EN BANC

CHAMBER OF REAL G.R. No. 160756

ESTATE AND BUILDERS
ASSOCIATIONS, INC.,
Petitioner, Present:
PUNO, C.J.,
CARPIO,
CORONA,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
- v e r s u s - LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ and
MENDOZA, JJ.

THE HON. EXECUTIVE

SECRETARY ALBERTO ROMULO,
THE HON. ACTING SECRETARY OF
FINANCE JUANITA D. AMATONG,
and THE HON. COMMISSIONER OF
INTERNAL REVENUE GUILLERMO
PARAYNO, JR.,
Respondents. Promulgated:

March 9, 2010

x-------------------------------------------------x
 DECISION

CORONA, J.:

In this original petition for certiorari and mandamus,[1] petitioner Chamber of Real
Estate and Builders Associations, Inc. is questioning the constitutionality of Section
27 (E) of Republic Act (RA) 8424[2] and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision and those involving
creditable withholding taxes.[3]

Petitioner is an association of real estate developers and builders in the Philippines. It

impleaded former Executive Secretary Alberto Romulo, then acting Secretary of
Finance Juanita D. Amatong and then Commissioner of Internal Revenue Guillermo
Parayno, Jr. as respondents.

Petitioner assails the validity of the imposition of minimum corporate income tax
(MCIT) on corporations and creditable withholding tax (CWT) on sales of real
properties classified as ordinary assets.

Section 27(E) of RA 8424 provides for MCIT on domestic corporations and

is implemented by RR 9-98. Petitioner argues that the MCIT violates the due process
clause because it levies income tax even if there is no realized gain.

Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and
2.58.2 of RR 2-98, and Section 4(a)(ii) and (c)(ii) of RR 7-2003, all of which
prescribe the rules and procedures for the collection of CWT on the sale of real
properties categorized as ordinary assets. Petitioner contends that these revenue
regulations are contrary to law for two reasons: first, they ignore the different
treatment by RA 8424 of ordinary assets and capital assets and second, respondent
Secretary of Finance has no authority to collect CWT, much less, to base the CWT
on the gross selling price or fair market value of the real properties classified as
ordinary assets.

Petitioner also asserts that the enumerated provisions of the subject revenue
regulations violate the due process clause because, like the MCIT, the government
collects income tax even when the net income has not yet been determined. They
contravene the equal protection clause as well because the CWT is being levied upon
real estate enterprises but not on other business enterprises, more particularly those
in the manufacturing sector.
The issues to be resolved are as follows:
(1) whether or not this Court should take cognizance of the present case;
(2) whether or not the imposition of the MCIT on domestic corporations is
unconstitutional and
(3) whether or not the imposition of CWT on income from sales of real
properties classified as ordinary assets under RRs 2-98, 6-2001 and 7-
2003, is unconstitutional.

OVERVIEW OF THE ASSAILED PROVISIONS

Under the MCIT scheme, a corporation, beginning on its fourth year of

operation, is assessed an MCIT of 2% of its gross income when such MCIT is greater
than the normal corporate income tax imposed under Section 27(A).[4] If the regular
income tax is higher than the MCIT, the corporation does not pay the MCIT. Any
excess of the MCIT over the normal tax shall be carried forward and credited against
the normal income tax for the three immediately succeeding taxable years. Section
27(E) of RA 8424 provides:

Section 27 (E). [MCIT] on Domestic Corporations. -

(1) Imposition of Tax. A [MCIT] of two percent (2%) of the gross

income as of the end of the taxable year, as defined herein, is
hereby imposed on a corporation taxable under this Title,
beginning on the fourth taxable year immediately following
the year in which such corporation commenced its business
operations, when the minimum income tax is greater than the
tax computed under Subsection (A) of this Section for the
taxable year.

(2) Carry Forward of Excess Minimum Tax. Any excess of the

[MCIT] over the normal income tax as computed under
Subsection (A) of this Section shall be carried forward and
credited against the normal income tax for the three (3)
immediately succeeding taxable years.

(3) Relief from the [MCIT] under certain conditions. The

Secretary of Finance is hereby authorized to suspend the
imposition of the [MCIT] on any corporation which suffers
 losses on account of prolonged labor dispute, or because
of force majeure, or because of legitimate business reverses.

The Secretary of Finance is hereby authorized to

promulgate, upon recommendation of the Commissioner, the
necessary rules and regulations that shall define the terms and
conditions under which he may suspend the imposition of the
[MCIT] in a meritorious case.

(4) Gross Income Defined. For purposes of applying the [MCIT]

provided under Subsection (E) hereof, the term gross income
shall mean gross sales less sales returns, discounts and
allowances and cost of goods sold. Cost of goods sold shall
include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.

For trading or merchandising concern, cost of goods sold

shall include the invoice cost of the goods sold, plus import
duties, freight in transporting the goods to the place where the
goods are actually sold including insurance while the goods are
in transit.

For a manufacturing concern, cost of goods

manufactured and sold shall include all costs of production of
finished goods, such as raw materials used, direct labor and
manufacturing overhead, freight cost, insurance premiums and
other costs incurred to bring the raw materials to the factory or
warehouse.

In the case of taxpayers engaged in the sale of service,

gross income means gross receipts less sales returns,
allowances, discounts and cost of services. Cost of services
shall mean all direct costs and expenses necessarily incurred to
provide the services required by the customers and clients
including (A) salaries and employee benefits of personnel,
consultants and specialists directly rendering the service
and (B) cost of facilities directly utilized in providing the
service such as depreciation or rental of equipment used and
cost of supplies: Provided, however, that in the case of banks,
cost of services shall include interest expense.
On August 25, 1998, respondent Secretary of Finance (Secretary), on the
recommendation of the Commissioner of Internal Revenue (CIR), promulgated RR
9-98 implementing Section 27(E).[5] The pertinent portions thereof read:

Sec. 2.27(E) [MCIT] on Domestic Corporations.

(1) Imposition of the Tax. A [MCIT] of two percent (2%) of the

gross income as of the end of the taxable year (whether
calendar or fiscal year, depending on the accounting period
employed) is hereby imposed upon any domestic corporation
beginning the fourth (4th) taxable year immediately following
the taxable year in which such corporation commenced its
business operations. The MCIT shall be imposed whenever
such corporation has zero or negative taxable income or
whenever the amount of minimum corporate income tax is
greater than the normal income tax due from such corporation.

For purposes of these Regulations, the term, normal

income tax means the income tax rates prescribed under Sec.
27(A) and Sec. 28(A)(1) of the Code xxx at 32% effective
January 1, 2000 and thereafter.

xxx xxx xxx

(2) Carry forward of excess [MCIT]. Any excess of the [MCIT]

over the normal income tax as computed under Sec. 27(A) of
the Code shall be carried forward on an annual basis and
credited against the normal income tax for the three (3)
immediately succeeding taxable years.

xxx xxx xxx

Meanwhile, on April 17, 1998, respondent Secretary, upon recommendation of

respondent CIR, promulgated RR 2-98 implementing certain provisions of RA 8424
involving the withholding of taxes.[6] Under Section 2.57.2(J) of RR No. 2-98,
income payments from the sale, exchange or transfer of real property, other than
capital assets, by persons residing in the Philippines and habitually engaged in the
real estate business were subjected to CWT:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed

thereon:

xxx xxx xxx

(J) Gross selling price or total amount of consideration or its

equivalent paid to the seller/owner for the sale, exchange or transfer of.
Real property, other than capital assets, sold by an individual, corporation,
estate, trust, trust fund or pension fund and the seller/transferor is
habitually engaged in the real estate business in accordance with the
following schedule
Those which are exempt from a
withholding tax at source as
prescribed in Sec. 2.57.5 of these
regulations. Exempt

With a selling price of five hundred

thousand pesos (P500,000.00) or
less. 1.5%

With a selling price of more than

five hundred thousand pesos
(P500,000.00) but not more than
two million pesos (P2,000,000.00).
3.0%

With selling price of more than two

million pesos (P2,000,000.00)
5.0%

xxx xxx xxx

Gross selling price shall mean the consideration stated in the sales
document or the fair market value determined in accordance with Section
6 (E) of the Code, as amended, whichever is higher. In an exchange, the
fair market value of the property received in exchange, as determined in
the Income Tax Regulations shall be used.

Where the consideration or part thereof is payable on installment, no

withholding tax is required to be made on theperiodic installment
payments where the buyer is an individual not engaged in trade or
business. In such a case, the applicable rate of tax based on the entire
consideration shall be withheld on the last installment or installments to
be paid to the seller.

However, if the buyer is engaged in trade or business, whether a

corporation or otherwise, the tax shall be deducted and withheld by the
buyer on every installment.

This provision was amended by RR 6-2001 on July 31, 2001:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed
thereon:
xxx xxx xxx
(J) Gross selling price or total amount of consideration or its
equivalent paid to the seller/owner for the sale, exchange or
transfer of real property classified as ordinary asset. - A [CWT]
based on the gross selling price/total amount of consideration
or the fair market value determined in accordance with Section
6(E) of the Code, whichever is higher, paid to the seller/owner
for the sale, transfer or exchange of real property, other than
capital asset, shall be imposed upon the withholding
agent,/buyer, in accordance with the following schedule:

Where the seller/transferor is exempt from

[CWT] in accordance with Sec. 2.57.5 of these
regulations. Exempt

Upon the following values of real property,

where the seller/transferor is habitually engaged
in the real estate business.

With a selling price of Five Hundred Thousand

Pesos (P500,000.00) or less. 1.5%

With a selling price of more than Five Hundred

Thousand Pesos (P500,000.00) but not more
than Two Million Pesos (P2,000,000.00).
3.0%

With a selling price of more than two Million

Pesos (P2,000,000.00). 5.0%
xxx xxx xxx
 Gross selling price shall remain the consideration stated in the
sales document or the fair market value determined in accordance with
Section 6 (E) of the Code, as amended, whichever is higher. In an
exchange, the fair market value of the property received in exchange shall
be considered as the consideration.

xxx xxx xxx

However, if the buyer is engaged in trade or business, whether a

corporation or otherwise, these rules shall apply:

(i) If the sale is a sale of property on the installment plan

(that is, payments in the year of sale do not exceed 25% of
the selling price), the tax shall be deducted and withheld by
the buyer on every installment.

(ii) If, on the other hand, the sale is on a cash basis or is a

deferred-payment sale not on the installment plan (that is,
payments in the year of sale exceed 25% of the selling
price), the buyer shall withhold the tax based on the gross
selling price or fair market value of the property, whichever
is higher, on the first installment.

In any case, no Certificate Authorizing Registration (CAR) shall be

issued to the buyer unless the [CWT] due on the sale, transfer or exchange
of real property other than capital asset has been fully paid. (Underlined
amendments in the original)

Section 2.58.2 of RR 2-98 implementing Section 58(E) of RA 8424 provides

that any sale, barter or exchange subject to the CWT will not be recorded by the
Registry of Deeds until the CIR has certified that such transfers and conveyances
have been reported and the taxes thereof have been duly paid:[7]

Sec. 2.58.2. Registration with the Register of Deeds. Deeds of

conveyances of land or land and building/improvement thereon arising
from sales, barters, or exchanges subject to the creditable expanded
withholding tax shall not be recorded by the Register of Deeds unless the
[CIR] or his duly authorized representative has certified that such
transfers and conveyances have been reported and the expanded
 withholding tax, inclusive of the documentary stamp tax, due thereon
have been fully paid xxxx.

On February 11, 2003, RR No. 7-2003[8] was promulgated, providing for the
guidelines in determining whether a particular real property is a capital or an
ordinary asset for purposes of imposing the MCIT, among others. The pertinent
portions thereof state:
Section 4. Applicable taxes on sale, exchange or other
disposition of real property. - Gains/Income derived from sale,
exchange, or other disposition of real properties shall, unless
otherwise exempt, be subject to applicable taxes imposed under
the Code, depending on whether the subject properties are
classified as capital assets or ordinary assets;

a. In the case of individual citizen (including estates and trusts),

resident aliens, and non-resident aliens engaged in trade or
business in the Philippines;

xxx xxx xxx

(ii) The sale of real property located in the Philippines,

classified as ordinary assets, shall be subject to the
[CWT] (expanded) under Sec. 2.57..2(J) of [RR 2-
98], as amended, based on the gross selling price or
current fair market value as determined in
accordance with Section 6(E) of the Code, whichever
is higher, and consequently, to the ordinary income
tax imposed under Sec. 24(A)(1)(c) or 25(A)(1) of
the Code, as the case may be, based on net taxable
income.

xxx xxx xxx

c. In the case of domestic corporations.

xxx xxx xxx

(ii) The sale of land and/or building classified as ordinary asset

and other real property (other than land and/or building
treated as capital asset), regardless of the classification
 thereof, all of which are located in the Philippines, shall be
subject to the [CWT] (expanded) under Sec. 2.57.2(J) of
[RR 2-98], as amended, and consequently, to the ordinary
income tax under Sec. 27(A) of the Code. In lieu of the
ordinary income tax, however, domestic corporations may
become subject to the [MCIT] under Sec. 27(E) of the Code,
whichever is applicable.

xxx xxx xxx

We shall now tackle the issues raised.

