, 2002.
17
Under 15 of RA 8800, "[t]he duration of the period of an action taken under the General
Safeguard Provisions of [the] Act shall not exceed four (4) years," including the period in
which a provisional safeguard relief under Section 8 was in effect. In the present case, the
provisional safeguard measure took effect on December 10, 2001.
18
Commissioner of Internal Revenue v. Court of Appeals, 338 Phil. 322, April 18, 1997
(citing Philippine Refining Company v. Court of Appeals, 256 SCRA 667, May 8, 1996;
Commissioner of Internal Revenue v. Wander Philippines, Inc., 160 SCRA 573, April 15,
1988); Commissioner of Internal Revenue v. General Foods (Phils.), Inc., 401 SCRA 545, April
24, 2003.
19
See 8 & 13, RA 8800.
20
12, ibid.
21
Cosico Jr. v. NLRC, 338 Phil. 1080, May 23, 1997.
22
Ibid. (citing Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184, 187,
January 15, 1992).
23
Philippine-Singapore Ports Corp. v. NLRC, 218 SCRA 77, January 29, 1993; Velasco v. Ople,
191 SCRA 636, November 26, 1990; Solid Homes, Inc. v. Payawal, 177 SCRA 72, August 29,
1989; Republic of the Philippines v. Sangalang, 159 SCRA 515, April 8, 1988; Goodrich
Employees Association v. Flores, 73 SCRA 297, October 5, 1976.
24
Soliweg v. Workmen's Compensation Commission, 88 SCRA 569, February 27, 1979.
25
Ibid.
26
AFP Mutual Benefit Association, Inc. v. NLRC, 267 SCRA 47, January 28, 1997.
27
Velarde v. Social Justice System, 428 SCRA 283, April 28, 2004.
28
Del Mar v. Philippine Amusement and Gaming Corporation, 346 SCRA 485, November 29,
2000 (citingFortich v. Corona, 289 SCRA 624, April 24, 1998; Tano v. Socrates, 278 SCRA 154,
August 21, 1997;Ramos v. CA, 269 SCRA 34, March 3, 1997).
29
372 SCRA 548, December 18, 2001.
30
Id., p. 565, per Kapunan, J.
31
307 SCRA 394, May 19, 1999, per Panganiban, J.
224
MAS
Taxation I
32
4, Art. II of the Constitution.
33
19, ibid.
34
1, par. 2, Art. XII, ibid.
35
OSGs Motion for Reconsideration, p. 27. Emphasis in the original.
36
Id., p. 46. Original in boldface and underlined.
37
See 505, Tariff and Customs Code.
38
OSGs Motion for Reconsideration, p. 36 (citing Sharp International Marketing v. Court of

Appeals, 201 SCRA 299, September 4, 1991). See also Philcemcors Memorandum, p. 4.
39
Then Chairman Edgardo Abon.
40
OSGs Memorandum, p. 50.
41
"SEC. 2. Declaration of Policy. The State shall promote the competitiveness of domestic
industries and producers based on sound industrial and agricultural development policies,
and efficient use of human, natural and technical resources. In pursuit of this goal and in the
public interest, the State shall provide safeguard measures to protect domestic industries
and producers from increased imports which cause or threaten to cause serious injury to
those domestic industries and producers."
42
Other reasons proffered by the OSG are the following. First, the Decision emasculates the
principle behind safeguard measures; it violates the Constitution, specifically, Section 12 of
Article XII, which exhorts the State to favor local labor, industries and products over foreign
ones. RA 8800 gives local industries and the agricultural sector a temporary breathing space
to adjust to imports; yet, the Decision "effectively creates higher, more stringent standards
for the availment of safeguard measures x x x." This argument has also been raised by
Philcemcor. (See its Motion for Reconsideration, pp. 41-44; and Memorandum, pp. 3536.) Second, Section 13 of RA 8800 is the controlling provision with respect to "negative final
determinations." Nowhere in this provision is it stated that the Tariff Commission would
render such determinations; on the contrary, the provision mentions the DTI secretary only;
hence, it is to the secretary that the law grants the power to render a final
decision. Third, Section 19 of the law empowers the DTI head to extend the effectivity of a
safeguard measure; this power is merely incidental to the general power of making the final
decision on whether to impose definitive safeguard measures. It would be illogical if the
Department secretary were authorized to exercise only incidental functions, while another
body possesses the general power over the same matter.
43
Philcemcors (or CMAPs) Motion for Reconsideration, p. 11; rollo, Vol. IV, p. 2398.
44
5, 6, 7, 8, 13 & 17.
225
MAS
Taxation I
45
Joint Administrative Order No. 3, Series of 2000, issued by the secretaries of Agriculture,
Trade and Industry, and Finance; the Bureau of Customs commissioner and the Tariff
Commission chair.
46
E.g. TC Order No. 00-02.
47
Philcemcors Motion for Reconsideration, p. 17; rollo, Vol. IV, p. 2404.
48
Id., p. 16.
49
1 & 2, Title X, Book IV of the Administrative Code; Article XII, Constitution.
50
Philcemcors Motion for Reconsideration, supra, pp. 34-35 (citing an official statement of
the DTI secretary issued on April 1, 2002); rollo, pp. 2421-2422.
51
Other arguments of Philcemcor include the following. First, Congress delegated to the DTI
secretary the authority to prescribe safeguard measures, while assigning to the Commission
the task of providing the necessary support for that function; but the ultimate responsibility
for the proper exercise of the delegated authority is lodged in the DTI head. (Motion for
Reconsideration, p. 24; rollo, Vol. IV, p. 2411; and Memorandum, p. 14;) Second, under the
doctrine of implied grant of powers, "all powers necessary for the discharge of the express
powers are also granted, unless expressly withheld." (Memorandum, p. 7.) The power of the
DTI secretary to impose safeguard measures is not legally conditioned on a positive
recommendation by the Commission; referral to the latter of the application and the
holding of public hearings are only part of the due process guarantee. Third, the imposition
of safeguard measures is primarily an exercise of the police power, not the taxing power, of
the State. The laws singular objective is to protect local industries; thus, prior to the
imposition of the measure by the DTI, the Tariff Commission is tasked to ascertain the
existence of injury or serious threat to the local industry.
52
Petitioner quotes the following from private respondent Philcemcors Memorandum:
"The basic obligations of WTO Members under the Agreement on Safeguards are the
OBSERVANCE OF DUE PROCESS in the adoption and application of any safeguard measure,
AND THE NECESSITY OF A PRINCIPLED FINDING ON THE PRESENCE OF THREE CORE
ELEMENTS OF A SAFEGUARD SITUATION. These core elements are the following: (a) that
products from one Member (the exporting country) of the WTO are being imported into the
territory of another Member of the WTO (the importing country) in such increased
quantities, absolute or relative to domestic production, and (b) under such conditions as to
cause or threaten to cause serious injury to the domestic industry that produces like or
directly competitive products; and (c) the causal link between increased imports and serious
injury or threat thereof (Art. 2, para. 1, and Art. 4, para. 2(b), Agreement on Safeguards. x x
x.)." (Emphasis supplied by petitioner.) Petitioners Memorandum, p. 9.
53
Petitioners Memorandum, p. 16.
226
MAS
Taxation I
54
Id., p. 39. Underscoring in the original.
55
Petitioner submits these other contentions:
1) To allow the DTI secretary to reject the positive final determination of the Commission
would result in an anomalous situation when it is the former who initiates the proceeding
pursuant to Section 6 of RA 8800. In that event, the secretary will become the complainant
and reviewing body at the same time, a situation declared abhorrent by the Supreme Court.
(Petitioners Memorandum, p. 16 [citing Corona v. Court of Appeals, 214 SCRA 378,
September 30, 1992]).
2) A modification or reversal by the DTI head of the Commissions final determination will
be a deprivation of the due process rights of the concerned parties, who will not have the
opportunity to be heard prior to the DTIs action.
3) Making a distinction as to whether the imposition of a safeguard measure is an exercise
of police power or the power of taxation only serves to muddle the issues, "for it has been
settled that the taxing power may be used as an implement of police power." (Id., p. 22
[citing Lutz v. Araneta, 98 Phil. 148, December 22, 1955]. Emphasis in the original). In any
event, "police power is lodged primarily in Congress, not the Executive, and x x x it is only by
virtue of a valid delegation by Congress that it may be exercised by the President
x x x." (Id., p. 28 [citing Cruz, Isagani A, Constitutional Law, 1995, p. 44]).
56
City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353, March 25, 1999; Mactan
Cebu International Airport Authority v. Marcos, 261 SCRA 667, September 11, 1996.
57
Bernas, Joaquin G., SJ, The Constitution of the Republic of the Philippines, A Commentary
(1988), Vol. II, p. 205. ("Since the Constitution has given the President the power of control,
with all its awesome implications, it is the Constitution alone which can curtail such
power.")
58
Cruz, Isagani A, Political Law (1998), pp. 185-186.
59
67 Phil. 451, 463, 464, April 21, 1939, per Laurel, J.
60
Title X, Chapter 1, Book IV of EO 292.
61
2, RA 8800.
62
505(a) & (h), Tariff and Customs Code. Emphasis supplied.
63
505(e), (f) & (g); ibid.
227
MAS
Taxation I
64
For instance, under Section 506 of the Tariff and Customs Code, the Commission is tasked
to give information and assistance to the President and Congress; under Section 401, to
recommend to the NEDA a tariff rate increase.
65
7 & 9, RA 8800.
66
9 & 14, ibid.
67
OSGs Motion for Reconsideration, p. 46.
68
17, Art. VII of the Constitution.
69
Cruz, supra (citing Mondano v. Silvosa, 97 Phil. 143, May 30, 1955, per Padilla, J.).
70
Bernas, supra, p. 204.
71
City of Ozamiz v. Lumapas, 65 SCRA 33, July 15, 1975. For instance, under 5, Art. X of the
Constitution, on local governments are directly conferred the power of taxation within their
respective area jurisdictions.
72
People v. Pinca, 318 SCRA 270, November 17, 1999 (citing Sotto v. Comelec, 76 Phil 516,
522, April 16, 1946); Pimentel Jr. v. House of Representatives Electoral Tribunal, 393 SCRA
227, November 29, 2002.
73
4(o) of RA 8800 defines serious injury as "a significant impairment in the position of a
domestic industry after evaluation by competent authorities of all relevant factors of an
objective and quantifiable nature having a bearing on the situation of the industry
concerned, in particular, the rate and amount of the increase of imports of the product
concerned in absolute and relative terms, the share of the domestic market taken by
increased imports, changes in levels of sales, production, productivity, capacity utilization,
profit and losses, and employment."
74
Procedure-wise, the requirements are stated in 6, 7, 9 & 10. For other limitations, see
15.
75
F.B. Moreno, Philippine Legal Dictionary, 3rd ed. (citing Banco Filipino v. Monetary Board,
142 SCRA 533, July 8, 1986).
76
Republic v. Sandiganbayan, 355 Phil. 181, July 31, 1998.
77
See 32, RA 8800.
78
See Cario v. Commission on Human Rights, 204 SCRA 483, December 2, 1991;
Presidential Anti-Dollar Salting Task Force v. Court of Appeals, 171 SCRA 348, March 16,
1989.
228
MAS
Taxation I
79
2.
80
The OSGs Memorandum, pp. 28-29. See also Philcemcors Memorandum, pp. 21-22.
81
Resolution, p. 32.
82
See Valencia v. Court of Appeals, 401 SCRA 666, April 29, 2003.
83
"x x x [T]o determine whether a party violated the rule against forum shopping, the most
important factor to ask is whether the elements of litis pendentia are present, or whether a
final judgment in one case will amount to res judicata in another. Otherwise stated, the test
for determining forum shopping is whether in the two (or more) cases pending, there is
identity of parties, rights or causes of action, and reliefs sought."Young v. Keng Seng, 398
SCRA 629, March 5, 2003. See also First Philippine International Bank v. Court of Appeals,
252 SCRA 259, January 24, 1996.
84
Chemphil Export & Import Corp. v. Court of Appeals, 251 SCRA 257, 291-292, December
12, 995; Ong v. Court of Appeals, 384 SCRA 139, July 5, 2002.
85
Barroso v. Ampig Jr., 328 SCRA 530, March 17, 2000; Sto. Domingo-David v. Guerrero, 296
SCRA 277, September 25, 1998.
86
Barroso v. Ampig Jr., supra.
87
Top Rate Construction & General Services, Inc. v. Paxton Development Corporation, 410
SCRA 604, September 11, 2003 (citing Benguet Electric Cooperative, Inc. v. National
Electrification Administration, 193 SCRA 250, January 23, 1991; Villanueva v. Adre, 172 SCRA
876, April 27, 1989; Vda. de Tolentino v. De Guzman, 172 SCRA 555, April 19, 1989.
88
There is grave abuse of discretion when an act is done contrary to the Constitution, the
law or jurisprudence; or when it is executed whimsically, capriciously or arbitrarily out of
malice, ill will or personal bias. Information Technology Foundation of the Philippines v.
Commission on Elections, 419 SCRA 141, January 13, 2004 (citing Republic v. Cocofed, 372
SCRA 462, 493, December 14, 2001; and Taada v. Angara, 272 SCRA 18, 79, May 2, 1997.
89
See Tatad v. Secretary of Energy, 346 Phil 321, November 5, 1997; Chavez v. Public Estates
Authority, 433 Phil. 506, July 9, 2002; Agan v. Philippine International Air Terminals Co., Inc.,
402 SCRA 84, May 5, 2003, and 420 SCRA 575, January 21, 2004; Francisco Jr. v. House of
Representatives, 415 SCRA 45, November 10, 2003; Information Technology Foundation of
the Philippines v. Commission on Elections, supra.
90
Taada v. Angara, 338 Phil. 546, 604-605, May 2, 1997.
91
Ibid.
229
MAS
Taxation I
92
See Panganiban, Liberty and Prosperity, a speech delivered before the 10th National
Convention of the Integrated Bar of the Philippines in Baguio City on April 20, 2005.
93
Chavez v. Public Estates Authority, supra; Agan v. Philippine International Air Terminals
Co., Inc., supra; Information Technology Foundation of the Philippines v. Commission on
Elections, supra.
94
See Panganiban, Leveling the Playing Field, 2004 ed., pp. 46-59.
95
La Bugal Blaan v. Ramos, GR No. 127882, December 1, 2004, per Panganiban, J.
230
MAS
Taxation I
13. BATANGAS POWER CORP. VS BATANGAS CITY