EXISTENCE OF A JUSTICIABLE CONTROVERSY

Courts will not assume jurisdiction over a constitutional question unless the
following requisites are satisfied: (1) there must be an actual case calling for the
exercise of judicial review; (2) the question before the court must be ripe for
adjudication; (3) the person challenging the validity of the act must have standing to
do so; (4) the question of constitutionality must have been raised at the earliest
opportunity and (5) the issue of constitutionality must be the very lis mota of the
case.[9]

Respondents aver that the first three requisites are absent in this
case. According to them, there is no actual case calling for the exercise of judicial
power and it is not yet ripe for adjudication because

[petitioner] did not allege that CREBA, as a corporate entity, or any of its
members, has been assessed by the BIR for the payment of [MCIT] or
[CWT] on sales of real property. Neither did petitioner allege that its
members have shut down their businesses as a result of the payment of the
MCIT or CWT. Petitioner has raised concerns in mere abstract and
hypothetical form without any actual, specific and concrete instances cited
that the assailed law and revenue regulations have actually and adversely
affected it. Lacking empirical data on which to base any conclusion, any
discussion on the constitutionality of the MCIT or CWT on sales of real
property is essentially an academic exercise.

Perceived or alleged hardship to taxpayers alone is not an adequate

justification for adjudicating abstract issues. Otherwise, adjudication
 would be no different from the giving of advisory opinion that does not
really settle legal issues.[10]

An actual case or controversy involves a conflict of legal rights or an assertion

of opposite legal claims which is susceptible of judicial resolution as distinguished
from a hypothetical or abstract difference or dispute.[11] On the other hand, a question
is considered ripe for adjudication when the act being challenged has a direct adverse
effect on the individual challenging it.[12]

Contrary to respondents assertion, we do not have to wait until petitioners

members have shut down their operations as a result of the MCIT or CWT. The
assailed provisions are already being implemented. As we stated in Didipio Earth-
Savers Multi-Purpose Association, Incorporated (DESAMA) v. Gozun:[13]

By the mere enactment of the questioned law or the approval of the

challenged act, the dispute is said to have ripened into a judicial
controversy even without any other overt act. Indeed, even a singular
violation of the Constitution and/or the law is enough to awaken judicial
duty.[14]

If the assailed provisions are indeed unconstitutional, there is no better time than the
present to settle such question once and for all.

Respondents next argue that petitioner has no legal standing to sue:

Petitioner is an association of some of the real estate developers and

builders in the Philippines. Petitioners did not allege that [it] itself is in the
real estate business. It did not allege any material interest or any wrong
that it may suffer from the enforcement of [the assailed provisions].[15]

Legal standing or locus standi is a partys personal and substantial interest in

a case such that it has sustained or will sustain direct injury as a result of the
governmental act being challenged.[16] In Holy Spirit Homeowners Association, Inc.
v. Defensor,[17] we held that the association had legal standing because its members
stood to be injured by the enforcement of the assailed provisions:

Petitioner association has the legal standing to institute the instant

petition xxx. There is no dispute that the individual members of petitioner
association are residents of the NGC. As such they are covered and stand
to be either benefited or injured by the enforcement of the IRR,
 particularly as regards the selection process of beneficiaries and lot
allocation to qualified beneficiaries. Thus, petitioner association may
assail those provisions in the IRR which it believes to be unfavorable to
the rights of its members. xxx Certainly, petitioner and its members have
sustained direct injury arising from the enforcement of the IRR in that they
have been disqualified and eliminated from the selection process.[18]

In any event, this Court has the discretion to take cognizance of a suit which does
not satisfy the requirements of an actual case, ripeness or legal standing when
paramount public interest is involved.[19] The questioned MCIT and CWT affect not
only petitioners but practically all domestic corporate taxpayers in our country. The
transcendental importance of the issues raised and their overreaching significance to
society make it proper for us to take cognizance of this petition.[20]
CONCEPT AND RATIONALE OF THE MCIT

The MCIT on domestic corporations is a new concept introduced by RA 8424

to the Philippine taxation system. It came about as a result of the perceived
inadequacy of the self-assessment system in capturing the true income of
corporations.[21] It was devised as a relatively simple and effective revenue-raising
instrument compared to the normal income tax which is more difficult to control and
enforce. It is a means to ensure that everyone will make some minimum contribution
to the support of the public sector. The congressional deliberations on this are
illuminating:

Senator Enrile. Mr. President, we are not unmindful of the practice of

certain corporations of reporting constantly a loss in their operations to
avoid the payment of taxes, and thus avoid sharing in the cost of
government. In this regard, the Tax Reform Act introduces for the first
time a new concept called the [MCIT] so as to minimize tax evasion, tax
avoidance, tax manipulation in the country and for administrative
convenience. This will go a long way in ensuring that corporations will
pay their just share in supporting our public life and our economic
advancement.[22]

Domestic corporations owe their corporate existence and their privilege to do

business to the government. They also benefit from the efforts of the government to
improve the financial market and to ensure a favorable business climate. It is
therefore fair for the government to require them to make a reasonable contribution
to the public expenses.

Congress intended to put a stop to the practice of corporations which, while

having large turn-overs, report minimal or negative net income resulting in minimal
or zero income taxes year in and year out, through under-declaration of income or
over-deduction of expenses otherwise called tax shelters.[23]

Mr. Javier (E.) [This] is what the Finance Dept. is trying to remedy, that
is why they have proposed the [MCIT]. Because from experience too, you
have corporations which have been losing year in and year out and paid
no tax. So, if the corporation has been losing for the past five years to ten
years, then that corporation has no business to be in business. It is
dead. Why continue if you are losing year in and year out? So, we have
this provision to avoid this type of tax shelters, Your Honor.[24]

The primary purpose of any legitimate business is to earn a profit. Continued

and repeated losses after operations of a corporation or consistent reports of minimal
net income render its financial statements and its tax payments suspect. For sure,
certain tax avoidance schemes resorted to by corporations are allowed in our
jurisdiction. The MCIT serves to put a cap on such tax shelters. As a tax on gross
income, it prevents tax evasion and minimizes tax avoidance schemes achieved
through sophisticated and artful manipulations of deductions and other
stratagems. Since the tax base was broader, the tax rate was lowered.

To further emphasize the corrective nature of the MCIT, the following safeguards
were incorporated into the law:

First, recognizing the birth pangs of businesses and the reality of the need to
recoup initial major capital expenditures, the imposition of the MCIT commences
only on the fourth taxable year immediately following the year in which the
corporation commenced its operations.[25] This grace period allows a new business
to stabilize first and make its ventures viable before it is subjected to the MCIT.[26]

Second, the law allows the carrying forward of any excess of the MCIT paid
over the normal income tax which shall be credited against the normal income tax
for the three immediately succeeding years.[27]
Third, since certain businesses may be incurring genuine repeated losses, the
law authorizes the Secretary of Finance to suspend the imposition of MCIT if a
corporation suffers losses due to prolonged labor dispute, force majeure and
legitimate business reverses.[28]
Even before the legislature introduced the MCIT to the Philippine taxation
system, several other countries already had their own system of minimum corporate
income taxation. Our lawmakers noted that most developing countries, particularly
Latin American and Asian countries, have the same form of safeguards as we do. As
pointed out during the committee hearings:

[Mr. Medalla:] Note that most developing countries where you have of
course quite a bit of room for underdeclaration of gross receipts have this
same form of safeguards.

In the case of Thailand, half a percent (0.5%), theres a minimum of

income tax of half a percent (0.5%) of gross assessable income. In Korea
a 25% of taxable income before deductions and exemptions. Of course
the different countries have different basis for that minimum income tax.

The other thing youll notice is the preponderance of Latin American

countries that employed this method. Okay, those are additional Latin
American countries.[29]

At present, the United States of America, Mexico, Argentina, Tunisia, Panama and
Hungary have their own versions of the MCIT.[30]
MCIT IS NOT VIOLATIVE OF DUE PROCESS

Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional
because it is highly oppressive, arbitrary and confiscatory which amounts to
deprivation of property without due process of law. It explains that gross income as
defined under said provision only considers the cost of goods sold and other direct
expenses; other major expenditures, such as administrative and interest expenses
which are equally necessary to produce gross income, were not taken into
account.[31] Thus, pegging the tax base of the MCIT to a corporations gross income
is tantamount to a confiscation of capital because gross income, unlike net income,
is not realized gain.[32]

We disagree.

Taxes are the lifeblood of the government. Without taxes, the government can
neither exist nor endure. 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 the common good.[33]

Taxation is an inherent attribute of sovereignty.[34] It is a power that is purely

legislative.[35] Essentially, this means that in the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation.[36] It has the authority to prescribe a certain
tax at a specific rate for a particular public purpose on persons or things within its
jurisdiction. In other words, the legislature wields the power to define what tax shall
be imposed, why it should be imposed, how much tax shall be imposed, against
whom (or what) it shall be imposed and where it shall be imposed.

As a general rule, the power to tax is plenary and unlimited in its range,
acknowledging in its very nature no limits, so that the principal check against its
abuse is to be found only in the responsibility of the legislature (which imposes the
tax) to its constituency who are to pay it.[37] Nevertheless, it is circumscribed by
constitutional limitations. At the same time, like any other statute, tax legislation
carries a presumption of constitutionality.

The constitutional safeguard of due process is embodied in the fiat [no] person
shall be deprived of life, liberty or property without due process of law. In Sison, Jr.
v. Ancheta, et al.,[38] we held that the due process clause may properly be invoked to
invalidate, in appropriate cases, a revenue measure[39] when it amounts to a
confiscation of property.[40] But in the same case, we also explained that we will not
strike down a revenue measure as unconstitutional (for being violative of the due
process clause) on the mere allegation of arbitrariness by the taxpayer.[41] There must
be a factual foundation to such an unconstitutional taint.[42] This merely adheres to
the authoritative doctrine that, where the due process clause is invoked, considering
that it is not a fixed rule but rather a broad standard, there is a need for proof of such
persuasive character.[43]

Petitioner is correct in saying that income is distinct from capital.[44] Income

means all the wealth which flows into the taxpayer other than a mere return on
capital.Capital is a fund or property existing at one distinct point in time while
income denotes a flow of wealth during a definite period of time. [45] Income is gain
derived and severed from capital.[46] For income to be taxable, the following
requisites must exist:

(1) there must be gain;

(2) the gain must be realized or received and
 (3) the gain must not be excluded by law or treaty from
taxation.[47]

Certainly, an income tax is arbitrary and confiscatory if it taxes capital because

capital is not income. In other words, it is income, not capital, which is subject to
income tax.However, the MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived at by deducting the
capital spent by a corporation in the sale of its goods, i.e., the cost of goods[48] and
other direct expenses from gross sales. Clearly, the capital is not being taxed.

Furthermore, the MCIT is not an additional tax imposition. It is imposed in

lieu of the normal net income tax, and only if the normal income tax is suspiciously
low. The MCIT merely approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and uses as the base the
corporations gross income.

Besides, there is no legal objection to a broader tax base or taxable income by

eliminating all deductible items and at the same time reducing the applicable tax
rate.[49]

Statutes taxing the gross "receipts," "earnings," or "income" of

particular corporations are found in many jurisdictions. Tax thereon is
generally held to be within the power of a state to impose; or
constitutional, unless it interferes with interstate commerce or violates the
requirement as to uniformity of taxation.[50]

The United States has a similar alternative minimum tax (AMT) system which
is generally characterized by a lower tax rate but a broader tax base. [51] Since our
income tax laws are of American origin, interpretations by American courts of our
parallel tax laws have persuasive effect on the interpretation of these
laws.[52] Although our MCIT is not exactly the same as the AMT, the policy behind
them and the procedure of their implementation are comparable. On the question of
the AMTs constitutionality, the United States Court of Appeals for the Ninth Circuit
stated in Okin v. Commissioner:[53]

In enacting the minimum tax, Congress attempted to remedy general

taxpayer distrust of the system growing from large numbers of taxpayers
with large incomes who were yet paying no taxes.
 xxx xxx xxx

We thus join a number of other courts in upholding the constitutionality

of the [AMT]. xxx [It] is a rational means of obtaining a broad-based tax,
and therefore is constitutional.[54]

The U.S. Court declared that the congressional intent to ensure that corporate
taxpayers would contribute a minimum amount of taxes was a legitimate
governmental end to which the AMT bore a reasonable relation.[55]
American courts have also emphasized that Congress has the power to condition,
limit or deny deductions from gross income in order to arrive at the net that it chooses
to tax.[56] This is because deductions are a matter of legislative grace.[57]

Absent any other valid objection, the assignment of gross income, instead of
net income, as the tax base of the MCIT, taken with the reduction of the tax rate from
32% to 2%, is not constitutionally objectionable.
Moreover, petitioner does not cite any actual, specific and concrete negative
experiences of its members nor does it present empirical data to show that the
implementation of the MCIT resulted in the confiscation of their property.
In sum, petitioner failed to support, by any factual or legal basis, its allegation
that the MCIT is arbitrary and confiscatory. The Court cannot strike down a law as
unconstitutional simply because of its yokes.[58] Taxation is necessarily burdensome
because, by its nature, it adversely affects property rights.[59] The party alleging the
laws unconstitutionality has the burden to demonstrate the supposed violations in
understandable terms.[60]

RR 9-98 MERELY CLARIFIES

SECTION 27(E) OF RA 8424

Petitioner alleges that RR 9-98 is a deprivation of property without due

process of law because the MCIT is being imposed and collected even when there is
actually a loss, or a zero or negative taxable income:
Sec. 2.27(E) [MCIT] on Domestic Corporations.