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 152675
April 28, 2004
BATANGAS
POWER
CORPORATION, petitioner,
vs.
BATANGAS CITY and NATIONAL POWER CORPORATION, respondents.
x--------------------x
G.R. No. 152771 April 28, 2004
NATIONAL
POWER
vs.
HON. RICARDO R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, Makati City;
BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in his capacity as Chief Legal Officer,
Batangas City; and BENJAMIN PARGAS, in his capacity as City Treasurer, Batangas
City, respondents.
DECISION
PUNO, J.:
Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of Civil
Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in its February 27,
2002 Decision in Civil Case No. 00-205.
The facts show that in the early 1990s, the country suffered from a crippling power crisis. Power
outages lasted 8-12 hours daily and power generation was badly needed. Addressing the problem,
the government, through the National Power Corporation (NPC), sought to attract investors in
power plant operations by providing them with incentives, one of which was through the NPCs
assumption of payment of their taxes in the Build Operate and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC entered into
a Fast Track BOT Project. Enron agreed to supply a power station to NPC and transfer its plant to
the latter after ten (10) years of operation. Section 11.02 of the BOT Agreement provided that NPC
shall be responsible for the payment of all taxes that may be imposed on the power station, except
income taxes and permit fees. Subsequently, Enron assigned its obligation under the BOT
Agreement to petitioner Batangas Power Corporation (BPC).
231
MAS
Taxation I
On September 13, 1992, BPC registered itself with the Board of Investments (BOI) as a pioneer
enterprise. On September 23, 1992, the BOI issued a certificate of registration1 to BPC as a pioneer
enterprise entitled to a tax holiday for a period of six (6) years. The construction of the power
station in respondent Batangas City was then completed. BPC operated the station.
On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer Teodulfo A. Deguito,
sent a letter to BPC demanding payment of business taxes and penalties, commencing from the
year 1994 as provided under Ordinance XI or the 1992 Batangas City Tax Code.2 BPC refused to pay,
citing its tax-exempt status as a pioneer enterprise for six (6) years under Section 133 (g) of the
Local Government Code (LGC).3
On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax claim 4 and demanded
payment of business taxes from BPC only for the years 1998-1999. He acknowledged that BPC
enjoyed a 6-year tax holiday as a pioneer industry but its tax exemption period expired on
September 22, 1998, six (6) years after its registration with the BOI on September 23, 1992. The city
treasurer held that thereafter BPC became liable to pay its business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced from the date of
its commercial operation on July 16, 1993, not from the date of its BOI registration in September
1992.5 It furnished the city with a BOI letter6 wherein BOI designated July 16, 1993 as the start of
BPCs income tax holiday as BPC was not able to immediately operate due to force majeure. BPC
claimed that the local tax holiday is concurrent with the income tax holiday. In the alternative, BPC
asserted that the city should collect the tax from the NPC as the latter assumed responsibility for its
payment under their BOT Agreement.
The matter was not put to rest. The city legal officer insisted7 that BPCs tax holiday has already
expired, while the city argued that it directed its tax claim to BPC as it is the entity doing business in
the city and hence liable to pay the taxes. The city alleged that it was not privy to NPCs assumption
of BPCs tax payment under their BOT Agreement as the only parties thereto were NPC and BPC.
BPC adamantly refused to pay the tax claims and reiterated its position.8 The city was likewise
unyielding on its stand.9 On August 26, 1999, the NPC intervened.10 While admitting assumption of
BPCs tax obligations under their BOT Agreement, NPC refused to pay BPCs business tax as it
allegedly constituted an indirect tax on NPC which is a tax-exempt corporation under its Charter.11
In view of the deadlock, BPC filed a petition for declaratory relief12 with the Makati Regional Trial
Court (RTC) against Batangas City and NPC, praying for a ruling that it was not bound to pay the
business taxes imposed on it by the city. It alleged that under the BOT Agreement, NPC is
responsible for the payment of such taxes but as NPC is exempt from taxes, both the BPC and NPC
are not liable for its payment. NPC and Batangas City filed their respective answers.
On February 23, 2000, while the case was still pending, the city refused to issue a permit to BPC for
the operation of its business unless it paid the assessed business taxes amounting to close to P29M.
In view of this supervening event, BPC, whose principal office is in Makati City, filed a supplemental
petition13 with the Makati RTC to convert its original petition into an action for injunction to enjoin
232
MAS
Taxation I
the city from withholding the issuance of its business permit and closing its power plant. The city
opposed on the grounds of lack of jurisdiction and lack of cause of action. 14 The Supplemental
Petition was nonetheless admitted by the Makati RTC.
On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held that: (1) BPC is
liable to pay business taxes to the city; (2) NPCs tax exemption was withdrawn with the passage of
R.A. No. 7160 (The Local Government Code); and, (3) the 6-year tax holiday granted to pioneer
business enterprises starts on the date of registration with the BOI as provided in Section 133 (g) of
R.A. No. 7160, and not on the date of its actual business operations.15
BPC and NPC filed with this Court a petition for review on certiorari16 assailing the Makati RTC
decision. The petitions were consolidated as they impugn the same decision, involve the same
parties and raise related issues.17
In G.R. No. 152771, the NPC contends:
I
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY RULED THAT PETITIONER NPC HAS
LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A. 7160 (LOCAL GOVERNMENT
CODE) HAS WITHDRAWN SUCH PRIVILEGE DESPITE THE SETTLED JURISPRUDENCE THAT THE
ENACTMENT OF A LEGISLATION, WHICH IS A GENERAL LAW, CANNOT REPEAL A SPECIAL LAW AND
THAT SECTION 13 OF R.A. 6395 (NPC LAW) WAS NOT SPECIFICALLY MENTIONED IN THE REPEALING
CLAUSE IN SECTION 534 OF R.A. 7160, AMONG OTHERS.
II
OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY OMITTED THE CLEAR PROVISION OF
SECTION 133, PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS "NATIONAL GOVERNMENT, ITS
AGENCIES AND INSTRUMENTALITIES" FROM THE IMPOSITION OF "TAXES, FEES OR CHARGES OF
ANY KIND."
III
OF JURISDICTION WHEN IT ERRONEOUSLY AND CAPRICIOUSLY ADMITTED BPCs SUPPLEMENTAL
PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO JURISDICTION OVER THE PARTY
(CITY GOVERNMENT OF BATANGAS) SOUGHT TO BE ENJOINED.
In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it liable for payment
of business taxes even if it is undisputed that NPC has already assumed payment thereof; and, 2) in
ruling that BPCs 6-year tax holiday commenced on the date of its registration with the BOI as a
pioneer enterprise.
233
MAS
Taxation I
The issues for resolution are:

1. whether BPCs 6-year tax holiday commenced on the date of its BOI registration as a
pioneer enterprise or on the date of its actual commercial operation as certified by the BOI;
2. whether the trial court had jurisdiction over the petition for injunction against Batangas
City; and,
3. whether NPCs tax exemption privileges under its Charter were withdrawn by Section 193
of the Local Government Code (LGC).
We find no merit in the petition.
On the first issue, petitioners BPC and NPC contend that contrary to the impugned decision, BPCs
6-year tax holiday should commence on the date of its actual commercial operations as certified to
by the BOI, not on the date of its BOI registration.
We disagree. Sec. 133 (g) of the LGC, which proscribes local government units (LGUs) from levying
taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration,
applies specifically to taxes imposed by the local government, like the business tax imposed by
Batangas City on BPC in the case at bar. Reliance of BPC on the provision of Executive Order No.
226,18 specifically Section 1, Article 39, Title III, is clearly misplaced as the six-year tax holiday
provided therein which commences from the date of commercial operation refers to income
taxes imposed by the national government on BOI-registered pioneer firms. Clearly, it is the
provision of the Local Government Code that should apply to the tax claim of Batangas City against
the BPC. The 6-year tax exemption of BPC should thus commence from the date of BPCs
registration with the BOI on July 16, 1993 and end on July 15, 1999.
Anent the second issue, the records disclose that petitioner NPC did not oppose BPCs conversion
of the petition for declaratory relief to a petition for injunction or raise the issue of the alleged lack
of jurisdiction of the Makati RTC over the petition for injunction before said court. Hence, NPC is
estopped from raising said issue before us. The fundamental rule is that a party cannot be allowed
to participate in a judicial proceeding, submit the case for decision, accept the judgment only if it is
favorable to him but attack the jurisdiction of the court when it is adverse.19
Finally, on the third issue, petitioners insist that NPCs exemption from all taxes under its Charter
had not been repealed by the LGC. They argue that NPCs Charter is a special law which cannot be
impliedly repealed by a general and later legislation like the LGC. They likewise anchor their claim of
tax-exemption on Section 133 (o) of the LGC which exempts government instrumentalities, such as
the NPC, from taxes imposed by local government units (LGUs), citing in support thereof the case
of Basco v. PAGCOR.20
We find no merit in these contentions. The effect of the LGC on the tax exemption privileges of the
NPC has already been extensively discussed and settled in the recent case of National Power
Corporation v. City of Cabanatuan.21 In said case, this Court recognized the removal of the blanket
exclusion of government instrumentalities from local taxation as one of the most significant
234
MAS
Taxation I
provisions of the 1991 LGC.Specifically, we stressed that Section 193 of the LGC,22 an express and
general repeal of all statutes granting exemptions from local taxes, withdrew the sweeping tax
privileges previously enjoyed by the NPC under its Charter. We explained the rationale for this
provision, thus:
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. 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 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 countrys 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. 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,
x x x the 1987 Constitution mandates Congress to 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 x x x."
To recall, prior to the enactment of the x x x Local Government Code x x x, various measures have
been enacted to promote local autonomy. x x x 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.
Considered as the most revolutionary piece of legislation on local autonomy, 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 x x x.
235
MAS
Taxation I
Neither can the NPC successfully rely on the Basco case23 as this was decided prior to the effectivity
of the LGC, when there was still no law empowering local government units to tax instrumentalities
of the national government.
Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 BOT Agreement,
the LGC which removed NPCs tax exemption privileges had already been in effect for six (6)
months. Thus, while BPC remains to be the entity doing business in said city, it is the NPC that is
ultimately liable to pay said taxes under the provisions of both the 1992 BOT Agreement and the
1991 Local Government Code.
IN VIEW WHEREOF, the petitions are DISMISSED. No costs.
SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
Footnotes
1
G.R. No. 152771 Rollo, p. 66.
In the amount of P34, 551, 543.96; G.R. No. 152675 Rollo, p. 60.
Republic Act No. 7160 which took effect on January 1, 1992; See letter of BPC President
Miguel T. Gaffud, Jr.; G.R. No. 152675 Rollo, p. 61.
4
Amount of business tax assessed was lowered to P28, 689, 732.41 as of July 1999, based
on the gross receipt of every preceding year; G.R. No. 152675 Rollo, p. 62.
5
See BPC Letter, G.R. No. 152675 Rollo, p. 63.
G.R. No. 152771 Rollo, p. 67; BOI cited Article 7 (14) of Executive Order 226 to support its
decision to designate a later date.
7
G.R. No. 152675 Rollo, p. 64.
BPC Letter, dated July 21, 1999; G.R. No. 152675 Rollo, pp. 65-66.
See Letter of City Legal Officer; G.R. No. 152675 Rollo, p. 67.
10
See Letter of NPC OIC Comie P. Doromal, G.R. No. 152675 Rollo, pp. 68-70.
11
Under Section 13, Republic Act No. 6395, as amended.
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Taxation I
12
Docketed as Civil Case No. 00-205 and raffled to RTC Branch 66, Makati City, presided by
public respondent Judge Ricardo R. Rosario; G.R. No. 152771 Rollo, pp. 58-65.
13
G.R. No. 152771 Rollo, pp. 89-94.
14
G.R. No. 152771 Rollo, pp. 97-99.
15
Decision, id., pp. 49-57.
16
Docketed as G.R. No. 152675.
17
October 2, 2002 Resolution, G.R. No. 152771 Rollo, p. 130.
18
Otherwise known as the 1987 Omnibus Investment Code, as amended in 1995 by Republic
Act No. 7918.
19
Roxas vs. Court of Appeals, 391 SCRA 351 (2002).
20
197 SCRA 51 (1991).
21
Promulgated April 9, 2003, G.R. No. 149110.
22
"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."
Section 534, the repealing clause of the LGC, also states that all general and special
laws, acts, city charters, decrees, executive orders, proclamations and administrative
regulations or parts thereof inconsistent with the provisions of this Code are
repealed or modified accordingly.
23
Supra.
237
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Taxation I
14. COMMISSIONER VS CENTRAL LUZON DRUG CORP.

SUPREME COURT
THIRD DIVISION
G.R. No. 159647 April 15, 2005
COMMISSIONER
OF
INTERNAL
vs.
CENTRAL LUZON DRUG CORPORATION, Respondent.
REVENUE, Petitioners,
DECISION
PANGANIBAN, J.:
The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely
a tax deduction from the gross income or gross sale of the establishment concerned. A tax credit is
used by a private establishment only after the tax has been computed; a tax deduction, before the
tax is computed. RA 7432 unconditionally grants a tax credit to all covered entities. Thus, the
provisions of the revenue regulation that withdraw or modify such grant are void. Basic is the rule
that administrative regulations cannot amend or revoke the law.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the
August 29, 2002 Decision2 and the August 11, 2003 Resolution3 of the Court of Appeals (CA) in CAGR SP No. 67439. The assailed Decision reads as follows:
"WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in toto. No costs."4
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The CA narrated the antecedent facts as follows:
"Respondent is a domestic corporation primarily engaged in retailing of medicines and other
pharmaceutical products. In 1996, it operated six (6) drugstores under the business name and style
Mercury Drug.
"From January to December 1996, respondent granted twenty (20%) percent sales discount to
qualified senior citizens on their purchases of medicines pursuant to Republic Act No. [R.A.] 7432
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Taxation I
and its Implementing Rules and Regulations. For the said period, the amount allegedly representing
the 20% sales discount granted by respondent to qualified senior citizens totaled P904,769.00.
"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring
therein that it incurred net losses from its operations.
"On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount
of P904,769.00 allegedly arising from the 20% sales discount granted by respondent to qualified
senior citizens in compliance with [R.A.] 7432. Unable to obtain affirmative response from
petitioner, respondent elevated its claim to the Court of Tax Appeals [(CTA or Tax Court)] via a
Petition for Review.
"On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondents Petition for lack
of merit. In said decision, the [CTA] justified its ruling with the following ratiocination:
x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount is due and
collectible from the taxpayer, tax refund or tax credit is unavailing. Moreover, whether the recovery
of the tax is made by means of a claim for refund or tax credit, before recovery is allowed[,] it must
be first established that there was an actual collection and receipt by the government of the tax
sought to be recovered. x x x.
x x x x x x x x x
Prescinding from the above, it could logically be deduced that tax credit is premised on the
existence of tax liability on the part of taxpayer. In other words, if there is no tax liability, tax credit
is not available.
"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution,6 granted
respondents motion for reconsideration and ordered herein petitioner to issue a Tax Credit
Certificate in favor of respondent citing the decision of the then Special Fourth Division of [the CA]
in CA G.R. SP No. 60057 entitled Central [Luzon] Drug Corporation vs. Commissioner of Internal
Revenue promulgated on May 31, 2001, to wit:
However, Sec. 229 clearly does not apply in the instant case because the tax sought to be refunded
or credited by petitioner was not erroneously paid or illegally collected. We take exception to the
CTAs sweeping but unfounded statement that both tax refund and tax credit are modes of
recovering taxes which are either erroneously or illegally paid to the government. Tax refunds or
credits do not exclusively pertain to illegally collected or erroneously paid taxes as they may be
other circumstances where a refund is warranted. The tax refund provided under Section 229 deals
exclusively with illegally collected or erroneously paid taxes but there are other possible situations,
such as the refund of excess estimated corporate quarterly income tax paid, or that of excess input
tax paid by a VAT-registered person, or that of excise tax paid on goods locally produced or
manufactured but actually exported. The standards and mechanics for the grant of a refund or
credit under these situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet
another instance of a tax credit and it does not in any way refer to illegally collected or erroneously
paid taxes, x x x."7
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Taxation I
Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue
a tax credit certificate in favor of respondent in the reduced amount of P903,038.39. It reasoned
that Republic Act No. (RA) 7432 required neither a tax liability nor a payment of taxes by private
establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an
unintended benefit from the law, but rather a just compensation for the taking of private property
for public use.
Hence this Petition.8
The Issues
Petitioner raises the following issues for our consideration:
"Whether the Court of Appeals erred in holding that respondent may claim the 20% sales discount
as a tax credit instead of as a deduction from gross income or gross sales.
"Whether the Court of Appeals erred in holding that respondent is entitled to a refund."9
These two issues may be summed up in only one: whether respondent, despite incurring a net loss,
may still claim the 20 percent sales discount as a tax credit.
The Courts Ruling
The Petition is not meritorious.
Sole Issue:
Claim of 20 Percent Sales Discount