(1) Imposition of the Tax. xxx The MCIT shall be imposed whenever such
corporation has zero or negative taxable income or whenever the
amount of [MCIT] is greater than the normal income tax due from such
corporation. (Emphasis supplied)
 RR 9-98, in declaring that MCIT should be imposed whenever such
corporation has zero or negative taxable income, merely defines the coverage of
Section 27(E). This means that even if a corporation incurs a net loss in its business
operations or reports zero income after deducting its expenses, it is still subject to an
MCIT of 2% of its gross income. This is consistent with the law which imposes the
MCIT on gross income notwithstanding the amount of the net income. But the law
also states that the MCIT is to be paid only if it is greater than the normal net
income. Obviously, it may well be the case that the MCIT would be less than the net
income of the corporation which posts a zero or negative taxable income.

We now proceed to the issues involving the CWT.

The withholding tax system is a procedure through which taxes (including

income taxes) are collected.[61] Under Section 57 of RA 8424, the types of income
subject to withholding tax are divided into three categories: (a) withholding of final
tax on certain incomes; (b) withholding of creditable tax at source and (c) tax-free
covenant bonds. Petitioner is concerned with the second category (CWT) and
maintains that the revenue regulations on the collection of CWT on sale of real estate
categorized as ordinary assets are unconstitutional.

Petitioner, after enumerating the distinctions between capital and ordinary

assets under RA 8424, contends that Sections 2.57.2(J) and 2.58.2 of RR 2-98 and
Sections 4(a)(ii) and (c)(ii) of RR 7-2003 were promulgated with grave abuse of
discretion amounting to lack of jurisdiction and patently in contravention of
law[62] because they ignore such distinctions. Petitioners conclusion is based on the
following premises: (a) the revenue regulations use gross selling price (GSP) or fair
market value (FMV) of the real estate as basis for determining the income tax for
the sale of real estate classified as ordinary assets and (b) they mandate the collection
of income tax on a per transaction basis, i.e., upon consummation of the sale via the
CWT, contrary to RA 8424 which calls for the payment of the net income at the end
of the taxable period.[63]
Petitioner theorizes that since RA 8424 treats capital assets and ordinary assets
differently, respondents cannot disregard the distinctions set by the legislators as
regards the tax base, modes of collection and payment of taxes on income from the
sale of capital and ordinary assets.
Petitioners arguments have no merit.

AUTHORITY OF THE SECRETARY OF

FINANCE TO ORDER THE COLLECTION OF
CWT ON SALES OF REAL PROPERTY
CONSIDERED AS ORDINARY ASSETS

The Secretary of Finance is granted, under Section 244 of RA 8424, the

authority to promulgate the necessary rules and regulations for the effective
enforcement of the provisions of the law. Such authority is subject to the limitation
that the rules and regulations must not override, but must remain consistent and in
harmony with, the law they seek to apply and implement.[64] It is well-settled that an
administrative agency cannot amend an act of Congress.[65]

We have long recognized that the method of withholding tax at source is a procedure
of collecting income tax which is sanctioned by our tax laws. [66] The withholding tax
system was devised for three primary reasons: first, to provide the taxpayer a
convenient manner to meet his probable income tax liability; second, to ensure the
collection of income tax which can otherwise be lost or substantially reduced
through failure to file the corresponding returns and third, to improve the
governments cash flow.[67] This results in administrative savings, prompt and
efficient collection of taxes, prevention of delinquencies and reduction of
governmental effort to collect taxes through more complicated means and
remedies.[68]
Respondent Secretary has the authority to require the withholding of a tax on
items of income payable to any person, national or juridical, residing in the
Philippines. Such authority is derived from Section 57(B) of RA 8424 which
provides:

SEC. 57. Withholding of Tax at Source.

xxx xxx xxx

(B) Withholding of Creditable Tax at Source. The [Secretary]

may, upon the recommendation of the [CIR], require the
withholding of a tax on the items of income payable to natural
or juridical persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate of not
less than one percent (1%) but not more than thirty-two
percent (32%) thereof, which shall be credited against the
income tax liability of the taxpayer for the taxable year.
 The questioned provisions of RR 2-98, as amended, are well within the
authority given by Section 57(B) to the Secretary, i.e., the graduated rate of 1.5%-
5% is between the 1%-32% range; the withholding tax is imposed on the income
payable and the tax is creditable against the income tax liability of the taxpayer for
the taxable year.

EFFECT OF RRS ON THE TAX BASE FOR THE

INCOME TAX OF INDIVIDUALS OR
CORPORATIONS ENGAGED IN THE REAL
ESTATE BUSINESS

Petitioner maintains that RR 2-98, as amended, arbitrarily shifted the tax base of a
real estate business income tax from net income to GSP or FMV of the property sold.
Petitioner is wrong.

The taxes withheld are in the nature of advance tax payments by a taxpayer in order
to extinguish its possible tax obligation. [69] They are installments on the annual tax
which may be due at the end of the taxable year.[70]
Under RR 2-98, the tax base of the income tax from the sale of real property
classified as ordinary assets remains to be the entitys net income imposed under
Section 24 (resident individuals) or Section 27 (domestic corporations) in relation to
Section 31 of RA 8424, i.e. gross income less allowable deductions. The CWT is to
be deducted from the net income tax payable by the taxpayer at the end of the taxable
year.[71] Precisely, Section 4(a)(ii) and (c)(ii) of RR 7-2003 reiterate that the tax base
for the sale of real property classified as ordinary assets remains to be the net taxable
income:

Section 4. Applicable taxes on sale, exchange or other disposition of real

property. - Gains/Income derived from sale, exchange, or other
disposition of real properties shall unless otherwise exempt, be subject to
applicable taxes imposed under the Code, depending on whether the
subject properties are classified as capital assets or ordinary assets;

xxx xxx xxx

a. In the case of individual citizens (including estates and trusts),

resident aliens, and non-resident aliens engaged in trade or
business in the Philippines;

xxx xxx xxx

 (ii) The sale of real property located in the Philippines, classified as
ordinary assets, shall be subject to the [CWT] (expanded) under Sec.
2.57.2(j) of [RR 2-98], as amended, based on the [GSP] or current [FMV]
as determined in accordance with Section 6(E) of the Code, whichever is
higher, and consequently, to the ordinary income tax imposed under
Sec. 24(A)(1)(c) or 25(A)(1) of the Code, as the case may be, based on
net taxable income.

xxx xxx xxx

c. In the case of domestic corporations.

The sale of land and/or building classified as ordinary asset and other real
property (other than land and/or building treated as capital asset),
regardless of the classification thereof, all of which are located in the
Philippines, shall be subject to the [CWT] (expanded) under Sec.
2.57.2(J) of [RR 2-98], as amended, and consequently, to the ordinary
income tax under Sec. 27(A) of the Code. In lieu of the ordinary income
tax, however, domestic corporations may become subject to the [MCIT]
under Sec. 27(E) of the same Code, whichever is applicable. (Emphasis
supplied)

Accordingly, at the end of the year, the taxpayer/seller shall file its income tax return
and credit the taxes withheld (by the withholding agent/buyer) against its tax due. If
the tax due is greater than the tax withheld, then the taxpayer shall pay the
difference. If, on the other hand, the tax due is less than the tax withheld, the taxpayer
will be entitled to a refund or tax credit. Undoubtedly, the taxpayer is taxed on its
net income.
The use of the GSP/FMV as basis to determine the withholding taxes is
evidently for purposes of practicality and convenience. Obviously, the withholding
agent/buyer who is obligated to withhold the tax does not know, nor is he privy to,
how much the taxpayer/seller will have as its net income at the end of the taxable
year. Instead, said withholding agents knowledge and privity are limited only to the
particular transaction in which he is a party. In such a case, his basis can only be the
GSP or FMV as these are the only factors reasonably known or knowable by him in
connection with the performance of his duties as a withholding agent.
NO BLURRING OF DISTINCTIONS
BETWEEN ORDINARY ASSETS AND CAPITAL
ASSETS

RR 2-98 imposes a graduated CWT on income based on the GSP or FMV of the real
property categorized as ordinary assets. On the other hand, Section 27(D)(5) of RA
8424 imposes a final tax and flat rate of 6% on the gain presumed to be realized from
the sale of a capital asset based on its GSP or FMV. This final tax is also withheld
at source.[72]
The differences between the two forms of withholding tax, i.e., creditable and
final, show that ordinary assets are not treated in the same manner as capital assets.
Final withholding tax (FWT) and CWT are distinguished as follows:

FWT
a) The amount of income tax
withheld by the withholding agent
is constituted as a full and final
payment of the income tax due
from the payee on the said income.
CWT
a) Taxes withheld on certain income
payments are intended to equal or at
least approximate the tax due of the
payee on said income.

b)The liability for payment of the b) Payee of income is required to

tax rests primarily on the payor as
a withholding agent.
c) The payee is not required to file
an income tax return for the
particular income.[73]
report the income and/or pay the
difference between the tax withheld
and the tax due on the income. The
payee also has the right to ask for a
refund if the tax withheld is more
than the tax due.
c) The income recipient is still
required to file an income tax return,
as prescribed in Sec. 51 and Sec. 52
of the NIRC, as amended.[74]

As previously stated, FWT is imposed on the sale of capital assets. On the other
hand, CWT is imposed on the sale of ordinary assets. The inherent and substantial
differences between FWT and CWT disprove petitioners contention that ordinary
assets are being lumped together with, and treated similarly as, capital assets in
contravention of the pertinent provisions of RA 8424.

Petitioner insists that the levy, collection and payment of CWT at the time of
transaction are contrary to the provisions of RA 8424 on the manner and time of
filing of the return, payment and assessment of income tax involving ordinary
assets.[75]
The fact that the tax is withheld at source does not automatically mean that it
is treated exactly the same way as capital gains. As aforementioned, the mechanics
of the FWT are distinct from those of the CWT. The withholding agent/buyers act
of collecting the tax at the time of the transaction by withholding the tax due from
the income payable is the essence of the withholding tax method of tax collection.

NO RULE THAT ONLY PASSIVE

INCOMES CAN BE SUBJECT TO CWT

Petitioner submits that only passive income can be subjected to withholding

tax, whether final or creditable. According to petitioner, the whole of Section 57
governs the withholding of income tax on passive income. The enumeration in
Section 57(A) refers to passive income being subjected to FWT. It follows that
Section 57(B) on CWT should also be limited to passive income:

SEC. 57. Withholding of Tax at Source.

(A) Withholding of Final Tax on Certain Incomes. Subject to rules and

regulations, the [Secretary] may promulgate, upon the recommendation of
the [CIR], requiring the filing of income tax return by certain income
payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2),
24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E);
27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a),
28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4),
28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on
specified items of income shall be withheld by payor-corporation and/or
person and paid in the same manner and subject to the same conditions as
provided in Section 58 of this Code.

(B) Withholding of Creditable Tax at Source. The [Secretary] may, upon

the recommendation of the [CIR], require the withholding of a tax on the
items of income payable to natural or juridical persons, residing in
the Philippines, by payor-corporation/persons as provided for by law, at
the rate of not less than one percent (1%) but not more than thirty-two
percent (32%) thereof, which shall be credited against the income tax
liability of the taxpayer for the taxable year. (Emphasis supplied)

This line of reasoning is non sequitur.

 Section 57(A) expressly states that final tax can be imposed on certain kinds
of income and enumerates these as passive income. The BIR defines passive income
by stating what it is not:

if the income is generated in the active pursuit and performance of

the corporations primary purposes, the same is not passive income[76]

It is income generated by the taxpayers assets. These assets can be in the form of
real properties that return rental income, shares of stock in a corporation that earn
dividends or interest income received from savings.

On the other hand, Section 57(B) provides that the Secretary can require a
CWT on income payable to natural or juridical persons, residing in the
Philippines. There is no requirement that this income be passive income. If that were
the intent of Congress, it could have easily said so.

Indeed, Section 57(A) and (B) are distinct. Section 57(A) refers to FWT while
Section 57(B) pertains to CWT. The former covers the kinds of passive income
enumerated therein and the latter encompasses any income other than those listed in
57(A). Since the law itself makes distinctions, it is wrong to regard 57(A) and 57(B)
in the same way.

To repeat, the assailed provisions of RR 2-98, as amended, do not modify or

deviate from the text of Section 57(B). RR 2-98 merely implements the law by
specifying what income is subject to CWT. It has been held that, where a statute
does not require any particular procedure to be followed by an administrative
agency, the agency may adopt any reasonable method to carry out its
functions.[77] Similarly, considering that the law uses the general term income, the
Secretary and CIR may specify the kinds of income the rules will apply to based on
what is feasible. In addition, administrative rules and regulations ordinarily deserve
to be given weight and respect by the courts[78] in view of the rule-making authority
given to those who formulate them and their specific expertise in their respective
fields.

NO DEPRIVATION OF PROPERTY
WITHOUT DUE PROCESS

Petitioner avers that the imposition of CWT on GSP/FMV of real estate

classified as ordinary assets deprives its members of their property without due
process of law because, in their line of business, gain is never assured by mere receipt
of the selling price. As a result, the government is collecting tax from net income not
yet gained or earned.
Again, it is stressed that the CWT is creditable against the tax due from the seller of
the property at the end of the taxable year. The seller will be able to claim a tax
refund if its net income is less than the taxes withheld. Nothing is taken that is not
due so there is no confiscation of property repugnant to the constitutional guarantee
of due process. More importantly, the due process requirement applies to the power
to tax.[79] The CWT does not impose new taxes nor does it increase taxes.[80] It relates
entirely to the method and time of payment.

Petitioner protests that the refund remedy does not make the CWT less
burdensome because taxpayers have to wait years and may even resort to litigation
before they are granted a refund.[81] This argument is misleading. The practical
problems encountered in claiming a tax refund do not affect the constitutionality and
validity of the CWT as a method of collecting the tax.
Petitioner complains that the amount withheld would have otherwise been
used by the enterprise to pay labor wages, materials, cost of money and other
expenses which can then save the entity from having to obtain loans entailing
considerable interest expense. Petitioner also lists the expenses and pitfalls of the
trade which add to the burden of the realty industry: huge investments and
borrowings; long gestation period; sudden and unpredictable interest rate surges;
continually spiraling development/construction costs; heavy taxes and prohibitive
up-front regulatory fees from at least 20 government agencies.[82]
Petitioners lamentations will not support its attack on the constitutionality of
the CWT. Petitioners complaints are essentially matters of policy best addressed to
the executive and legislative branches of the government. Besides, the CWT is
applied only on the amounts actually received or receivable by the real estate
entity. Sales on installment are taxed on a per-installment basis.[83] Petitioners desire
to utilize for its operational and capital expenses money earmarked for the payment
of taxes may be a practical business option but it is not a fundamental right which
can be demanded from the court or from the government.

NO VIOLATION OF EQUAL PROTECTION

Petitioner claims that the revenue regulations are violative of the equal protection
clause because the CWT is being levied only on real estate enterprises. Specifically,
petitioner points out that manufacturing enterprises are not similarly imposed a CWT
on their sales, even if their manner of doing business is not much different from that
of a real estate enterprise. Like a manufacturing concern, a real estate business is
involved in a continuous process of production and it incurs costs and expenditures
on a regular basis. The only difference is that goods produced by the real estate
business are house and lot units.[84]

Again, we disagree.

The equal protection clause under the Constitution means that no person or
class of persons shall be deprived of the same protection of laws which is enjoyed
by other persons or other classes in the same place and in like
circumstances.[85] Stated differently, all persons belonging to the same class shall be
taxed alike. It follows that the guaranty of the equal protection of the laws is not
violated by legislation based on a reasonable classification. Classification, to be
valid, must (1) rest on substantial distinctions; (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.[86]

The taxing power has the authority to make reasonable classifications for purposes
of taxation.[87] Inequalities which result from a singling out of one particular class
for taxation, or exemption, infringe no constitutional limitation.[88] The real estate
industry is, by itself, a class and can be validly treated differently from other business
enterprises.

Petitioner, in insisting that its industry should be treated similarly as manufacturing

enterprises, fails to realize that what distinguishes the real estate business from other
manufacturing enterprises, for purposes of the imposition of the CWT, is not their
production processes but the prices of their goods sold and the number of
transactions involved. The income from the sale of a real property is bigger and its
frequency of transaction limited, making it less cumbersome for the parties to
comply with the withholding tax scheme.

On the other hand, each manufacturing enterprise may have tens of thousands of
transactions with several thousand customers every month involving both minimal
and substantial amounts. To require the customers of manufacturing enterprises, at
present, to withhold the taxes on each of their transactions with their tens or hundreds
of suppliers may result in an inefficient and unmanageable system of taxation and
may well defeat the purpose of the withholding tax system.
Petitioner counters that there are other businesses wherein expensive items are also
sold infrequently, e.g. heavy equipment, jewelry, furniture, appliance and other
capital goods yet these are not similarly subjected to the CWT. [89] As already
discussed, the Secretary may adopt any reasonable method to carry out its
functions.[90] Under Section 57(B), it may choose what to subject to CWT.
A reading of Section 2.57.2 (M) of RR 2-98 will also show that petitioners argument
is not accurate. The sales of manufacturers who have clients within the top 5,000
corporations, as specified by the BIR, are also subject to CWT for their transactions
with said 5,000 corporations.[91]

SECTION 2.58.2 OF RR NO. 2-98 MERELY

IMPLEMENTS SECTION 58 OF RA 8424

Lastly, petitioner assails Section 2.58.2 of RR 2-98, which provides that the
Registry of Deeds should not effect the regisration of any document transferring real
property unless a certification is issued by the CIR that the withholding tax has been
paid. Petitioner proffers hardly any reason to strike down this rule except to rely on
its contention that the CWT is unconstitutional. We have ruled that it is
not. Furthermore, this provision uses almost exactly the same wording as Section
58(E) of RA 8424 and is unquestionably in accordance with it:

Sec. 58. Returns and Payment of Taxes Withheld at Source.

(E) Registration with Register of Deeds. - No registration of any

document transferring real property shall be effected by the Register
of Deeds unless the [CIR] or his duly authorized representative has
certified that such transfer has been reported, and the capital gains
or [CWT], if any, has been paid: xxxx any violation of this provision
by the Register of Deeds shall be subject to the penalties imposed under
Section 269 of this Code. (Emphasis supplied)

CONCLUSION
The renowned genius Albert Einstein was once quoted as saying [the] hardest thing
in the world to understand is the income tax.[92] When a party questions the
constitutionality of an income tax measure, it has to contend not only with Einsteins
observation but also with the vast and well-established jurisprudence in support of
the plenary powers of Congress to impose taxes. Petitioner has miserably failed to
discharge its burden of convincing the Court that the imposition of MCIT and CWT
is unconstitutional.
WHEREFORE, the petition is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.
THIRD DIVISION

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF

MANILA and JOSEPH SANTIAGO, in his capacity as the CHIEF OF THE LICENSE
DIVISION OF CITY OF MANILA,
Petitioners,

- versus -

COCA-COLA BOTTLERS PHILIPPINES, INC.,

Respondent.

G.R. No. 181845

Present:

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

Promulgated:
August 4, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil
Procedure seeking to review and reverse the Decision[1] dated 18 January 2008 and
Resolution[2] dated 18 February 2008 of the Court of Tax Appeals en banc (CTA en banc) in
C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for Review
of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago
(Santiago); and affirmed the Resolutions dated 24 May 2007,[3] 8 June 2007,[4] and 26 July
2007,[5] of the CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition
for Review of petitioners in said case for being filed out of time. In its questioned Resolution, the
CTA en banc denied the Motion for Reconsideration of petitioners.

Petitioner City of Manila is a public corporation empowered to collect and assess business taxes,
revenue fees, and permit fees, through its officers, petitioners Toledo and Santiago, in their
capacities as City Treasurer and Chief of the Licensing Division, respectively. On the other hand,
respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of
manufacturing and selling beverages, and which maintains a sales office in the City of Manila.

The case stemmed from the following facts:

Prior to 25 February 2000, respondent had been paying the City of Manila local business tax
only under Section 14 of Tax Ordinance No. 7794,[6] being expressly exempted from the
business tax under Section 21 of the same tax ordinance. Pertinent provisions of Tax Ordinance
No. 7794 provide:
Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby imposed a
graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers,
and compounders of liquors, distilled spirits, and wines or manufacturers of any article of
commerce of whatever kind or nature, in accordance with any of the following schedule:
xxxx

over P6,500,000.00 up to
P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%
in excess of P6,500,000.00

xxxx

Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes under
the NIRC. On any of the following businesses and articles of commerce subject to excise, value-
added or percentage taxes under the National Internal Revenue Code hereinafter referred to as
NIRC, as amended, a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on
the gross sales or receipts of the preceding calendar year is hereby imposed:

(A) On persons who sell goods and services in the course of trade or business; and those who
import goods whether for business or otherwise; as provided for in Sections 100 to 103 of the
NIRC as administered and determined by the Bureau of Internal Revenue pursuant to the
pertinent provisions of the said Code.

xxxx
(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines
xxxx

(8) Coal and coke

(9) Fermented liquor, brewers wholesale price, excluding the ad valorem tax

xxxx
PROVIDED, that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No.
7988,[7] amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by
increasing the tax rates applicable to certain establishments operating within the territorial
jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found therein,
which stated that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof. Petitioner City of Manila approved
only after a year, on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988.

Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in Coca-
Cola Bottlers Philippines, Inc. v. City of Manila[8] (Coca-Cola case) for the following reasons:
(1) Tax Ordinance No. 7988 was enacted in contravention of the provisions of the Local
Government Code (LGC) of 1991 and its implementing rules and regulations; and (2) Tax
Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did not legally
exist.

However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011
null and void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax
Ordinance No. 7794, as amended by the aforementioned tax ordinances, for deficiency local
business taxes, penalties, and interest, in the total amount of P18,583,932.04, for the third and
fourth quarters of the year 2000. Respondent filed a protest with petitioner Toledo on the ground
that the said assessment amounted to double taxation, as respondent was taxed twice, i.e., under
Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and
No. 8011. Petitioner Toledo did not respond to the protest of respondent.

Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an
action for the cancellation of the assessment against respondent for business taxes, which was
docketed as Civil Case No. 03-107088.

On 14 July 2006, the RTC rendered a Decision[9] dismissing Civil Case No. 03-107088. The
RTC ruled that the business taxes imposed upon the respondent under Sections 14 and 21 of Tax
Ordinance No. 7988, as amended, were not of the same kind or character; therefore, there was no
double taxation. The RTC, though, in an Order[10] dated 16 November 2006, granted the Motion
for Reconsideration of respondent, decreed the cancellation and withdrawal of the assessment
against the latter, and barred petitioners from further imposing/assessing local business taxes
against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance
No. 7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in
conformity with the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No.
7988 and Tax Ordinance No. 8011 were declared null and void. The Motion for Reconsideration
of petitioners was denied by the RTC in an Order[11] dated 4 April 2007. Petitioners received a
copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16
November 2006 Order of the same court, on 20 April 2007.

On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition
for Review, praying for a 15-day extension or until 20 May 2007 within which to file their
Petition. The Motion for Extension of petitioners was docketed as C.T.A. AC No. 31, raffled to
the CTA First Division.

Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for
Extension of Time to File a Petition for Review, praying for another 10-day extension, or until
30 May 2007, within which to file their Petition.

On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing
C.T.A. AC No. 31 for failure of petitioners to timely file their Petition for Review on 20 May
2007.

Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their
Petition for Review therewith on 30 May 2007 via registered mail. On 8 June 2007, the CTA
First Division issued another Resolution, reiterating the dismissal of the Petition for Review of
petitioners.

Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8
June 2007, but their motion was denied by the CTA First Division in a Resolution dated 26 July
2007. The CTA First Division reasoned that the Petition for Review of petitioners was not only
filed out of time -- it also failed to comply with the provisions of Section 4, Rule 5; and Sections
2 and 3, Rule 6, of the Revised Rules of the CTA.

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

The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review
of petitioners and affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007
of the CTA First Division. The CTA en banc similarly denied the Motion for Reconsideration of
petitioners in a Resolution dated 18 February 2008.

Hence, the present Petition, where petitioners raise the following issues:

I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY

COMPLIED WITH THE REGLEMENTARY PERIOD TO TIMELY APPEAL THE CASE
FOR REVIEW BEFORE THE [CTA DIVISION].

II. WHETHER OR NOT THE RULING OF THIS COURT IN THE

EARLIER [COCA-COLA CASE] IS DOCTRINAL AND CONTROLLING IN THE INSTANT
CASE.

III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN

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

IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF

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

Petitioners assert that Section 1, Rule 7[12] of the Revised Rules of the CTA refers to certain
provisions of the Rules of Court, such as Rule 42 of the latter, and makes them applicable to the
tax court. Petitioners then cannot be faulted in relying on the provisions of Section 1, Rule
42[13] of the Rules of Court as regards the period for filing a Petition for Review with the CTA
in division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period, reckoned from
receipt of the adverse decision of the trial court, within which to file a Petition for Review with
the Court of Appeals. The same rule allows an additional 15-day period within which to file such
a Petition; and, only for the most compelling reasons, another extension period not to exceed 15
days. Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC,
denying their Motion for Reconsideration of the 16 November 2006 Order of the same court. On
4 May 2007, believing that they only had 15 days to file a Petition for Review with the CTA in
division, petitioners moved for a 15-day extension, or until 20 May 2007, within which to file
said Petition. Prior to the lapse of their first extension period, or on 18 May 2007, petitioners
again moved for a 10-day extension, or until 30 May 2007, within which to file their Petition for
Review. Thus, when petitioners filed their Petition for Review with the CTA First Division on 30
May 2007, the same was filed well within the reglementary period for doing so.
Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8[14] of the
Revised Rules of the CTA governs the period for filing a Petition for Review with the CTA in
division, still, their Petition for Review was filed within the reglementary period. Petitioners call
attention to the fact that prior to the lapse of the 30-day period for filing a Petition for Review
under Section 3(a), Rule 8 of the Revised Rules of the CTA, they had already moved for a 10-
day extension, or until 30 May 2007, within which to file their Petition. Petitioners claim that
there was sufficient justification in equity for the grant of the 10-day extension they requested, as
the primordial consideration should be the substantive, and not the procedural, aspect of the case.
Moreover, Section 3(a), Rule 8 of the Revised Rules of the CTA, is silent as to whether the 30-
day period for filing a Petition for Review with the CTA in division may be extended or not.

Petitioners also contend that the Coca-Cola case is not determinative of the issues in the present
case because the issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 is not
the lis mota herein. The Coca-Cola case is not doctrinal and cannot be considered as the law of
the case.

Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No.
7988 and Tax Ordinance No. 8011, Tax Ordinance No. 7794 remains a valid piece of local
legislation. The nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 does not
effectively bar petitioners from imposing local business taxes upon respondent under Sections 14
and 21 of Tax Ordinance No. 7794, as they were read prior to their being amended by the
foregoing null and void tax ordinances.