as Tax Credit Despite Net Loss
Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20 percent discount on
their purchase of medicine from any private establishment in the country.11 The latter may then
claim the cost of the discount as a tax credit.12 But can such credit be claimed, even though an
establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in our Tax Code,13 tax credit generally refers to an
amount that is "subtracted directly from ones total tax liability."14 It is an "allowance against the tax
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Taxation I
itself"15 or "a deduction from what is owed"16 by a taxpayer to the government. Examples of tax
credits are withheld taxes, payments of estimated tax, and investment tax credits.17
Tax credit should be understood in relation to other tax concepts. One of these is tax deduction -defined as a subtraction "from income for tax purposes,"18 or an amount that is "allowed by law to
reduce income prior to [the] application of the tax rate to compute the amount of tax which is
due."19 An example of a tax deduction is any of the allowable deductions enumerated in Section
3420 of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due,
including -- whenever applicable -- the income tax that is determined after applying the
corresponding tax rates to taxable income.21 Atax deduction, on the other, reduces the income that
is subject to tax22 in order to arrive at taxable income.23 To think of the former as the latter is to
avoid, if not entirely confuse, the issue. A tax credit is used only after the tax has been computed;
a tax deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax creditcan be applied. Without that liability, any tax credit application will be
useless. There will be no reason for deducting the latter when there is, to begin with, no existing
obligation to the government. However, as will be presented shortly, the existence of a tax credit or
its grant by law is not the same as the availment or use of such credit. While the grant is
mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently due from, a business establishment,
there will obviously be no tax liability against which any tax credit can be applied.24 For the
establishment to choose the immediate availment of a tax credit will be premature and
impracticable. Nevertheless, the irrefutable fact remains that, under RA 7432, Congress has granted
without conditions a tax credit benefit to all covered establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since there is no
tax liability that calls for its application. Neither can it be reduced to nil by the quick yet callow
stroke of an administrative pen, simply because no reduction of taxes can instantly be effected. By
its nature, the tax credit may still be deducted from a future, not a present, tax liability, without
which it does not have any use. In the meantime, it need not move. But it breathes.
Prior Tax Payments Not
Required for Tax Credit
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not.
On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax
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Taxation I
payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits,
even though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain
limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar
provision for donors taxes -- again when paid to a foreign country -- in computing for the donors
tax due. The tax credits in both instances allude to the prior payment of taxes, even if not made to
our government.
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether
or not subject to the VAT -- is also allowed a tax credit that includes a ratable portion of any input
tax not directly attributable to either activity. This input tax may either be the VAT on the purchase
or importation of goods or services that is merely due from -- not necessarily paid by -- such VATregistered person in the course of trade or business; or the transitional input tax determined in
accordance with Section 111(A). The latter type may in fact be an amount equivalent to only eight
percent of the value of a VAT-registered persons beginning inventory of goods, materials and
supplies, when such amount -- as computed -- is higher than the actual VAT paid on the said
items.25 Clearly from this provision, the tax credit refers to an input tax that is either due only or
given a value by mere comparison with the VAT actually paid -- then later prorated. No tax is
actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed.
For the purchase of primary agricultural products used as inputs -- either in the processing of
sardines, mackerel and milk, or in the manufacture of refined sugar and cooking oil -- and for the
contract price of public work contracts entered into with the government, again, no prior tax
payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may,
under Section 112(A), apply for the issuance of a tax credit certificate for the amount of creditable
input taxes merely due -- again not necessarily paid to -- the government and attributable to such
sales, to the extent that the input taxes have not been applied against output taxes.26 Where a
taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the
amount of creditable input taxes due that are not directly and entirely attributable to any one of
these transactions shall be proportionately allocated on the basis of the volume of sales. Indeed, in
availing of such tax credit for VAT purposes, this provision -- as well as the one earlier mentioned -shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax
credit allowed, even though no prior tax payments are not required. Specifically, in this provision,
the imposition of a final withholding tax rate on cash and/or property dividends received by a
nonresident foreign corporation from a domestic corporation is subjected to the condition that a
foreign tax credit will be given by the domiciliary country in an amount equivalent to taxes that are
merely deemed paid.27 Although true, this provision actually refers to the tax credit as
a condition only for the imposition of a lower tax rate, not as a deduction from the corresponding
242
MAS
Taxation I
tax liability. Besides, it is not our government but the domiciliary country that credits against the
income tax payable to the latter by the foreign corporation, the tax to be foregone or spared.28
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits,
against the income tax imposable under Title II, the amount of income taxes merely incurred -- not
necessarily paid -- by a domestic corporation during a taxable year in any foreign country.
Moreover, Section 34(C)(5) provides that for such taxes incurred but not paid, a tax credit may be
allowed, subject to the condition precedent that the taxpayer shall simply give a bond with sureties
satisfactory to and approved by petitioner, in such sum as may be required; and further conditioned
upon payment by the taxpayer of any tax found due, upon petitioners redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws
that grant or allow tax credits, even though no prior tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation,
income that is taxed in the state of source is also taxable in the state of residence, but the tax paid
in the former is merely allowed as a credit against the tax levied in the latter.29 Apparently, payment
is made to the state of source, not the state of residence. No tax, therefore, has
been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To
illustrate, the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended
by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net
value earned, or five or ten percent of the net local content of exports.30 In order to avail of such
credits under the said law and still achieve its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the
availment of atax credit. Thus, the CA correctly held that the availment under RA 7432 did not
require prior tax payments by private establishments concerned.31 However, we do not agree with
its finding32 that the carry-over of tax creditsunder the said special law to succeeding taxable
periods, and even their application against internal revenue taxes, did not necessitate the existence
of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not
the existence or grant, of a tax credit. Regarding this matter, a private establishment reporting a net
loss in its financial statements is no different from another that presents a net income. Both are
entitled to the tax credit provided for under RA 7432, since the law itself accords that unconditional
benefit. However, for the losing establishment to immediately apply such credit, where no tax is
due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts
they grant.33 In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the
243
MAS
Taxation I
procedures for its availment.34 To deny such credit, despite the plain mandate of the law and the
regulations carrying out that mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that "shall be deducted by the said establishments from
their gross income for income tax purposes and from their gross sales for value-added tax or other
percentage tax purposes."35 In ordinary business language, the tax credit represents the amount of
such discount. However, the manner by which the discount shall be credited against taxes has not
been clarified by the revenue regulations.
By ordinary acceptation, a discount is an "abatement or reduction made from the gross amount or
value of anything."36 To be more precise, it is in business parlance "a deduction or lowering of an
amount of money;"37 or "a reduction from the full amount or value of something, especially a
price."38 In business there are many kinds of discount, the most common of which is that affecting
the income statement39 or financial report upon which theincome tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business establishments to credit customers for
their prompt payment.40 It is a "reduction in price offered to the purchaser if payment is made
within a shorter period of time than the maximum time specified."41 Also referred to as a sales
discount on the part of the seller and a purchase discount on the part of the buyer, it may be
expressed
in
such
42
terms as "5/10, n/30."
A quantity discount, however, is a "reduction in price allowed for purchases made in large
quantities, justified by savings in packaging, shipping, and handling."43 It is also called
a volume or bulk discount.44
A "percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by
wholesalers to retailers"45 is known as a trade discount. No entry for it need be made in the manual
or computerized books of accounts, since the purchase or sale is already valued at the net price
actually charged the buyer.46 The purpose for the discount is to encourage trading or increase sales,
and the prices at which the purchased goods may be resold are also suggested.47 Even a chain
discount -- a series of discounts from one list price -- is recorded at net.48
Finally, akin to a trade discount is a functional discount. It is "a suppliers price discount given to a
purchaser based on the [latters] role in the [formers] distribution system."49 This role usually
involves warehousing or advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying generally
accepted accounting principles (GAAP) in the country, this type of discount is reflected in
the income statement50 as a line item deducted -- along with returns, allowances, rebates and other
similar expenses -- from gross sales to arrive at net sales.51 This type of presentation is resorted to,
244
MAS
Taxation I
because the accounts receivable and sales figures that arise from sales discounts, -- as well as
from quantity, volume or bulk discounts -- are recorded in the manual and computerized books of
accounts and reflected in the financial statements at the gross amounts of the invoices. 52This
manner of recording credit sales -- known as the gross method -- is most widely used, because it is
simple, more convenient to apply than the net method, and produces no material errors over
time.53
However, under the net method used in recording trade, chain or functional discounts, only the net
amounts of the invoices -- after the discounts have been deducted -- are recorded in the books of
accounts54 and reflected in the financial statements. A separate line item cannot be
shown,55 because the transactions themselves involving both accounts receivable and sales have
already been entered into, net of the said discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to
amounts whose sum -- along with sales returns, allowances and cost of goods sold56 -- is deducted
from gross sales to come up with the gross income, profit or margin57 derived from business.58 In
another provision therein, sales discountsthat are granted and indicated in the invoices at the time
of sale -- and that do not depend upon the happening of any future event -- may be excluded from
the gross sales within the same quarter they were given.59 While determinative only of the VAT, the
latter provision also appears as a suitable reference point for income tax purposes already
embraced in the former. After all, these two provisions affirm that sales discounts are amounts that
are always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA 7432 is the private establishments
outright deduction of the discount from the invoice price of the medicine sold to the senior
citizen.60 It is, therefore, expected that for each retail sale made under this law, the discount period
lasts no more than a day, because such discount is given -- and the net amount thereof collected -immediately upon perfection of the sale.61 Although prompt payment is made for an arms-length
transaction by the senior citizen, the real and compelling reason for the private establishment
giving the discount is that the law itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount privilege, not a sales discount or any of
the above discounts in particular. Prompt payment is not the reason for (although a necessary
consequence of) such grant. To be sure, the privilege enjoyed by the senior citizen must be
equivalent to the tax credit benefit enjoyed by the private establishment granting the discount. Yet,
under the revenue regulations promulgated by our tax authorities, this benefit has been
erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from
a sales discount. However, to a private establishment, the effect is different from a simple reduction
in price that results from such discount. In other words, the tax credit benefit is not the same as
245
MAS
Taxation I
a sales discount. To repeat from our earlier discourse, this benefit cannot and should not be treated
as a tax deduction.
To stress, the effect of a sales discount on the income statement and income tax return of an
establishment covered by RA 7432 is different from that resulting from the availment or use of
its tax credit benefit. While the former is a deduction before, the latter is a deduction after,
the income tax is computed. As mentioned earlier, a discount is not necessarily a sales discount, and
a tax credit for a simple discount privilege should not be automatically treated like a sales
discount. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish,
we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount
deductible from gross income for income tax purposes, or from gross sales for VAT or other
percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales
discount. This contrived definition is improper, considering that the latter has to be deducted
from gross sales in order to compute the gross income in theincome statement and cannot be
deducted again, even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means that the
amount -- when claimed -- shall be treated as a reduction from any tax liability, plain and simple.
The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to limit
the benefit to a sales discount -- which is not even identical to the discount privilege that is granted
by law -- does not define it at all and serves no useful purpose. The definition must, therefore, be
stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to
create
a
rule
out
of
harmony
with
62
the statute is a mere nullity"; it cannot prevail.
It is a cardinal rule that courts "will and should respect the contemporaneous construction placed
upon a statute by the executive officers whose duty it is to enforce it x x x."63 In the scheme of
judicial tax administration, the need for certainty and predictability in the implementation of tax
laws is crucial.64 Our tax authorities fill in the details that "Congress may not have the opportunity or
competence to provide."65 The regulations these authorities issue are relied upon by taxpayers, who
are certain that these will be followed by the courts.66 Courts, however, will not uphold these
authorities interpretations when clearly absurd, erroneous or improper.
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 294 a meaning utterly in contrast to what RA 7432 provides. Their interpretation has muddled up the
intent of Congress in granting a mere discount privilege, not a sales discount. The administrative
agency issuing these regulations may not enlarge, alter or restrict the provisions of the law it
administers; it cannot engraft additional requirements not contemplated by the legislature.67
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MAS
Taxation I
In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is
law."69 Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and
has neither the force nor the effect of law.70
Availment of Tax
Credit Voluntary
Third,
the
word may in
the
text
of
the
statute71 implies
that
the
availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is no absolute
right conferred upon respondent, or any similar taxpayer, to avail itself of the tax credit remedy
whenever it chooses; "neither does it impose a duty on the part of the government to sit back and
allow an important facet of tax collection to be at the sole control and discretion of the
taxpayer."73 For the tax authorities to compel respondent to deduct the 20 percent discount from
either its gross income or its gross sales74 is, therefore, not only to make an imposition without basis
in law, but also to blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not
imperative. Respondent is given two options -- either to claim or not to claim the cost of the
discounts as a tax credit. In fact, it may even ignore the credit and simply consider the gesture as an
act of beneficence, an expression of its social conscience.
Granting that there is a tax liability and respondent claims such cost as a tax credit, then the tax
credit can easily be applied. If there is none, the credit cannot be used and will just have to be
carried over and revalidated75accordingly. If, however, the business continues to operate at a loss
and no other taxes are due, thus compelling it to close shop, the credit can never be applied and
will be lost altogether.
In other words, it is the existence or the lack of a tax liability that determines whether the cost of
the discounts can be used as a tax credit. RA 7432 does not give respondent the unfettered right to
avail itself of the credit whenever it pleases. Neither does it allow our tax administrators to expand
or contract the legislative mandate. "The plain meaning rule or verba legis in statutory
construction is thus applicable x x x. Where the words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted interpretation."76
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent domain.
Be it stressed that the privilege enjoyed by senior citizens does not come directly from the State,
but rather from the private establishments concerned. Accordingly, the tax credit benefit granted to
these establishments can be deemed as their just compensation for private property taken by the
State for public use.77
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MAS
Taxation I
The concept of public use is no longer confined to the traditional notion of use by the public, but
held synonymous with public interest, public benefit, public welfare, and public convenience.78 The
discount privilege to which our senior citizens are entitled is actually a benefit enjoyed by the
general public to which these citizens belong. The discounts given would have entered the coffers
and formed part of the gross sales of the private establishments concerned, were it not for RA
7432. The permanent reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of a tax credit certificate indicating the
correct amount of the discounts given, but also to the promptness in its release. Equivalent to the
payment of property taken by the State, such issuance -- when not done within a reasonable
time from the grant of the discounts -- cannot be considered asjust compensation. In effect,
respondent is made to suffer the consequences of being immediately deprived of its revenues while
awaiting actual receipt, through the certificate, of the equivalent amount it needs to cope with the
reduction in its revenues.79
Besides, the taxation power can also be used as an implement for the exercise of the power of
eminent domain.80 Tax measures are but "enforced contributions exacted on pain of penal
sanctions"81 and "clearly imposed for a public purpose."82 In recent years, the power to tax has
indeed become a most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth.83
While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be invoked to
trample on the rights of property owners who under our Constitution and laws are also entitled to
protection. The social justice consecrated in our [C]onstitution [is] not intended to take away rights
from a person and give them to another who is not entitled thereto."84 For this reason, a just
compensation for income that is taken away from respondent becomes necessary. It is in the tax
credit that our legislators find support to realize social justice, and no administrative body can alter
that fact.
To put it differently, a private establishment that merely breaks even85 -- without the discounts yet - will surely start to incur losses because of such discounts. The same effect is expected if its markup is less than 20 percent, and if all its sales come from retail purchases by senior citizens. Aside
from the observation we have already raised earlier, it will also be grossly unfair to an
establishment if the discounts will be treated merely as deductions from either its gross income or
its gross sales. Operating at a loss through no fault of its own, it will realize that thetax
credit limitation under RR 2-94 is inutile, if not improper. Worse, profit-generating businesses will
be put in a better position if they avail themselves of tax credits denied those that are losing,
because no taxes are due from the latter.
Grant of Tax Credit
Intended by the Legislature
248
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Taxation I
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the community
as a whole and to establish a program beneficial to them.86 These objectives are consonant with the
constitutional policy of making "health x x x services available to all the people at affordable
cost"87 and of giving "priority for the needs of the x x x elderly."88 Sections 2.i and 4 of RR 2-94,
however, contradict these constitutional policies and statutory objectives.
Furthermore, Congress has allowed all private establishments a simple tax credit, not a deduction.
In fact, no cash outlay is required from the government for the availment or use of such credit. The
deliberations on February 5, 1992 of the Bicameral Conference Committee Meeting on Social
Justice, which finalized RA 7432, disclose the true intent of our legislators to treat the sales
discounts as a tax credit, rather than as a deduction from gross income. We quote from those
deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from taxable income.
I think we incorporated there a provision na - on the responsibility of the private hospitals and
drugstores, hindi ba?
SEN. ANGARA. Oo.
THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about the
deductions from taxable income of that private hospitals, di ba ganon 'yan?
MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and public
institutions, so, puwede na po nating hindi isama yung mga less deductions ng taxable income.
THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung isiningit natin?
MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the microphone).
SEN. ANGARA. Hindi pa, hindi pa.
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?
SEN. ANGARA. Oo. You want to insert that?
THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided that, the
private hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible) income.
SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?
REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na covered.
249
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Taxation I
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered?
SEN. ANGARA. Restaurant lodging houses, recreation centers.
REP. AQUINO. All establishments covered siguro?
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can we go back to
Section 4 ha?
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from all
establishments et cetera, et cetera, provided that said establishments - provided that private
establishments may claim the cost as a tax credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law. "x x x
[T]he rule is that on a specific matter the special law shall prevail over the general law, which shall
be resorted to only to supply deficiencies in the former."90 In addition, "[w]here there are two
statutes, the earlier special and the later general -- the terms of the general broad enough to
include the matter provided for in the special -- the fact that one is special and the other is general
creates a presumption that the special is to be considered as remaining an exception to the
general,91 one as a general law of the land, the other as the law of a particular case."92 "It is a canon
of statutory construction that a later statute, general in its terms and not expressly repealing a prior
special statute, will ordinarily not affect the special provisions of such earlier statute."93
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax
Code -- a later law. When the former states that a tax credit may be claimed, then the requirement
of prior tax payments under certain provisions of the latter, as discussed above, cannot be made to
250
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Taxation I
apply. Neither can the instances of or references to a tax deduction under the Tax Code94 be made
to restrict RA 7432. No provision of any revenue regulation can supplant or modify the acts of
Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals AFFIRMED. No pronouncement as to costs.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
W E C O N C U R:
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
RENATO C. CORONA
Associate Justice
CONCHITA CARPIO MORALES