Petitioners finally maintain that imposing upon respondent local business taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute direct double taxation.
Section 143 of the LGC gives municipal, as well as city governments, the power to impose
business taxes, to wit:

SECTION 143. Tax on Business. The municipality may impose taxes on the following
businesses:

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and

compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce
of whatever kind or nature, in accordance with the following schedule:

xxxx
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature
in accordance with the following schedule:

xxxx

(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or

retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of
the rates prescribed under subsections (a), (b) and (d) of this Section:

xxxx

Provided, however, That barangays shall have the exclusive power to levy taxes, as provided
under Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty
thousand pesos (P50,000.00) or less, in the case of cities, and Thirty thousand pesos (P30,000) or
less, in the case of municipalities.

(e) On contractors and other independent contractors, in accordance with the following schedule:

xxxx

(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one
percent (1%) on the gross receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from financial leasing, dividends,
rentals on property and profit from exchange or sale of property, insurance premium.

(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not
exceeding Fifty pesos (P50.00) per peddler annually.

(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, value-
added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax
shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.
Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of
liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of
the LGC. On the other hand, the local business tax under Section 21 of Tax Ordinance No. 7794
is imposed upon persons selling goods and services in the course of trade or business, and those
importing goods for business or otherwise, who, pursuant to Section 143(h) of the LGC, are
subject to excise tax, value-added tax (VAT), or percentage tax under the National Internal
Revenue Code (NIRC). Thus, there can be no double taxation when respondent is being taxed
under both Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being taxed as
a manufacturer; while under the second, it is being taxed as a person selling goods in the course
of trade or business subject to excise, VAT, or percentage tax.

The Court first addresses the issue raised by petitioners concerning the period within which to
file with the CTA a Petition for Review from an adverse decision or ruling of the RTC.

The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review is
specifically governed by Section 11 of Republic Act No. 9282,[15] and Section 3(a), Rule 8 of
the Revised Rules of the CTA.

Section 11 of Republic Act No. 9282 provides:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by
a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of
Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an
Appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after
the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30)
days from the receipt of the decision or ruling or in the case of inaction as herein provided, from
the expiration of the period fixed by law to act thereon. x x x. (Emphasis supplied.)

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

SEC 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision,
ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or
claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of
Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to
the Court by petition for review filed within thirty days after receipt of a copy of such decision or
ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act
on the disputed assessments. x x x. (Emphasis supplied.)

It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or ruling of
the RTC to the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days
from receipt of said adverse decision or ruling of the RTC.

It is also true that the same provisions are silent as to whether such 30-day period can be
extended or not. However, Section 11 of Republic Act No. 9282 does state that the Petition for
Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised
Rules of Civil Procedure. Section 1, Rule 42[16] of the Revised Rules of Civil Procedure
provides that the Petition for Review of an adverse judgment or final order of the RTC must be
filed with the Court of Appeals within: (1) the original 15-day period from receipt of the
judgment or final order to be appealed; (2) an extended period of 15 days from the lapse of the
original period; and (3) only for the most compelling reasons, another extended period not to
exceed 15 days from the lapse of the first extended period.

Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day
original period for filing a Petition for Review with the CTA under Section 11 of Republic Act
No. 9282, as implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA, may be
extended for a period of 15 days. No further extension shall be allowed thereafter, except only
for the most compelling reasons, in which case the extended period shall not exceed 15 days.

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day period
within which to file the Petition for Review with the CTA may, indeed, be extended, thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of
fifteen (15) days for the movant to file a Petition for Review, upon Motion, and payment of the
full amount of the docket fees. A further extension of fifteen (15) days may be granted on
compelling reasons in accordance with the provision of Section 1, Rule 42 of the 1997 Rules of
Civil Procedure x x x.[17]

In this case, the CTA First Division did indeed err in finding that petitioners failed to file their
Petition for Review in C.T.A. AC No. 31 within the reglementary period.
From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC,
denying their Motion for Reconsideration of the 16 November 2006 Order, petitioners had 30
days, or until 20 May 2007, within which to file their Petition for Review with the CTA. Hence,
the Motion for Extension filed by petitioners on 4 May 2007 grounded on their belief that the
reglementary period for filing their Petition for Review with the CTA was to expire on 5 May
2007, thus, compelling them to seek an extension of 15 days, or until 20 May 2007, to file said
Petition was unnecessary and superfluous. Even without said Motion for Extension, petitioners
could file their Petition for Review until 20 May 2007, as it was still within the 30-day
reglementary period provided for under Section 11 of Republic Act No. 9282; and implemented
by Section 3(a), Rule 8 of the Revised Rules of the CTA.

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30-
day reglementary period on 20 May 2007, in which they prayed for another extended period of
10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first
Motion for Extension of petitioners. The CTA First Division should have granted the same, as it
was sanctioned by the rules of procedure. In fact, petitioners were only praying for a 10-day
extension, five days less than the 15-day extended period allowed by the rules. Thus, when
petitioners filed via registered mail their Petition for Review in C.T.A. AC No. 31 on 30 May
2007, they were able to comply with the reglementary period for filing such a petition.

Nevertheless, there were other reasons for which the CTA First Division dismissed the Petition
for Review of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of
Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. The Court sustains the CTA
First Division in this regard.

Section 4, Rule 5 of the Revised Rules of the CTA requires that:

SEC. 4. Number of copies. The parties shall file eleven signed copies of every paper for cases
before the Court en banc and six signed copies for cases before a Division of the Court in
addition to the signed original copy, except as otherwise directed by the Court. Papers to be filed
in more than one case shall include one additional copy for each additional case. (Emphasis
supplied.)

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

The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised
Rules of the CTA, which provides:

SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals,

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

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

SEC. 3. Effect of failure to comply with requirements. The failure of the petitioner to comply
with any of the foregoing requirements regarding the payment of the docket and other lawful
fees, the deposit for costs, proof of service of the petition, and the contents of and the documents
which should accompany the petition shall be sufficient ground for the dismissal thereof.
(Emphasis supplied.)

True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and
assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-
107088, but a closer examination of the stamp on said documents reveals that they were prepared
and certified only on 14 August 2007, about two months and a half after the filing of the Petition
for Review by petitioners.

Petitioners never offered an explanation for their non-compliance with Section 4 of Rule 5, and
Section 2 of Rule 6 of the Revised Rules of the CTA. Hence, although the Court had, in previous
instances, relaxed the application of rules of procedure, it cannot do so in this case for lack of
any justification.

Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31 should
have been given due course by the CTA First Division, it is still dismissible for lack of merit.

Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant
case. The pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 were null and void, which this Court resolved in the affirmative. Tax Ordinance No.
7988 was declared by the Secretary of the Department of Justice (DOJ) as null and void and
without legal effect due to the failure of herein petitioner City of Manila to satisfy the
requirement under the law that said ordinance be published for three consecutive days. Petitioner
City of Manila never appealed said declaration of the DOJ Secretary; thus, it attained finality
after the lapse of the period for appeal of the same. The passage of Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988, did not cure the defects of the latter, which, in any way, did
not legally exist.

By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null
and void and without any legal effect. Therefore, respondent cannot be taxed and assessed under
the amendatory laws--Tax Ordinance No. 7988 and Tax Ordinance No. 8011.

Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011, respondent could still be made liable for local business taxes under both
Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read, without the
amendment by the null and void tax ordinances.

Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 by petitioner City of Manila, petitioners subjected and assessed respondent
only for the local business tax under Section 14 of Tax Ordinance No. 7794, but never under
Section 21 of the same. This was due to the clear and unambiguous proviso in Section 21 of Tax
Ordinance No. 7794, which stated that all registered business in the City of Manila that are
already paying the aforementioned tax shall be exempted from payment thereof. The
aforementioned tax referred to in said proviso refers to local business tax. Stated differently,
Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local business tax
imposed by said section, businesses that are already paying such tax under other sections of the
same tax ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance
No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began
assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as
amended.

The Court easily infers from the foregoing circumstances that petitioners themselves believed
that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from
the local business tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to
wait for the deletion of the exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local
business tax under said section. Yet, with the pronouncement by this Court in the Coca-Cola case
that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal
effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its
exempting proviso, is back in effect. Accordingly, respondent should not have been subjected to
the local business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth
quarters of 2000, given its exemption therefrom since it was already paying the local business tax
under Section 14 of the same ordinance.

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to
their own detriment. Said exempting proviso was precisely included in said section so as to avoid
double taxation.

Double taxation means taxing the same property twice when it should be taxed only once; that is,
taxing the same person twice by the same jurisdiction for the same thing. It is obnoxious when
the taxpayer is taxed twice, when it should be but once. Otherwise described as direct duplicate
taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by the
same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes
must be of the same kind or character.[18]

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent
is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these
are being imposed: (1) on the same subject matter the privilege of doing business in the City of
Manila; (2) for the same purpose to make persons conducting business within the City of Manila
contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within
the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the
same taxing periods per calendar year; and (6) of the same kind or character a local business tax
imposed on gross sales or receipts of the business.

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

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,

vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.

Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.

Sotero H. Laurel for respondents.

FERNANDEZ, J.:

This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent
Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No.
72797, the dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents,
declaring Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is
made permanent. No pronouncement as to cost.

SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.) FRANCISCO ARCA

Judge1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on
February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on
March 27, 1968. 2

City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE

PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE
ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY
OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE
MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila and
paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions
of foreign countries, or in the technical assistance programs of both the Philippine Government
and any foreign government, and those working in their respective households, and members of
religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months
to six (6) months or fine of not less than P100.00 but not more than P200.00 or both such fine
and imprisonment, upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila,
filed a petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case
No. 72797, praying for the issuance of the writ of preliminary injunction and restraining order to
stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance
No. 6537 null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No.
6537 is discriminatory and violative of the rule of the uniformity in taxation;

2) As a police power measure, it makes no distinction between useful and non-useful

occupations, imposing a fixed P50.00 employment permit, which is out of proportion to the cost
of registration and that it fails to prescribe any standard to guide and/or limit the action of the
Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers:

3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus,
deprived of their rights to life, liberty and property and therefore, violates the due process and
equal protection clauses of the Constitution.7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September
17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent
the writ of preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the
present petition on March 27, 1969. Petitioner assigned the following as errors allegedly
committed by respondent Judge in the latter's decision of September 17,1968: 9

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW

IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.

II

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF

LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST
UNDUE DESIGNATION OF LEGISLATIVE POWER.

III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF
LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND
EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on
the ground that it violated the rule on uniformity of taxation because the rule on uniformity of
taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax
or revenue measure but is an exercise of the police power of the state, it being principally a
regulatory measure in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which
requires that the alien shall secure an employment permit from the Mayor involves the exercise
of discretion and judgment in the processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character the second part which requires the
payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic
or justification in exacting P50.00 from aliens who have been cleared for employment. It is
obvious that the purpose of the ordinance is to raise money under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider
valid substantial differences in situation among individual aliens who are required to pay it.
Although the equal protection clause of the Constitution does not forbid classification, it is
imperative that the classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The same amount of P50.00 is
being collected from every employed alien whether he is casual or permanent, part time or full
time or whether he is a lowly employee or a highly paid executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails to state
any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to
be attained by requiring a permit, enumerates no conditions for its grant or refusal, and entirely
lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny
the issuance of building permits, such ordinance is invalid, being an undefined and unlimited
delegation of power to allow or prevent an activity per se lawful. 10

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the
Supreme Court ruled against the interpretation of uncontrolled power as it vested in the
administrative officer an arbitrary discretion to be exercised without a policy, rule, or standard
from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse
permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is
not uncontrolled discretion but legal discretion to be exercised within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to
guide the mayor in the exercise of the power which has been granted to him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule of the
Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of Manila
who may withhold or refuse it at will is tantamount to denying him the basic right of the people
in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a
State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be
deprived of life without due process of law. This guarantee includes the means of livelihood. The
shelter of protection under the due process and equal protection clause is given to all persons,
both aliens and citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to

costs.

SO ORDERED.

Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur.

Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.

Concepcion, Jr., J., took no part.

Separate Opinions

TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's
judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason that
the employment of aliens within the country is a matter of national policy and regulation, which
properly pertain to the national government officials and agencies concerned and not to local
governments, such as the City of Manila, which after all are mere creations of the national
government.

The national policy on the matter has been determined in the statutes enacted by the legislature,
viz, the various Philippine nationalization laws which on the whole recognize the right of aliens
to obtain gainful employment in the country with the exception of certain specific fields and
areas. Such national policies may not be interfered with, thwarted or in any manner negated by
any local government or its officials since they are not separate from and independent of the
national government.

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil.
129: "The City of Manila is a subordinate body to the Insular (National Government ...). When
the Insular (National) Government adopts a policy, a municipality is without legal authority to
nullify and set at naught the action of the superior authority." Indeed, "not only must all
municipal powers be exercised within the limits of the organic laws, but they must be consistent
with the general law and public policy of the particular state ..." (I McQuillin, Municipal
Corporations, 2nd sec. 367, P. 1011).

With more reason are such national policies binding on local governments when they involve our
foreign relations with other countries and their nationals who have been lawfully admitted here,
since in such matters the views and decisions of the Chief of State and of the legislature must
prevail over those of subordinate and local governments and officials who have no authority
whatever to take official acts to the contrary.
Separate Opinions

TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's
judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason that
the employment of aliens within the country is a matter of national policy and regulation, which
properly pertain to the national government officials and agencies concerned and not to local
governments, such as the City of Manila, which after all are mere creations of the national
government.