Associate Justice
CANCIO C. GARCIA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision had been reached in consultation before the case
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Chairmans Attestation, it is hereby
certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice
251
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Taxation I
Footnotes
1
Rollo, pp. 9-31.
Id., pp. 33-41. Penned by Justice Rebecca de Guia-Salvador, with the concurrence of
Justices Godardo A. Jacinto (Fourth Division chair) and Eloy R. Bello Jr. (member, now
retired).
3
Id., p. 43.
CA Decision, p. 9; rollo, p. 41.
Penned by Judge Ramon O. De Veyra with the concurrence of Judge Amancio Q. Saga.
Presiding Judge (now Presiding Justice) Ernesto D. Acosta dissented.
6
Penned by Presiding Judge (now Presiding Justice) Ernesto D. Acosta with the concurrence
of Judge (now Justice) Juanito C. Castaeda, Jr. Judge Amancio Q. Saga dissented.
7
Id., pp. 2-4 & 34-36.
The Petition was deemed submitted for decision on June 10, 2004, upon receipt by the
Court of respondents Memorandum, signed by Atty. Joy Ann Marie G. Nolasco. Petitioners
Memorandum -- signed by Solicitor General Alfredo L. Benipayo, Assistant Solicitor General
Ma. Antonia Edita C. Dizon, and Solicitor Magtanggol M. Castro -- was filed on June 2, 2004.
9
Petitioners Memorandum, p. 5; rollo, p. 96. Original in upper case.
10
Entitled "An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant
Benefits and Special Privileges and for other purposes," this law took effect in 1992.
See Santos, Jr. v. Llamas, 379 Phil. 569, 577, January 20, 2000.
11
4.a of RA 7432.
12
Ibid.
13
Republic Act No. (RA) 8424 as amended by RAs 8761 and 9010.
Likewise, the term tax credit is not defined in Presidential Decree No. (PD) 1158, otherwise
known as the National Internal Revenue Code of 1977 as amended.
14
Garner (ed.), Blacks Law Dictionary (8th ed., 1999), p. 1501.
15
Smith, Wests Tax Law Dictionary (1993), pp. 177-178.