The national policy on the matter has been determined in the statutes enacted by the legislature,
viz, the various Philippine nationalization laws which on the whole recognize the right of aliens
to obtain gainful employment in the country with the exception of certain specific fields and
areas. Such national policies may not be interfered with, thwarted or in any manner negated by
any local government or its officials since they are not separate from and independent of the
national government.

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil.
129: "The City of Manila is a subordinate body to the Insular (National Government ...). When
the Insular (National) Government adopts a policy, a municipality is without legal authority to
nullify and set at naught the action of the superior authority." Indeed, "not only must all
municipal powers be exercised within the limits of the organic laws, but they must be consistent
with the general law and public policy of the particular state ..." (I McQuillin, Municipal
Corporations, 2nd sec. 367, P. 1011).

With more reason are such national policies binding on local governments when they involve our
foreign relations with other countries and their nationals who have been lawfully admitted here,
since in such matters the views and decisions of the Chief of State and of the legislature must
prevail over those of subordinate and local governments and officials who have no authority
whatever to take official acts to the contrary.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-24756 October 31, 1968

CITY OF BAGUIO, plaintiff-appellee,

vs.
FORTUNATO DE LEON, defendant-appellant.

The City Attorney for plaintiff-appellee.

Fortunato de Leon for and in his own behalf as defendant-appellant.

FERNANDO, J.:

In this appeal, a lower court decision upholding the validity of an ordinance1 of the City of
Baguio imposing a license fee on any person, firm, entity or corporation doing business in the
City of Baguio is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real
estate dealer with a property therein worth more than P10,000, but not in excess of P50,000, and
therefore obligated to pay under such ordinance the P50 annual fee. That is the principal
question. In addition, there has been a firm and unyielding insistence by defendant-appellant of
the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having
been filed against him by the City Attorney of Baguio for his failure to pay the amount of P300
as license fee covering the period from the first quarter of 1958 to the fourth quarter of 1962,
allegedly, inspite of repeated demands. Nor was defendant-appellant agreeable to such a suit
being instituted by the City Treasurer without the consent of the Mayor, which for him was
indispensable. The lower court was of a different mind.

In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate
dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no
question about the liability of defendant-appellant for the above license fee, it being shown in the
partial stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving
income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of
1962.

The source of authority for the challenged ordinance is supplied by Republic Act No. 329,
amending the city charter of Baguio2 empowering it to fix the license fee and regulate
"businesses, trades and occupations as may be established or practiced in the City."

Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power thus conferred.

Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City
of Baguio,3 the effect of the amendatory section insofar as it would expand the previous power
vested by the city charter was clarified in these terms: "Appellants apparently have in mind
section 2553, paragraph (c) of the Revised Administrative Code, which empowers the City of
Baguio merely to impose a license fee for the purpose of rating the business that may be
established in the city. The power as thus conferred is indeed limited, as it does not include the
power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the
charter of said city and adding to its power to license the power to tax and to regulate. And it is
precisely having in view this amendment that Ordinance No. 99 was approved in order to
increase the revenues of the city. In our opinion, the amendment above adverted to empowers the
city council not only to impose a license fee but also to levy a tax for purposes of revenue, more
so when in amending section 2553 (b), the phrase 'as provided by law' has been removed by
section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to
tax, to license and to regulate provided that the subjects affected be one of those included in the
charter. In this sense, the ordinance under consideration cannot be considered ultra vires whether
its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence."

It would be an undue and unwarranted emasculation of the above power thus granted if
defendant-appellant were to be sustained in his contention that no such statutory authority for the
enactment of the challenged ordinance could be discerned from the language used in the
amendatory act. That is about all that needs to be said in upholding the lower court, considering
that the City of Baguio was not devoid of authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps and
asserted that the challenged ordinance suffered from certain constitutional infirmities. To such
points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of
Baguio in the suit for the collection of the real estate dealer's fee from him in the amount of
P300. He contended before the lower court, and it is his contention now, that while the amount of
P300 sought was within the jurisdiction of the City Court of Baguio where this action originated,
since the principal issue was the legality and constitutionality of the challenged ordinance, it is
not such City Court but the Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only
recently, on September 7, 1968 to be exact, we rejected a contention similar in character in
Nemenzo v. Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary
before the Justice of the Peace Court of Pagadian, Zamboanga del Sur. The question of
jurisdiction was raised; the defendant Mayor asserted that what was in issue was the enforcement
of the decision of the Commission of Civil Service; the Justice of the Peace Court was thus
without jurisdiction to try the case. The above plea was curtly dismissed by Us, as what was
involved was "an ordinary money claim" and therefore "within the original jurisdiction of the
Justice of the Peace Court where it was filed, considering the amount involved." Such is likewise
the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this
license fee corresponding to the years 1951 and 1952 was filed with the Municipal Court of
Manila, in view of the amount involved. The thought that the municipal court lacked jurisdiction
apparently was not even in the minds of the parties and did not receive any consideration by this
Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question

is raised, it is the Court of First Instance that should have original jurisdiction on the matter. It
does not admit of doubt, however, that what confers jurisdiction is the amount set forth in the
complaint. Here, the sum sought to be recovered was clearly within the jurisdiction of the City
Court of Baguio.

Nor could it be plausibly maintained that the validity of such ordinance being open to question as
a defense against its enforcement from one adversely affected, the matter should be elevated to
the Court of First Instance. For the City Court could rely on the presumption of the validity of
such ordinance,6 and the mere fact, however, that in the answer to such a complaint a
constitutional question was raised did not suffice to oust the City Court of its jurisdiction. The
suit remains one for collection, the lack of validity being only a defense to such an attempt at
recovery. Since the City Court is possessed of judicial power and it is likewise axiomatic that the
judicial power embraces the ascertainment of facts and the application of the law, the
Constitution as the highest law superseding any statute or ordinance in conflict therewith, it
cannot be said that a City Court is bereft of competence to proceed on the matter. In the exercise
of such delicate power, however, the admonition of Cooley on inferior tribunals is well worth
remembering. Thus: "It must be evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the fallibility of the human judgment, will
shrink from exercising in any case where he can conscientiously and with due regard to duty and
official oath decline the responsibility."7 While it remains undoubted that such a power to pass
on the validity of an ordinance alleged to infringe certain constitutional rights of a litigant exists,
still it should be exercised with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city court in the judicial
hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than
ample statutory authority for the enactment thereof. Nonetheless, its validity on constitutional
grounds is challenged because of the allegation that it imposed double taxation, which is
repugnant to the due process clause, and that it violated the requirement of uniformity. We do not
view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the
amount of a tax, short of confiscation or proceedings unconstitutional on other grounds."8With
that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey
of double taxation as a constitutional bar to the exercise of the taxing power. It would seem
though that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the
juridical state. In a 1947 decision, however,9 we quoted with approval this excerpt from a
leading American decision:10 "Where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results."

At any rate, it has been expressly affirmed by us that such an "argument against double taxation
may not be invoked where one tax is imposed by the state and the other is imposed by the city ...,
it being widely recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling or activity by both
the state and the political subdivisions thereof."11

The above would clearly indicate how lacking in merit is this argument based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property
worth P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not
over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore,
the above ordinance cannot be assailed as violative of the constitutional requirement of
uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court,
stated: "A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.13 Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente14
incorporated the above excerpt in his opinion and continued: "Taking everything into account,
the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years
later, 15 is that the statute or ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." This Court is on record as accepting the view in a
leading American case16 that "inequalities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation."17

It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently
lacking in persuasiveness. There is no need to pass upon the other allegations to assail the
validity of the above ordinance, it being maintained that the license fees therein imposed "is
excessive, unreasonable and oppressive" and that there is a failure to observe the mandate of
equal protection. A reading of the ordinance will readily disclose their inherent lack of
plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate
a grievance on the complaint having been started by the City Treasurer rather than the City
Mayor of Baguio. These alleged errors, as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performed
within the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous, may
be assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This
should be the case considering that such city official is called upon to see to it that revenues due
the City are collected. When administrative steps are futile and unavailing, given the
stubbornness and obduracy of a taxpayer, convinced in good faith that no tax was due, judicial
remedy may be resorted to by him. It would be a reflection on the state of the law if such fidelity
to duty would be met by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that
comes to it from the functional and pragmatic test. If a city treasurer has to await the nod from
the city mayor before a municipal ordinance is enforced, then opportunity exists for favoritism
and undue discrimination to come into play. Whatever valid reason may exist as to why one
taxpayer is to be accorded a treatment denied another, the suspicion is unavoidable that such a
manifestation of official favor could have been induced by unnamed but not unknown
consideration. It would not be going too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal doctrine therefore, on the
assumption that a choice exists, is one that would do away with such temptation on the part of
both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs
against defendant-appellant.
FIRST DIVISION
[G.R. No. 119761. August 29, 1996]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS,

HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION, respondents.
DECISION
VITUG, J.:

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of
respondent Court of Appeals[1] affirming the 10th August 1994 decision and the 11th October
1994 resolution of the Court of Tax Appeals[2] ("CTA") in C.T.A. Case No. 5015, entitled
"Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of
Internal Revenue."

The facts, by and large, are not in dispute.

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different

brands of cigarettes.

On various dates, the Philippine Patent Office issued to the corporation separate certificates of
trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06
January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy
Minister Ramon Diaz of the Presidential Commission on Good Government, "the initial position
of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they
were listed in the World Tobacco Directory as belonging to foreign companies. However,
Fortune Tobacco changed the names of 'Hope' to Hope Luxury' and 'More' to 'Premium More,'
thereby removing the said brands from the foreign brand category. Proof was also submitted to
the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco
Corporation register and therefore a local brand."[3] Ad Valorem taxes were imposed on these
brands,[4] at the following rates:

"BRAND AD VALOREM TAX RATE

E.O. 22

06-23-86

07-01-86 and E.O. 273

07-25-87

01-01-88 RA 6956

06-18-90

07-05-90

Hope Luxury M. 100's

Sec. 142, (c), (2) 40% 45%

Hope Luxury M. King

Sec. 142, (c), (2) 40% 45%

More Premium M. 100's

Sec. 142, (c), (2) 40% 45%

More Premium International

Sec. 142, (c), (2) 40% 45%

Champion Int'l. M. 100's

Sec. 142, (c), (2) 40% 45%

Champion M. 100's

Sec. 142, (c), (2) 40% 45%

Champion M. King

Sec. 142, (c), last par. 15% 20%

Champion Lights

Sec. 142, (c), last par. 15% 20%"[5]

A bill, which later became Republic Act ("RA") No. 7654, [6] was enacted, on 10 June 1993, by
the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new
law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal
Revenue Code ("NIRC") to read; as follows:

"SEC. 142. Cigars and Cigarettes. -

"x x x x x x x x x.

"(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below based on the constructive manufacturer's
wholesale price or the actual manufacturer's wholesale price, whichever is higher:
"(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five
percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.

"(2). On other locally manufactured cigarettes, forty-five percent (45%) provided that the
minimum tax shall not be less than Three Pesos (P3.00) per pack.

"x x x x x x x x x.

"When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price
whichever is higher of existing brands of cigarettes, including the amounts intended to cover the
taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80)
per pack, the rate shall be twenty percent (20%)."[7] (Italics supplied.)

About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue
Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which
expressed:

"REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

July 1, 1993

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT : Reclassification of Cigarettes Subject to Excise Tax

TO : All Internal Revenue Officers and Others Concerned.

"In view of the issues raised on whether 'HOPE,' 'MORE' and 'CHAMPION' cigarettes which are
locally manufactured are appropriately considered as locally manufactured cigarettes bearing a
foreign brand, this Office is compelled to review the previous rulings on the matter.

"Section 142(c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:

"'On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided,
That this rate shall apply regardless of whether or not the right to use or title to the foreign brand
was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined
whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco Directory shall govern."

"Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the
locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use
or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The
brand must be originally owned by a foreign manufacturer or producer. If ownership of the
cigarette brand is, however, not definitely determinable, 'x x x the listing of brands manufactured
in foreign countries appearing in the current World Tobacco Directory shall govern. x x x'

"'HOPE' is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco,
Japan and (b) Fortune Tobacco, Philippines. 'MORE' is listed in the said directory as being
manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald,
Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j)
R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J.
Reynolds, USA. 'Champion' is registered in the said directory as being manufactured by (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco,
Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.

"Since there is no showing who among the above-listed manufacturers of the cigarettes bearing
the said brands are the real owner/s thereof, then it follows that the same shall be considered
foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the
National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, 'in
cases where it cannot be established or there is dearth of evidence as to whether a brand is
foreign or not, resort to the World Tobacco Directory should be made.'

"In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and
'CHAMPION' being manufactured by Fortune Tobacco Corporation are hereby considered
locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes.
"Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD) LIWAYWAY VINZONS-CHATO

Commissioner"

On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent
via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular.
On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC
37-93.

In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco,
requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29
July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad
valorem tax deficiency amounting to P9,598,334.00.

On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. [8]

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:

"WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of

cigarettes, viz: `HOPE,' `MORE' and `CHAMPION' being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad
valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when
R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY
CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as
amended by R.A. No. 7654 and were therefore still classified as other locally manufactured
cigarettes and taxed at 45% or 20% as the case may be.

"Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco
Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby
canceled for lack of legal basis.

"Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the

deficiency tax assessment made and issued on petitioner in relation to the implementation of
RMC No. 37-93.
"SO ORDERED." [9]

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for
reconsideration.

The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's
10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate
court's Special Thirteenth Division affirmed in all respects the assailed decision and resolution.