252
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Taxation I
16
Oran and Tosti, Orans Dictionary of the Law (3rd ed., 2000), p. 124.
17
Malapo-Agato and San Andres-Francisco, Dictionary of Accounting Terms (2003), p. 258.
18
Oran and Tosti, supra, p. 135.
19
Smith, supra, p. 196.
20
The itemized deductions considered as allowable deductions from gross income include
ordinary and necessary expenses, interest, taxes, losses, bad debts, depreciation, depletion
of oil and gas wells and mines, charitable and other contributions, research and
development expenditures, and pension trust contributions.
21
"While taxable income is based on the method of accounting used by the taxpayer, it will
almost always differ from accounting income. This is so because of a fundamental difference
in the ends the two concepts serve. Accounting attempts to match cost against revenue. Tax
law is aimed at collecting revenue. It is quick to treat an item as income, slow to recognize
deductions or losses. Thus, the tax law will notrecognize deductions for contingent future
losses except in very limited situations. Good accounting, on the other hand, requires their
recognition. Once this fundamental difference in approach is accepted, income
tax accounting methods can be understood more easily." Consolidated Mines, Inc. v. CTA,
157 Phil. 608, August 29, 1974, per Makalintal, CJ. Underscoring supplied.
22
Smith, supra, pp. 177-178.
23
Id., p. 196.
24
BPI-Family Savings Bank, Inc. v. CA, 386 Phil. 719, 727, April 12, 2000.
25
4.105-1 of BIR Revenue Regulations No. (RR) 7-95.
26
Commissioner of Internal Revenue v. Seagate Technology (Phils.), Inc., GR No. 153866,

February 11, 2005, pp. 13-15.
27
Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corp.,

204 SCRA 377, 388, December 2, 1991.
28
Deoferio Jr. and Tan Torres, Know Your CTRP: Comments on the Amendments to the
National Internal Revenue Code under Republic Act No. 8424 (2nd printing, 1999), p. 61.
29
Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., 368 Phil. 388, 405-406,
June 25, 1999.
30
Pilipinas Kao, Inc. v. CA, 423 Phil. 834, 838-839, 851, December 18, 2001.
31
CA Decision, p. 9; rollo, pp. 40-41.

253
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Taxation I
32
Id., pp. 7-8; id., pp. 39-40.
33
4.a of RA 7432.
34
D. and E. of Rule V of the "Rules And Regulations in the Implementation of RA 7432, The
Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and
Special Privileges and for other purposes," approved per Resolution No. 1 (Series 1993)
issued by the National Economic and Development Authority (NEDA) Social Development
Committee.
35
2.i of RR 2-94, issued August 23, 1993. See also 4 thereof.
36
Gove (Ed. in Chief), Websters Third New International Dictionary of the English Language,
Unabridged(1976), p. 646.
37
Oran and Tosti, supra, p. 149.
38
Garner (ed.), supra, p. 498.
39
An income statement, profit and loss statement, or statement of income and expenses is a
"financial statement prepared from accounts and designed to show the several elements
entering into the computation of net income for a given period." Malapo-Agato and San
Andres-Francisco, Dictionary of Accounting Terms (2003), p. 136.
40
Valix and Peralta, Financial Accounting, Volume One (2002), p. 347.
41
Editorial Staff of Prentice-Hall, Inc., Encyclopedic Dictionary of Business Finance (2nd

printing, 1962), pp. 117-118. See Malapo-Agato and San Andres-Francisco, supra, p. 49.
42
This means that the customer is entitled to a 5% discount, if payment is made within 10
days from the invoice date. Beyond that, but within 30 days from the invoice date, the gross
amount of the invoice price is due. Valix and Peralta, supra, p. 347.
43
Editorial Staff of Prentice-Hall, Inc., supra, pp. 503-504.
44
Garner (Ed.), supra, p. 498.
45
46
Valix and Peralta, supra, p. 453. See Malapo-Agato and San Andres-Francisco, supra, p.
263.
47
Id., p. 453.
48
254
MAS
Taxation I
49
Garner (Ed.), supra, p. 498.
50
Functional, as opposed to the natural, presentation is the traditional and common form of
the income statement. Functional presentation classifies expenses according to their
function -- whether as part of cost of sales, selling activities, administrative activities, or
other operating activities. The Accounting Standards Council (ASC) in the Philippines does
not prescribe any format, the choice being based on that which "fairly presents the
elements of the enterprise performance." If the functional format is used, an additional
disclosure of the nature of the expenses is necessary. Valix and Peralta, supra, pp. 155 &
162.
51
Garner (Ed.), supra, p. 1365. See Valix and Peralta, supra, pp. 156-160 & 453.
On the other hand, purchase discounts are deducted -- also along with returns, allowances,
rebates and other similar revenues -- from gross purchases to arrive at net purchases.
52
Valix and Peralta, supra, p. 347.
53
Id., pp. 347 & 456.
54
Id., p. 347.
55
Except when presented for managerial or cost accounting reports, these items are chiefly
internal and are neither disseminated to the general public nor attested to by the external
auditors.
56
Cost of goods sold is the most commonly used term referring to a particular section in the
financial statements, reports, or notes to financial statements of trading or merchandising
concerns. For a manufacturing business, however, the term used is cost of goods
manufactured and sold or cost of goods produced and sold; for a service enterprise, cost of
services; and, in general, cost of sales of a business.See Malapo-Agato and San AndresFrancisco, supra, p. 73.
57
Gross income, profit or margin is the "difference between sales revenues and
manufacturing costs as an intermediate step in the computation of operating profits or net
income." It is also the "excess of sales over the cost of goods sold." Malapo-Agato and San
Andres-Francisco, supra, p. 129.
More simply, gross sales less sales discounts, returns, allowances, rebates, and other similar
expenses equal net sales; and net sales less cost of sales equal gross income.
58
Paragraphs 7 to 10 of 27(A), Chapter IV, Title II of RA 8424 as amended.
59
106(D)(2), Chapter I, Title IV of RA 8424 as amended.
255
MAS
Taxation I
60
See D. of Rule V of the "Rules And Regulations in the Implementation of RA 7432, The Act
to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and
Special Privileges and for other purposes," approved per Resolution No. 1 (Series 1993)
issued by the National Economic and Development Authority (NEDA) Social Development
Committee.
61
Theoretically, an allowance for sales discount account can also be set up by a business
establishment in its books of account at the end of its accounting period to reflect its
estimates of cash discounts on open accounts based on past experience. The accounting
entry for this account is then reversed at the beginning of the next accounting period, so
that such discounts can again be normally charged to the sales discountaccount. Valix and
Peralta, supra, p. 348.
62
Commissioner of Internal Revenue v. Vda. de Prieto, 109 Phil. 592, 597, September 30,
1960, per Gutierrez David, J. (citing Miller v. US, 294 US 435, 439-441, 55 S.Ct. 440,442,
March 4, 1935; and Lynch v. Tilden Produce Co., 265 US 315, 321-322, 44 S.Ct. 488, 490, May
26, 1924).
63
Molina v. Rafferty, 37 Phil. 545, 555, February 1, 1918, per Malcolm, J. (citing Government
ex rel. Municipality of Cardona v. Municipality of Binangonan, 34 Phil. 518, 520-521, March
29, 1916; In re Allen, 2 Phil. 630, 640, October 29, 1903; and Pennoyer v. McConnaughy, 11
S.Ct. 699, 706, April 20, 1891).
64
Lim Hoa Ting v. Central Bank of the Philippines, 104 Phil. 573, 580, September 24, 1958
(citing Griswold, A Summary of the Regulations Problem, 54 Harvard Law Review 3, 398,
406, January 1941).
65
Eastern Shipping Lines, Inc. v. Philippine Overseas Employment Administration, 166 SCRA
533, 544, October 18, 1988, per Cruz, J.
66
Lim Hoa Ting v. Central Bank of the Philippines, supra, p. 580.
67
Pilipinas Kao, Inc. v. CA, supra, p. 858.
68
Wise & Co., Inc. v. Meer, 78 Phil. 655, 676, June 30, 1947.
69
Macailing v. Andrada, 31 SCRA 126, 139, January 30, 1970, per Sanchez, J.
70
See Banco Filipino Savings and Mortgage Bank v. Hon. Navarro, 158 SCRA 346, 354, July
28, 1987; and Valerio v. Secretary of Agriculture & Natural Resources, 117 Phil. 729, 733,
April 23, 1963.
71
4.a of RA 7432.
72
See also Manufacturers Hanover Trust Co. and/or Chemical Bank v. Guerrero, 445 Phil.
770, 782, February 19, 2003 (citing Shauf v. CA, 191 SCRA 713, 738, November 27,
256
MAS
Taxation I
1990; Ayala Land, Inc. v. Spouses Carpo, 345 SCRA 579, 585, November 22, 2000; and In re
Guaria, 24 Phil. 37, 41, January 8, 1913).
73
San Carlos Milling Co., Inc. v. Commissioner of Internal Revenue, 228 SCRA 135, 142,
November 23, 1993, per Padilla, J.
74
2.i & 4 of RR 2-94.
75
230(B), Chapter III, Title VIII of RA 8424 as amended.
76
National Federation of Labor v. NLRC, 383 Phil. 910, 918, March 2, 2000, per De Leon Jr., J.
(quotingFianza v. Peoples Law Enforcement Board, 243 SCRA 165, 178, March 31, 1995, per
Romero, J.).
77
See City of Cebu v. Spouses Dedamo, 431 Phil. 524, 532, May 7, 2002.
78
Reyes v. National Housing Authority, 443 Phil. 603, 610-611, January 20, 2003 (citing Heirs
of Juancho Ardona v. Hon. Reyes, 210 Phil. 187, 197-201, October 26, 1983).
79
See Land Bank of the Philippines v. De Leon, 437 Phil. 347, 359, September 10, 2002
(citing Estate of Salud Jimenez v. Philippine Export Processing Zone, 349 SCRA 240, 264,
January 16, 2001).
80
See Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian

Reform, 175 SCRA 343, 371, July 14, 1989 (citing Powell v. Pennsylvania, 127 US 678, 683, 8
S.Ct. 992, 995, April 9, 1888).
81
Republic v. COCOFED, 423 Phil. 735, 764, December 14, 2001, per Panganiban, J.
82
Id. at 765.
83
National Power Corp. v. City of Cabanatuan, 449 Phil. 233, 248, April 9, 2003 (citing Vitug
and Acosta,Tax Law and Jurisprudence [2nd ed., 2000], pp.1-2).
84
Salonga v. Farrales, 192 Phil. 614, 624, July 10, 1981, per Fernandez, J.
85
Break-even is the point at which a business neither generates an income nor incurs a loss
from its operations.
86
Items 1 & 2, 2nd paragraph of 1 of RA 7432.
87
1st paragraph of 1 of RA 7432 and 11 of Article XIII of the 1987 Constitution.
88
Ibid. The constitutional references are reiterated in the sponsorship speech delivered on
January 23, 1992 by Representative Dionisio S. Ojeda, regarding House Bill No. (HB) 35335,
per Committee Report No. 01730, pp 38-39 (jointly submitted by the Committee on
257
MAS
Taxation I
Revision of Laws, the Committee on Family Relations and Population, and the Committee on
Ways and Means). HB 35335 was approved on second reading without any amendment.
89
Deliberations of the Bicameral Conference Committee Meeting on Social Justice, February

5, 1992, pp. 22-24. Italics supplied.
90
Leyte Asphalt & Mineral Oil Co., Ltd. v. Block, Johnston & Greenbaum, 52 Phil. 429, 432,
December 14, 1928, per Romualdez, J.
91
City Mayor v. The Chief Police Constabulary, 128 Phil. 674, 687, October 31, 1967.
92
Manila Railroad Co. v. Rafferty, 40 Phil. 224, 229, September 30, 1919, per Johnson, J.
(citing State v. Stoll, 84 US 425, 431, 436, 17 Wall. 425, 431, 436, October term, 1873).
93
Ibid, per Johnson, J. (citing Minnesota v. Hitchcock, 185 US, 373, 396-397, 22 S.Ct. 650,
659, May 5, 1902, Cass County v. Gillett, 100 US 585, 593, 10 Otto 585, 593, October term,
1879; and New Jersey Steamboat Co. v. Collector, 85 US 478, 490-491, 18 Wall 478, 490-491,
October term, 1873).
94
Not even the provisions of PD 1158 -- reiterated later in RA 8424 as amended -- change
the Courts observations on tax liability, prior tax payments, sales discount, tax deduction,
and tax credit. PD 1158 was a general law that preceded RA 7432, a special law; thus, the
latter prevails over the former. With all the more reason should the rules on statutory
construction apply.
258
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Taxation I
15. M.E. HOLDING CORP. VS COURT OF APPEALS

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 160193
March 3, 2008
M.E.
HOLDING
vs.
THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
DECISION
VELASCO, JR., J.:
This case involves Republic Act No. (RA) 7432, otherwise known as An Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for Other
Purposes,passed onApril 23, 1992. It granted, among others, a 20% sales discount on purchases of
medicines by qualified senior citizens.
On April 15, 1996, petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual
Income Tax Return, claiming the 20% sales discount it granted to qualified senior citizens. M.E.
treated the discount as deductions from its gross income purportedly in accordance with Revenue
Regulation No. (RR) 2-94, Section 2(i) of the Bureau of Internal Revenue (BIR) issued on August 23,
1993. Sec. 2(i) states:
Section 2. DEFINITIONS. For purposes of these regulations:
xxxx
i. Tax Credit refers to the amount representing the 20% discount granted to a qualified
senior citizen by all establishments relative to their utilization of transportation services,
hotels and similar lodging establishments, restaurants, drugstores, recreation centers,
theaters, cinema houses, concert halls, circuses, carnivals and other similar places of
culture, leisure and amusement, which discount shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross sales
for value-added tax or other percentage tax purposes. (Emphasis supplied.)
The deductions M.E. claimed amounted to PhP 603,424. However, it filed the return under protest,
arguing that the discount to senior citizens should be treated as tax credit under Sec. 4(a) of RA
7432, and not as mere deductions from M.E.'s gross income as provided under RR 2-94.
259
MAS
Taxation I
Sec. 4(a) of RA 7432 states:

SECTION 4. Privileges for the Senior Citizens.The senior citizens shall be entitled to the
following:
a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of transportation services, hotels and similar lodging establishments, restaurants
and recreation centers and purchase of medicines anywhere in the country: Provided,
That private establishments may claim the cost as tax credit; (Emphasis supplied.)
Subsequently, on December 27, 1996, M.E. sent BIR a letter-claim dated December 6, 1996,1 stating
that it overpaid its income tax owing to the BIR's erroneous interpretation of Sec. 4(a) of RA 7432.
Due to the inaction of the BIR, and to toll the running of the two-year prescriptive period in filing a
claim for refund, M.E. filed an appeal before the Court of Tax Appeals (CTA), reiterating its position
that the sales discount should be treated as tax credit, and that RR 2-94, particularly Section 2(i),
was without effect for being inconsistent with RA 7432.
On April 25, 2000, the CTA rendered a Decision2 in favor of M.E., the fallo of which reads:
WHEREFORE, in view of the foregoing, petitioner's claim for refund is hereby partially
GRANTED. Respondent is hereby ORDERED to REFUND in favor of petitioner the amount of
P122,195.74, representing overpaid income tax [for] the year 1995.
SO ORDERED.
The CTA ruled that the 20% sales discount granted to qualified senior citizens should be treated as
tax credit and not as item deduction from the gross income or sales, pointing out that Sec. 4(a) of
RA 7432 was unequivocal on this point. The CTA held that Sec. 2(i) of RR 2-94 contravenes the clear
proviso of RA 7432 prescribing that the 20% sales discount should be claimed as tax credit. Further,
it ruled that RA 7432 is a law that necessarily prevails over an administrative issuance such as RR 294.
Unfortunately, what appears to be the victory of M.E. before the CTA was watered down by the tax
court's declaration that, while the independent auditor M.E. hired found the amount PhP
603,923.46 as having been granted as sales discount to qualified senior citizens, M.E. failed to
properly support the claimed discount with corresponding cash slips. Thus, the CTA reduced M.E.'s
claim for PhP 603,923.46 sales discount to PhP 362,574.57 after the CTA disallowed PhP 241,348.89
unsupported claims, and consequently lowered the refundable amount to PhP 122,195.74.
On May 24, 2000, M.E. filed a Motion for Reconsideration, therein attributing its failure to submit
and offer certain documents, specifically the cash slips, to the inadvertence of its independent
auditor who failed to transmit the documents to M.E.'s counsel. It also argued that the tax credit
should be based on the actual discount and not on the acquisition cost of the medicines.
260
MAS
Taxation I
On July 11, 2000, the CTA denied M.E.'s motion for reconsideration which contained a prayer to
present additional evidence consisting of duplicate copies of the cash slips allegedly not submitted
to M.E. by its independent auditor.3 In refuting M.E.'s contention that the tax credit should be
based on the actual discount and not on the acquisition cost of the medicines, the CTA applied the
Court of Appeals (CA) ruling in CIR v. Elmas Drug Corporation,4 where the term "cost of the
discount" was interpreted to mean only the direct acquisition cost, excluding administrative and
other incremental costs.
Aggrieved, M.E. went to the CA on a petition for review docketed as CA-G.R. SP No. 60134. On July
1, 2003, the CA rendered its Decision,5 dismissing the petition.
Even as it laid the entire blame on M.E. for its failure to present its additional evidence, the CA
pointed out that forgotten evidence is not newly discovered evidence which can be presented to
the appellate tax court, even after it had already rendered its decision. Likewise, the CA interpreted,
as did the CTA, the term "cost" to mean only the direct acquisition cost, adding that to interpret the
word "cost" to include "all administrative and incremental costs to sales to senior citizens" would
open the floodgates for drugstores to pad the costs of the sales with such broad, undefined, and
varied administrative and incremental costs such that the government would ultimately bear the
escalated costs of the sales. And citing Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd.,
the CA held that claims for refund, being in the nature of a claim for exemption, should be
construed in strictissimi jurisagainst the taxpayer.6
The CA denied petitioner's Motion for Reconsideration on September 24, 2003.7
Hence, the instant petition for review, anchored essentially on the same issues raised before the
CA, as follows:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS
DEVIATED FROM APPLICABLE LAWS AND JURISPRUDENCE IN NOT APPRECIATING OTHER
COMPETENT EVIDENCE PROVING THE AMOUNT OF DISCOUNTS GRANTED TO SENIOR
CITIZENS AND MERELY RELYING SOLELY ON THE CASH SLIPS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF
JURISDICTION IN AFFIRMING THE COURT OF TAX APPEALS' DENIAL OF PETITIONER'S
MOTION TO ORDER AND SUBMIT AS DOCUMENTARY [EVIDENCE] THE CASH SLIPS WHICH
THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT INADVERTENTLY DID NOT TURN OVER
TO THE PETITIONER'S COUNSEL.
III.
261
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Taxation I
WHETHER OR NOT THE TERM "COST" UNDER PARAGRAPH (A) SECTION 4 OF REPUBLIC ACT
7432 IS EQUIVALENT ONLY TO ACQUISITION COST.8
Our Ruling
The petition is partly meritorious.
The 20% sales discount to senior citizens may be claimed by an establishment owner as tax credit.
RA 7432, the applicable law, is unequivocal on this. The implementing RR 2-94 that considers such
discount as mere deductions to the taxpayer's gross income or gross sales clearly clashes with the
clear language of RA 7432, the law sought to be implemented. We need not delve on the nullity of
the implementing rule all over again as we have already put this issue at rest in a string of cases.9
Now, we will discuss the remaining issues in seriatim.
On the first issue, M.E. faults the CA for merely relying on the cash slips as basis for determining the
total 20% sales discount given to senior citizens. To M.E., there are other competent pieces of
evidence available to prove the same point, such as the Special Record Book required by the Bureau
of Food and Drugs10 and the Special Record Book required under RR 2-94. According to M.E., these
special record books containing, as it were, the same information embodied in the cash slips were
submitted to the CTA during M.E.'s formal offer of evidence. Moreover, M.E. avers that the CA
ought to have considered the special record books since their authenticity and the veracity of their
contents were corroborated by the store supervisor, Amelita Gonzales, and Rene Amby Reyes, its
independent auditor.
M.E. fails to persuade. The determination of the exact amount M.E. claims as the 20% sales
discount it granted to the senior citizens calls for an evaluation of factual matters. The unyielding
rule is that the findings of fact of the trial court, particularly when affirmed by the CA, are binding
upon this Court,11 save when the lower courts had overlooked, misunderstood, or misinterpreted
certain facts or circumstances of weight, which, if properly considered, would affect the result of
the case and warrant a reversal of the decision. The instant case does not fall under the exception;
hence, we do not find any justification to review all over again the evidence presented before the
CTA, and the factual conclusions deduced therefrom.
Lest it be overlooked, the Rules of Court is of suppletory application in quasi-judicial proceedings.
Be this as it may, the CTA was correct in disallowing and not considering the belatedly-submitted
cash slips to be part of the 20% sales discount for M.E.'s taxable year 1995. This is as it should be in
the light of Sec. 34 of Rule 132 prescribing that no evidence shall be considered unless formally
offered with a statement of the purpose why it is being offered. In addition, the rule is that the best
evidence under the circumstance must be adduced to prove the allegations in a complaint, petition,
or protest. Only when the best evidence cannot be submitted may secondary evidence be
considered. But, in the instant case, the disallowed cash slips, the best evidence at that time, were
not part of M.E.'s offer of evidence. While it may be true that the authenticated special record
books yield the same data found in the cash slips, they cannot plausibly be considered by the
courts a quo and made to corroborate pieces of evidence that have, in the first place, been
disallowed. Recall also that M.E. offered the disallowed cash slips as evidence only after the CTA
262
MAS
Taxation I
had rendered its assailed decision. Thus, we cannot accept the excuse of inadvertence of the
independent auditor as excusable negligence. As aptly put by the CA, the belatedly-submitted cash
slips do not constitute newly-found evidence that may be submitted as basis for a new trial or
reconsideration of the decision.
We reiterate at this juncture that claims for tax refund/credit, as in the instant case, are in the
nature of claims for exemption. Accordingly, the law relied upon is not only construed in strictissimi
juris against the taxpayer, but also the proofs presented entitling a taxpayer to an exemption
are strictissimi scrutinized.
On the second issue, M.E. strongly asserts that the CA gravely abused its discretion in denying M.E.
the opportunity to submit the disallowed cash slips despite the independent auditor's admission,
via an Affidavit,12 of guilt for inadvertence. M.E.'s counsel explains that he relied on the
independent auditor's representation that all the cash slips were turned over. Besides, M.E. asserts
that the independent auditor, being an officer of the court, having been commissioned by the CTA,
is presumed to have done his duty in a regular manner, and, therefore, his negligence should not be
taken against M.E.
We do not agree with M.E. Grave abuse of discretion connotes capricious, whimsical, arbitrary, or
despotic exercise of jurisdiction. The CA surely cannot be guilty of gravely abusing its discretion
when it refused to consider, in lieu of the unsubmitted additional cash slips, the special record
books which are only secondary evidence. The cash slips were the best evidence. Also, the CA noted
that the belatedly-offered cash slips were presented only after the CTA had rendered its decision.
All these factors argue against the notion that the CA had, in sustaining the CTA, whimsically and
capriciously exercised its discretion.
On the third and last issue, M.E. contends that it is entitled, as a matter of law, to claim as tax credit
the full amount of the sales discount granted to senior citizens.
M.E.'s contention is correct. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v.
Commissioner of Internal Revenue, we interpreted the term "cost" found in Sec. 4(a) of RA 7432 as
referring to the amount of the 20% discount extended by a private establishment to senior citizens
in their purchase of medicines.13 There we categorically said that it is the Government that should
fully shoulder the cost of the sales discount granted to senior citizens. Thus, we reversed and set
aside the CA's Decision in CA-G.R. SP No. 49946, which construed the same word "cost" to mean the
theoretical acquisition cost of the medicines purchased by qualified senior citizens. Accordingly,
M.E. is entitled to a tax credit equivalent to the actual 20% sales discount it granted to qualified
senior citizens.
With the disallowance of PhP 241,348.89 for being unsupported, and the net amount of PhP
362,574.57 for the actual 20% sales discount granted to qualified senior citizens properly allowed
by the CTA and fully appreciated as tax credit, the amount due as tax credit in favor of M.E. is PhP
151,201.71, computed as follows:
Net Sales
PhP 94,724,284.00
263
MAS
Taxation I
Add: 20% Discount to