In the instant petition, the Solicitor General argues: That -

"I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL

REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.

"II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC

37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR
HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND
ENFORCEABILITY.

"III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93

ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY

MANUFACTURED CIGARETTES SIMILARLY SITUATED AS 'HOPE,' 'MORE' AND
'CHAMPION' CIGARETTES.

"V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING HOPE,

MORE AND CHAMPION CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS
VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR
PROPRIETY; RMC 37-93 IS CORRECT." [10]
In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can
thus become effective without any prior need for notice and hearing, nor publication, and that its
issuance is not discriminatory since it would apply under similar circumstances to all locally
manufactured cigarettes.

The Court must sustain both the appellate court and the tax court.

Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the
effective implementation of the provisions of the National Internal Revenue Code. Let it be made
clear that such authority of the Commissioner is not here doubted. Like any other government
agency, however, the CIR may not disregard legal requirements or applicable principles in the
exercise of its quasi-legislative powers.

Let us first distinguish between two kinds of administrative issuances - a legislative rule and an
interpretative rule.

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary,
[11] the Court expressed:

"x x x a legislative rule is in the nature of subordinate legislation, designed to implement a

primary legislation by providing the details thereof. In the same way that laws must have the
benefit of public hearing, it is generally required that before a legislative rule is adopted there
must be hearing. In this connection, the Administrative Code of 1987 provides:

"Public Participation. - If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to
submit their views prior to the adoption of any rule.

"(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have
been published in a newspaper of general circulation at least two (2) weeks before the first
hearing thereon.

"(3) In case of opposition, the rules on contested cases shall be observed.

"In addition such rule must be published. On the other hand, interpretative rules are designed to
provide guidelines to the law which the administrative agency is in charge of enforcing." [12]
It should be understandable that when an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance for it gives no real consequence more
than what the law itself has already prescribed. When, upon the other hand, the administrative
rule goes beyond merely providing for the means that can facilitate or render least cumbersome
the implementation of the law but substantially adds to or increases the burden of those
governed, it behooves the agency to accord at least to those directly affected a chance to be
heard, and thereafter to be duly informed, before that new issuance is given the force and effect
of law.

A reading of RMC 37-93, particularly considering the circumstances under which it has been
issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking
in the process the previous holdings of past Commissioners) or merely as construing Section
142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to
place "Hope Luxury," "Premium More" and "Champion" within the classification of locally
manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654.
Specifically, the new law would have its amendatory provisions applied to locally manufactured
cigarettes which at the time of its effectivity were not so classified as bearing foreign brands.
Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and
"Champion" cigarettes were in the category of locally manufactured cigarettes not bearing
foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA
7654, would have had no new tax rate consequence on private respondent's products. Evidently,
in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope
of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93
had to be issued. In so doing, the BIR not simply interpreted the law; verily, it legislated under
its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and
of publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

"RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations

"It has been observed that one of the problem areas bearing on compliance with Internal Revenue
Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless
there is due notice, due compliance therewith may not be reasonably expected. And most
importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the
constitutional provision on `due process of law' and the essence of the Civil Code provision
concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV,
Constitution; Art. 2, New Civil Code).

"In order that there shall be a just enforcement of rules and regulations, in conformity with the
basic element of due process, the following procedures are hereby prescribed for the drafting,
issuance and implementation of the said Revenue Tax Issuances:

"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit
Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum
Orders bearing on internal revenue tax rules and regulations.

"(2). Except when the law otherwise expressly provides, the aforesaid internal revenue tax
issuances shall not begin to be operative until after due notice thereof may be fairly presumed.

"Due notice of the said issuances may be fairly presumed only after the following procedures
have been taken:

"xxx xxx xxx

"(5). Strict compliance with the foregoing procedures is enjoined." [13]

Nothing on record could tell us that it was either impossible or impracticable for the BIR to
observe and comply with the above requirements before giving effect to its questioned circular.

Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.

Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform
and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are
to be treated alike or put on equal footing both in privileges and liabilities.[14] Thus, all taxable
articles or kinds of property of the same class must be taxed at the same rate[15] and the tax must
operate with the same force and effect in every place where the subject may be found.

Apparently, RMC 37-93 would only apply to "Hope Luxury," Premium More" and "Champion"
cigarettes and, unless petitioner would be willing to concede to the submission of private
respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so
expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due
process following the Ang Tibay[16] doctrine, the measure suffers from lack of uniformity of
taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands
have not been similarly included within the scope of the circular, such as -

"1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) `PALM TREE' is listed as manufactured by office of Monopoly, Korea (Exhibit `R')

"2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) `GOLDEN KEY' is listed being manufactured by United Tobacco, Pakistan (Exhibit `S')

(b) `CANNON' is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit `T')

"3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) `WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit `U')

(b) `RIGHT' is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit `V-1')

"4. Locally manufactured by MIGHTY CORPORATION

(a) 'WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit 'U-1')

"5. Locally manufactured by STERLING TOBACCO CORPORATION

(a) UNION' is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and
Williamson, USA (Exhibit 'U-3')
(b) WINNER' is listed as being manufactured by Alpha Tobacco, Bangladesh; Nanyang,
Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and
Haggar, Sudan (Exhibit 'U-4')." [17]

The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by
the Committee on Ways and Means of the House of Representatives; viz:

"THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't
have specific information on other tobacco manufacturers. Now, there are other brands which are
similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate
to you all these brands, which are also listed in the World Tobacco Directory x x x. Why were
these brands not reclassified at 55 if your want to give a level playing field to foreign
manufacturers?

"MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum
Circular that was supposed to come after RMC No. 37-93 which have really named specifically
the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and
includes all these brands that you mentioned at 55 percent except that at that time, when we had
to come up with this, we were forced to study the brands of Hope, More and Champion because
we were given documents that would indicate the that these brands were actually being claimed
or patented in other countries because we went by Revenue Memorandum Circular 1488 and we
wanted to give some rationality to how it came about but we couldn't find the rationale there.
And we really found based on our own interpretation that the only test that is given by that
existing law would be registration in the World Tobacco Directory. So we came out with this
proposed revenue memorandum circular which we forwarded to the Secretary of Finance except
that at that point in time, we went by the Republic Act 7654 in Section 1 which amended Section
142, C-1, it said, that on locally manufactured cigarettes which are currently classified and taxed
at 55 percent. So we were saying that when this law took effect in July 3 and if we are going to
come up with this revenue circular thereafter, then I think our action would really be subject to
question but we feel that . . . Memorandum Circular Number 37-93 would really cover even
similarly situated brands. And in fact, it was really because of the study, the short time that we
were given to study the matter that we could not include all the rest of the other brands that
would have been really classified as foreign brand if we went by the law itself. I am sure that by
the reading of the law, you would without that ruling by Commissioner Tan they would really
have been included in the definition or in the classification of foregoing brands. These brands
that you referred to or just read to us and in fact just for your information, we really came out
with a proposed revenue memorandum circular for those brands. (Italics supplied)

"Exhibit 'FF-2-C', pp. V-5 TO V-6, VI-1 to VI-3).

"x x x x x x x x x.
"MS. CHATO. x x x But I do agree with you now that it cannot and in fact that is why I felt that
we . . . I wanted to come up with a more extensive coverage and precisely why I asked that
revenue memorandum circular that would cover all those similarly situated would be prepared
but because of the lack of time and I came out with a study of RA 7654, it would not have been
possible to really come up with the reclassification or the proper classification of all brands that
are listed there. x x x' (italics supplied) (Exhibit 'FF-2d', page IX-1)

"x x x x x x x x x.

"HON. DIAZ. But did you not consider that there are similarly situated?

"MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
Memorandum Circular No. 37-93, the other brands came about the would have also clarified
RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the
lack of time, the period that was allotted to us to come up with the right actions on the matter, we
were really caught by the July 3 deadline. But in fact, We have already prepared a revenue
memorandum circular clarifying with the other . . . does not yet, would have been a list of locally
manufactured cigarettes bearing a foreign brand for excise tax purposes which would include all
the other brands that were mentioned by the Honorable Chairman. (Italics supplied) (Exhibit 'FF-
2-d,' par. IX-4)."18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a
valid and effective administrative issuance.

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax
Appeals, is AFFIRMED. No costs.

SO ORDERED.
FIRST DIVISION
[G.R. No. 150947. July 15, 2003]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MICHEL J. LHUILLIER

PAWNSHOP, INC., respondent.
DECISION
DAVIDE, JR., C.J.:

Are pawnshops included in the term lending investors for the purpose of imposing the 5%
percentage tax under then Section 116 of the National Internal Revenue Code (NIRC) of 1977, as
amended by Executive Order No. 273?

Petitioner Commissioner of Internal Revenue (CIR) filed the instant petition for review to set
aside the decision[1] of 20 November 2001 of the Court of Appeals in CA G.R. SP No. 62463,
which affirmed the decision of 13 December 2000 of the Court of Tax Appeals (CTA) in CTA
Case No. 5690 cancelling the assessment issued against respondent Michel J. Lhuillier
Pawnshop, Inc. (hereafter Lhuillier) in the amount of P3,360,335.11 as deficiency percentage tax
for 1994, inclusive of interest and surcharges.

The facts are as follows:

On 11 March 1991, CIR Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91
imposing a 5% lending investors tax on pawnshops; thus:

A restudy of P.D. [No.] 114 shows that the principal activity of pawnshops is lending money at
interest and incidentally accepting a pawn of personal property delivered by the pawner to the
pawnee as security for the loan.(Sec. 3, Ibid). Clearly, this makes pawnshop business akin to
lending investors business activity which is broad enough to encompass the business of lending
money at interest by any person whether natural or juridical. Such being the case, pawnshops
shall be subject to the 5% lending investors tax based on their gross income pursuant to Section
116 of the Tax Code, as amended.

This RMO was clarified by Revenue Memorandum Circular (RMC) No. 43-91 on 27 May 1991,
which reads:
1. RM[O] 15-91 dated March 11, 1991.

This Circular subjects to the 5% lending investors tax the gross income of pawnshops pursuant to
Section 116 of the Tax Code, and it thus revokes BIR Ruling No[]. 6-90, and VAT Ruling Nos.
22-90 and 67-90. In order to have a uniform cut-off date, avoid unfairness on the part of tax-
payers if they are required to pay the tax on past transactions, and so as to give meaning to the
express provisions of Section 246 of the Tax Code, pawnshop owners or operators shall become
liable to the lending investors tax on their gross income beginning January 1, 1991. Since the
deadline for the filing of percentage tax return (BIR Form No. 2529A-0) and the payment of the
tax on lending investors covering the first calendar quarter of 1991 has already lapsed, taxpayers
are given up to June 30, 1991 within which to pay the said tax without penalty. If the tax is paid
after June 30, 1991, the corresponding penalties shall be assessed and computed from April 21,
1991.

Since pawnshops are considered as lending investors effective January 1, 1991, they also become
subject to documentary stamp taxes prescribed in Title VII of the Tax Code. BIR Ruling No.
325-88 dated July 13, 1988 is hereby revoked.

On 11 September 1997, pursuant to these issuances, the Bureau of Internal Revenue (BIR) issued
Assessment Notice No. 81-PT-13-94-97-9-118 against Lhuillier demanding payment of
deficiency percentage tax in the sum of P3,360,335.11 for 1994 inclusive of interest and
surcharges.

On 3 October 1997, Lhuillier filed an administrative protest with the Office of the Revenue
Regional Director contending that (1) neither the Tax Code nor the VAT Law expressly imposes
5% percentage tax on the gross income of pawnshops; (2) pawnshops are different from lending
investors, which are subject to the 5% percentage tax under the specific provision of the Tax
Code; (3) RMO No. 15-91 is not implementing any provision of the Internal Revenue laws but is
a new and additional tax measure on pawnshops, which only Congress could enact; (4) RMO
No. 15-91 impliedly amends the Tax Code and is therefore taxation by implication, which is
proscribed by law; and (5) RMO No. 15-91 is a class legislation because it singles out
pawnshops among other lending and financial operations.

On 12 October 1998, Deputy BIR Commissioner Romeo S. Panganiban issued Warrant of

Distraint and/or Levy No. 81-043-98 against Lhuilliers property for the enforcement and
payment of the assessed percentage tax.
Its protest having been unacted upon, Lhuillier, in a letter dated 3 March 1998, elevated the
matter to the CIR. Still, the protest was not acted upon by the CIR. Thus, on 11 November 1998,
Lhuillier filed a Notice and Memorandum on Appeal with the Court of Tax Appeals invoking
Section 228 of Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997, which
provides:

Section 228. Protesting of Assessment.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180)
days from submission of documents, the taxpayer adversely affected by the decision or inaction
may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision,
or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.

The case was docketed as CTA Case No. 5690.

On 19 November 1998, the CIR filed with the CTA a motion to dismiss Lhuilliers petition on the
ground that it did not state a cause of action, as there was no action yet on the protest.

Lhuillier opposed the motion to dismiss and moved for the issuance of a writ of preliminary
injunction praying that the BIR be enjoined from enforcing the warrant of distraint and levy.

For Lhuilliers failure to appear on the scheduled date of hearing, the CTA denied the motion for
the issuance of a writ of preliminary injunction. However, on Lhuilliers motion for
reconsideration, said denial was set aside and a hearing on the motion for the issuance of a writ
of preliminary injunction was set.

On 30 June 1999, after due hearing, the CTA denied the CIRs motion to dismiss and granted
Lhuilliers motion for the issuance of a writ of preliminary injunction.

On 13 December 2000, the CTA rendered a decision declaring (1) RMO No. 15-91 and RMC
No. 43-91 null and void insofar as they classify pawnshops as lending investors subject to 5%
percentage tax; and (2) Assessment Notice No. 81-PT-13-94-97-9-118 as cancelled, withdrawn,
and with no force and effect.[2]
Dissatisfied, the CIR filed a petition for review with the Court of Appeals praying that the
aforesaid decision be reversed and set aside and another one be rendered ordering Lhuillier to
pay the 5% lending investors tax for 1994 with interests and surcharges.

Upon due consideration of the issues presented by the parties in their respective memoranda, the
Court of Appeals affirmed the CTA decision on 20 November 2001.

The CIR is now before this Court via this petition for review on certiorari, alleging that the Court
of Appeals erred in holding that pawnshops are not subject to the 5% lending investors tax. He
invokes then Section 116 of the Tax Code, which imposed a 5% percentage tax on lending
investors. He argues that the legal definition of lending investors provided in Section 157 (u) of
the Tax Code is broad enough to include pawnshop operators. Section 3 of Presidential Decree
No. 114 states that the principal business activity of a pawnshop is lending money; thus, a
pawnshop easily falls under the legal definition of lending investors. RMO No. 15-91 and RMC
No. 43-91, which subject pawnshops to the 5% lending investors tax based on their gross
income, are valid. Being mere interpretations of the NIRC, they need not be published. Lastly,
the CIR invokes the case of Commissioner of Internal Revenue vs. Agencia Exquisite of Bohol,
Inc.,[3] where the Court of Appeals Special Fourteenth Division ruled that a pawnshop is subject
to the 5% lending investors tax.[4]

Lhuillier, on the other hand, maintains that before and after the amendment of the Tax Code by
E.O. No. 273, which took effect on 1 January 1988, pawnshops and lending investors were
subjected to different tax treatments. Pawnshops were required to pay an annual fixed tax of only
P1,000, while lending investors were subject to a 5% percentage tax on their gross income in
addition to their fixed annual taxes. Accordingly, during the period from April 1982 up to
December 1990, the CIR consistently ruled that a pawnshop is not a lending investor and should
not therefore be required to pay percentage tax on its gross income.

Lhuillier likewise asserts that RMO No. 15-91 and RMC No. 43-91 are not implementing rules
but are new and additional tax measures, which only Congress is empowered to enact. Besides,
they are invalid because they have never been published in the Official Gazette or any newspaper
of general circulation.

Lhuillier further points out that pawnshops are strictly regulated by the Central Bank pursuant to
P.D. No. 114, otherwise known as The Pawnshop Regulation Act. On the other hand, there is no
special law governing lending investors. Due to the wide differences between the two,
pawnshops had never been considered as lending investors for tax purposes. In fact, in 1994,
Congress passed House Bill No. 11197,[5] which attempted to amend Section 116 of the NIRC,
as amended, to include owners of pawnshops as among those subject to percentage tax.
However, the Senate Bill and the subsequent Bicameral Committee version, which eventually
became the E-VAT Law, did not incorporate such proposed amendment.
Lastly, Lhuillier argues that following the maxim in statutory construction expressio unius est
exclusio alterius, it was not the intention of the Legislature to impose percentage taxes on
pawnshops because if it were so, pawnshops would have been included as among the businesses
subject to the said tax. Inasmuch as revenue laws impose special burdens upon taxpayers, the
enforcement of such laws should not be extended by implication beyond the clear import of the
language used.

We are therefore called upon to resolve the issue of whether pawnshops are subject to the 5%
lending investors tax. Corollary to this issue are the following questions: (1) Are RMO No. 15-
91 and RMC No. 43-91 valid? (2) Were they issued to implement Section 116 of the NIRC of
1977, as amended? (3) Are pawnshops considered lending investors for the purpose of the
imposition of the lending investors tax? (4) Is publication necessary for the validity of RMO No.
15-91 and RMC No. 43-91.

RMO No. 15-91 and RMC No. 43-91 were issued in accordance with the power of the CIR to
make rulings and opinions in connection with the implementation of internal revenue laws,
which was bestowed by then Section 245 of the NIRC of 1977, as amended by E.O. No. 273.[6]
Such power of the CIR cannot be controverted. However, the CIR cannot, in the exercise of such
power, issue administrative rulings or circulars not consistent with the law sought to be applied.
Indeed, administrative issuances must not override, supplant or modify the law, but must remain
consistent with the law they intend to carry out. Only Congress can repeal or amend the law.[7]

The CIR argues that both issuances are mere rules and regulations implementing then Section
116 of the NIRC, as amended, which provided:

SEC. 116. Percentage tax on dealers in securities; lending investors. - Dealers in securities and
lending investors shall pay a tax equivalent to six (6) per centum of their gross income. Lending
investors shall pay a tax equivalent to five (5%) percent of their gross income.

It is clear from the aforequoted provision that pawnshops are not specifically included. Thus, the
question is whether pawnshops are considered lending investors for the purpose of imposing
percentage tax.

We rule in the negative.

Incidentally, we observe that both parties, as well as the Court of Tax Appeals and the Court of
Appeals, refer to the National Internal Revenue Code as the Tax Code. They did not specify
whether the provisions they cited were taken from the NIRC of 1977, as amended, or the NIRC
of 1986, as amended. For clarity, it must be pointed out that the NIRC of 1977 as renumbered
and rearranged by E.O. No. 273 is a later law than the NIRC of 1986, as amended by P.D. Nos.
1991, 1994, 2006 and 2031. The citation of the specific Code is important for us to determine the
intent of the law.

Under Section 157(u) of the NIRC of 1986, as amended, the term lending investor includes all
persons who make a practice of lending money for themselves or others at interest. A pawnshop,
on the other hand, is defined under Section 3 of P.D. No. 114 as a person or entity engaged in the
business of lending money on personal property delivered as security for loans and shall be
synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.

While it is true that pawnshops are engaged in the business of lending money, they are not
considered lending investors for the purpose of imposing the 5% percentage taxes for the
following reasons:

First. Under Section 192, paragraph 3, sub-paragraphs (dd) and (ff), of the NIRC of 1977, prior
to its amendment by E.O. No. 273, as well as Section 161, paragraph 2, sub-paragraphs (dd) and
(ff), of the NIRC of 1986, pawnshops and lending investors were subjected to different tax
treatments; thus:

(3) Other Fixed Taxes. The following fixed taxes shall be collected as follows, the amount stated
being for the whole year, when not otherwise specified:

(dd) Lending investors

1. In chartered cities and first class municipalities, one thousand pesos;

2. In second and third class municipalities, five hundred pesos;

3. In fourth and fifth class municipalities and municipal districts, two hundred fifty pesos:
Provided, That lending investors who do business as such in more than one province shall pay a
tax of one thousand pesos.
.

(ff) Pawnshops, one thousand pesos (underscoring ours)

Second. Congress never intended pawnshops to be treated in the same way as lending investors.
Section 116 of the NIRC of 1977, as renumbered and rearranged by E.O. No. 273, was basically
lifted from Section 175[8] of the NIRC of 1986, which treated both tax subjects differently.
Section 175 of the latter Code read as follows:

Sec. 175. Percentage tax on dealers in securities, lending investors. -- Dealers in securities shall
pay a tax equivalent to six (6%) percent of their gross income. Lending investors shall pay a tax
equivalent to five (5%) percent of their gross income. (As amended by P.D. No. 1739, P.D. No.
1959 and P.D. No. 1994).

We note that the definition of lending investors found in Section 157 (u) of the NIRC of 1986 is
not found in the NIRC of 1977, as amended by E.O. No. 273, where Section 116 invoked by the
CIR is found. However, as emphasized earlier, both the NIRC of 1986 and the NIRC of 1977
dealt with pawnshops and lending investors differently. Verily then, it was the intent of Congress
to deal with both subjects differently. Hence, we must likewise interpret the statute to conform
with such legislative intent.

Third. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax
dealers in securities and lending investors only. There is no mention of pawnshops. Under the
maxim expressio unius est exclusio alterius, the mention of one thing implies the exclusion of
another thing not mentioned. Thus, if a statute enumerates the things upon which it is to operate,
everything else must necessarily and by implication be excluded from its operation and effect.[9]
This rule, as a guide to probable legislative intent, is based upon the rules of logic and natural
workings of the human mind.[10]

Fourth. The BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-
91 that pawnshops were not subject to the 5% percentage tax imposed by Section 116 of the
NIRC of 1977, as amended by E.O. No. 273. This was even admitted by the CIR in RMO No.
15-91 itself. Considering that Section 116 of the NIRC of 1977, as amended, was practically
lifted from Section 175 of the NIRC of 1986, as amended, and there being no change in the law,
the interpretation thereof should not have been altered.
It may not be amiss to state that, as pointed out by the respondent, pawnshops was sought to be
included as among those subject to 5% percentage tax by House Bill No. 11197 in 1994. Section
13 thereof reads:

Section 13. Section 116 of the National Internal Revenue Code, as amended, is hereby further
amended to read as follows:

SEC. 116. Percentage tax on dealers in securities; lending investors; OWNERS OF

PAWNSHOPS; FOREIGN CURRENCY DEALERS AND/OR MONEY CHANGERS. Dealers
in securities shall pay a tax equivalent to Six (6%) per centum of their gross income. Lending
investors, OWNERS OF PAWNSHOPS AND FOREIGN CURRENCY DEALERS AND/OR
MONEY CHANGERS shall pay a tax equivalent to Five (5%) percent of their gross income.

If pawnshops were covered within the term lending investor, there would have been no need to
introduce such amendment to include owners of pawnshops. At any rate, such proposed
amendment was not adopted. Instead, the approved bill which became R.A. No. 7716[11]
repealed Section 116 of NIRC of 1977, as amended, which was the basis of RMO No. 15-91 and
RMC No. 43-91; thus:

SEC. 20. Repealing Clauses. -- The provisions of any special law relative to the rate of franchise
taxes are hereby expressly repealed. Sections 113, 114 and 116 of the National Internal Revenue
Code are hereby repealed.

Section 21 of the same law provides that the law shall take effect fifteen (15) days after its
complete publication in the Official Gazette or in at least two (2) national newspapers of general
circulation whichever comes earlier. R.A. No. 7716 was published in the Official Gazette on 1
August 1994[12]; in the Journal and Malaya newspapers, on 12 May 1994; and in the Manila
Bulletin, on 5 June 1994. Thus, R.A. No. 7716 is deemed effective on 27 May 1994.

Since Section 116 of the NIRC of 1977, which breathed life on the questioned administrative
issuances, had already been repealed, RMO 15-91 and RMC 43-91, which depended upon it, are
deemed automatically repealed. Hence, even granting that pawnshops are included within the
term lending investors, the assessment from 27 May 1994 onward would have no leg to stand on.

Adding to the invalidity of the RMC No. 43-91 and RMO No. 15-91 is the absence of
publication. While the rule-making authority of the CIR is not doubted, like any other
government agency, the CIR may not disregard legal requirements or applicable principles in the
exercise of quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances: the legislative rule and the
interpretative rule. A legislative rule is in the nature of subordinate legislation, designed to
implement a primary legislation by providing the details thereof. An interpretative rule, on the
other hand, is designed to provide guidelines to the law which the administrative agency is in
charge of enforcing.[13]

In Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary,[14]
this Tribunal ruled:

In the same way that laws must have the benefit of public hearing, it is generally required that
before a legislative rule is adopted there must be hearing. In this connection, the Administrative
Code of 1987 provides:

Public Participation. - If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to
submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have
been published in a newspaper of general circulation at least two weeks before the first hearing
thereon.

(3) In case of opposition, the rules on contested cases shall be observed.

In addition, such rule must be published.

When an administrative rule is merely interpretative in nature, its applicability needs nothing
further than its bare issuance, for it gives no real consequence more than what the law itself has
already prescribed. When, on the other hand, the administrative rule goes beyond merely
providing for the means that can facilitate or render least cumbersome the implementation of the
law but substantially increases the burden of those governed, it behooves the agency to accord at
least to those directly affected a chance to be heard, and thereafter to be duly informed, before
that new issuance is given the force and effect of law.[15]

RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or
corrective measures revoking in the process the previous rulings of past Commissioners.
Specifically, they would have been amendatory provisions applicable to pawnshops. Without
these disputed CIR issuances, pawnshops would not be liable to pay the 5% percentage tax,
considering that they were not specifically included in Section 116 of the NIRC of 1977, as
amended. In so doing, the CIR did not simply interpret the law. The due observance of the
requirements of notice, hearing, and publication should not have been ignored.

There is no need for us to discuss the ruling in CA-G.R. SP No. 59282 entitled Commissioner of
Internal Revenue v. Agencia Exquisite of Bohol Inc., which upheld the validity of RMO No. 15-
91 and RMC No. 43-91. Suffice it to say that the judgment in that case cannot be binding upon
the Supreme Court because it is only a decision of the Court of Appeals. The Supreme Court, by
tradition and in our system of judicial administration, has the last word on what the law is; it is
the final arbiter of any justifiable controversy. There is only one Supreme Court from whose
decisions all other courts should take their bearings.[16]

In view of the foregoing, RMO No. 15-91 and RMC No. 43-91 are hereby declared null and
void. Consequently, Lhuillier is not liable to pay the 5% lending investors tax.

WHEREFORE, the petition is hereby DISMISSED for lack of merit. The decision of the Court
of Appeals of 20 November 2001 in CA-G.R. SP No. 62463 is AFFIRMED.

SO ORDERED.