(Per Petitioner's Summary)
Senior
Citizens
603,923.46
Gross Sales
Less:
Cost
of
Sales
Merchandise Inventory, beg.
PhP 95,328,207.46
PhP 9,519,210.00
Add Purchases
87,288,988.00
Total Goods available for Sale
PhP
96,808,198.00
Less: Merchandise Inventory,

End
PhP 9,469.349.00
Gross Income
PhP 87,338,849.00
PhP 7,989,358.46
Less: Operating Expenses
17,006,032.00
Net Operating Income /(Loss)
(PhP 9,016,673.54)
Add: Miscellaneous Income
43,489,663.00
Net Income
PhP 34,472,989.46
Less: Interest Income Subject

to Final Tax
22,242,227.00
Net Taxable Income
PhP 12,230,762.46
Tax Due (PhP 12,230,762.46 x 35%)
PhP 4,280,766.86
Less: 1) Tax Credit (20% Discount with supporting

documents)
PhP 362,574.57
2) Income Tax Payment for the Year
4,069,394.00
Total
PhP 4,431,968.57
AMOUNT OF TAX CREDIT
PhP 151,201.71
Parenthetically, we note that M.E. originally prayed for a tax refund for its tax overpayment for CY
1995. The CTA and the CA granted the desired refund, albeit at a lower amount due to their
interpretation, erroneous as it turned out to be, of the term "cost." However, we cannot agree with
the courts a quo on what M.E. is entitled to. RA 7432 expressly provides that the sales discount may
be claimed as tax credit, not as tax refund.
264
MAS
Taxation I
It ought to be noted, however, that on February 26, 2004, RA 9257, or The Expanded Senior Citizens
Act of 2003, amending RA 7432, was signed into law, ushering in, upon its effectivity on March 21,
2004, a new tax treatment for sales discount purchases of qualified senior citizens of medicines.
Sec. 4(a) of RA 9257 provides:
SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the
following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use or
enjoyment of senior citizens, x x x;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That the
cost of the discount shall be allowed as deduction from gross income for the same taxable
year that the discount is granted. Provided, further,That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their gross sales receipts
for tax purposes and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code, as amended. (Emphasis supplied.)
Conformably, starting taxable year 2004, the 20% sales discount granted by establishments to
qualified senior citizens is to be treated as tax deduction, no longer as tax credit.14
IN VIEW OF THE FOREGOING, this petition is PARTLY GRANTED. The CA's Decision dated July 1,
2003 and its Resolution of September 24, 2003 in CA-G.R. SP No. 60134, affirming the Decision of
the CTA dated April 25, 2000 in CTA Case No. 5604, are AFFIRMED with MODIFICATIONS insofar as
the amount and mode of payment of M.E.'s claim are concerned. As modified, the fallo of the April
25, 2000 Decision of the CTA shall read:
WHEREFORE, in view of the foregoing, petitioner M.E.'s claim for refund is hereby
PARTIALLY GRANTED in the form of a tax credit. Respondent Commissioner of Internal
Revenue is ORDERED to issue a tax credit certificate in favor of M.E. in the amount of PhP
151,201.71.
No pronouncement as to costs.
SO ORDERED.
Quisumbing*,Chairperson,Carpio, Azcuna**, Carpio-Morales, Tinga, JJ., concur.
265
MAS
Taxation I
Footnotes
*
On official leave.
**
Additional member as per Special Order No. 485 dated February 14, 2008.
Rollo, pp. 137-139.
Id. at 39-51. Penned by Presiding Judge Ernesto D. Acosta and concurred in by Associate
Judge Ramon O. de Veyra. Associate Judge Amancio Q. Saga dissented.
3
Id. at 72-74.
CA-G.R. SP No. 49946, October 19, 1999.
Rollo, pp. 165-173. Penned by Presiding Justice Cancio C. Garcia (Chairperson, a retired
member of this Court) and concurred in by Associate Justices Eliezer R. Delos Santos and
Mariano C. Del Castillo.
6
314 Phil. 220, 228 (1995).
Rollo, p. 187.
Id. at 10-11.
Commissioner of Internal Revenue v. Bicolandia Drug Corporation, G.R. No. 148083, July
21, 2006, 496 SCRA 176; Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, G.R. No. 148512, June 26, 2006, 492 SCRA 575; Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 15, 2005, 456 SCRA 414.
10
Under BFAD Memo Circular No. 4, Series of 1994.
11
Xentrex Automotive, Inc. v. Court of Appeals, G.R. No. 121559, June 18, 1998, 291 SCRA
66, 71; citations omitted.
12
Rollo, pp. 162-163.
13
G.R. No. 142299, June 22, 2006, 492 SCRA 159, 168.
14
Carlos Superdrug Corp. v. Department of Social Welfare and Development (DSWD), G.R.
No. 166494, June 29, 2007, 526 SCRA 130.
266
MAS

Taxation I Cases

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Taxation I

WMSU LLB 3A SY 2016-2017

Now for the substantive question.

April 17, 2007

Add: 25% surcharge

20% interest from 1-21-87 to 10-28-88

1986 Deficiency Documentary Stamp Tax

Add: 25% surcharge

TOTAL AMOUNT DUE AND COLLECTIBLE

Both notices of assessment contained the following note:

this constitutes the final decision of this office on the matter.8

xxx xxx xxx

Under Rule 45 of the Rules of Court.

Penned by Associate Justice Emeterio C. Cui (retired) and concurred in by Associate

Penned by Associate Judge Ramon O. De Veyra (retired) and concurred in by Presiding

Id., pp. 70-71.

Id., pp. 47-48, 72.

Id., pp. 41, 90.

Id., pp. 12, 48.

Id., pp. 67-68. These sections state:

(1) Decisions of the Collector (now Commissioner) of Internal Revenue in

Id., pp. 70-71.

FAS-4-86-88-003209 and FAS-5-86-88-003210; id., p. 72.

Id., pp. 43-44.

Id., pp. 163-164.

G.R. No. 159694, 27 January 2006, 480 SCRA 382.

Constitution, Art. III, Sec. 1.

Rollo, pp. 62-65, citations omitted.

Rollo, pp. 51-52.

3. TIO VS VIDEOGRAM REGULATORY BOARD

11 Magnano Co. vs. Hamilton, 292, U.S. 40.

4. FELS ENERGY, INC. VS PROVINCE OF BATANGAS

February 16, 2007

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

February 16, 2007

MA. ALICIA AUSTRIA-MARTINEZ

Rollo (G.R. No. 168557), pp. 121-245.

Rollo (G.R. No. 168557), pp. 256-267.

Rollo (G.R. No. 170628), pp. 122-124.

Rollo (G.R. No. 168557), pp. 364-369.

Otherwise known as the "Local Government Code of 1991."

Rollo (G.R. No. 168557), pp. 425-431.

CA Rollo (CA-G.R. SP No. 67490), p. 422.

Rollo (G.R. No. 168557), pp. 49-50.

Rollo (G.R. No. 170628), p. 65.

Rollo (G.R. No. 168557), pp. 23-25.

Rollo (G.R. No. 170628), pp. 18-19.

Rollo (G.R. No. 168557), p. 637.

Id. at 246 (Italics supplied).

G.R. Nos. 115253-74, January 30, 1998, 285 SCRA 648.

Formerly Section 30 of The Real Property Tax Code.

Callanta v. Office of the Ombudsman, supra note 33, at 661-662.

Rollo (G.R. No. 170628), pp. 62-63.

G.R. No. 138660, February 5, 2004, 422 SCRA 101.

80 Misc.2d 1065 (1975).

Rollo (G.R. No. 168557), p. 135.

Id. at 142. (Emphasis supplied)

Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R.

CONSTITUTION, Section 25, Article II, and Section 2, Article X.

Republic Act No. 7160, Section 2(a).

5. CIR VS TOKYO SHIPPING CO. LTD. ET AL.

G.R. No. L-68252 May 26, 1995