THIRD DIVISION

G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX
APPEALS, respondents.

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8,
1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872
dated March 16, 1995 2ordering it to pay the amount of P110,677,668.52 as excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August
6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax
liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the
total amount of P123,821.982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

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

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

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

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

========= ========= ========= =========

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

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since
these pending claims have not yet been established or determined with certainty, it follows that no
legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its
excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In
the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of
P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively
lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. "Liquidated" debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition,
p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A
fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be
set-off against the unliquidated claim which Petitioner conceived to exist in its favor
(see Compaia General de Tabacos vs. French and Unson, No. 14027, November 8,
1918, 39 Phil. 34). 8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation
since claim for taxes is not a debt or contract." 9 The dispositive portion of the CTA
decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of
P110,677,668.52 representing excise tax liability for the period from the 2nd quarter
of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994
until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-
GR. CV No. 36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of
Tax Appeals observation. The pertinent portion of which reads: 12

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and
the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July
11, 1996. 13
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its
VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994,
computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso
jure, off-set its excise tax liabilities 15 since both had already become "due and demandable, as well
as fully liquidated;" 16 hence, legal compensation can properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are
not creditors and debtors of each other. 17 There is a material distinction between a tax and debt.
Debts are due to the Government in its corporate capacity, while taxes are due to the Government in
its sovereign capacity. 18 We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held
that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse
to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit, 20 which reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for
taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines
Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even
though the refund has not yet been approved by the Commissioner, 21 is no longer without any
support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on
Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was
based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by
Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the
prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has
a pending tax claim for refund or credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can
defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit,
this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his
taxes when they fall due simply because he has a claim against the government or that the
collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is
immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the
Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any
authority to waive the collection thereof. 28 The same cannot be condoned for flimsy
reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code
of 1977, which requires the refund of input taxes within 60 days, 31 when it took five years for the
latter to grant its tax claim for VAT input credit/refund. 32

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

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

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg" And, in order to maintain the general public's trust
and confidence in the Government this power must be used justly and not
treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a
settled rule that in the performance of governmental function, the State is not bound by the neglect
of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we
understand Philex's predicament, it must be stressed that the same is not a valid reason for the non-
payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or
employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet
needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can
seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second, if
the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and
the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file
an action for damages and other relief against the latter, without prejudice to any
disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the
performance of duty or wilfully neglecting to perform, any other duties enjoyed by
law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the
performance of official duties. 39 In no uncertain terms must we stress that every public employee or
servant must strive to render service to the people with utmost diligence and efficiency. Insolence
and delay have no place in government service. The BIR, being the government collecting arm, must
and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer
if it wishes to remain true to its mission of hastening the country's development. We take judicial
notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the
same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law
into his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed
decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

EN BANC

G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price, respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.

Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January
30, 1960, this Court declared as final and executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court
of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate
of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented
a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition
was, however, denied by the court which held that the execution is not justifiable as the Government
is indebted to the estate under administration in the amount of P262,200. The orders of the court
below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between [Mrs. Simeona K. Price,
(Administratrix of the estate of her late husband Walter Scott Price) and Director Zoilo
Castrillo of the Bureau of Lands dated September 19, 1956] and acknowledged before
Notary Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De
Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to
 Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum
of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the
administratrix Simeona K. Price, as directed in the above note of the President. Considering
these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55
due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in
accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-
14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix
Simeona K. Price, in this estate, the balance to be paid by the Government to her without
further delay. (Order of August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the
payment of the claim of the Collector of Internal Revenue be deferred until the Government
shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may
not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to
its citizens-creditors before it can insist in the prompt payment of the latter's account to it,
specially taking into consideration that the amount due to the Government draws interests
while the credit due to the present state does not accrue any interest. (Order of September
28, 1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which to
settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for
the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs.
Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court to
order the sale of personal estate or the sale or mortgage of real property of the deceased
and all debts or expenses of administrator and with the written notice to all the heirs legatees
and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90,
section 2. And when sale or mortgage of real estate is to be made, the regulations contained
in Rule 90, section 7, should be complied with. 1wph1.t

Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of the
debts and expenses of administration and it is later ascertained that there are such debts
and expenses to be paid, in which case "the court having jurisdiction of the estate may, by
order for that purpose, after hearing, settle the amount of their several liabilities, and order
how much and in what manner each person shall contribute, and may issue execution if
circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.)
And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of
the court and such jurisdiction continues until said properties have been distributed among the heirs
entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the
proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but
to ask the court for an order to require the administrator to pay the amount due from the estate and
required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against
the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

FIRST DIVISION

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion
of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959.1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of
distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest
in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty.
Guevara was finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days
later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and
renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof
and makes the said request deemed rejected." 10 But there is a special circumstance in the case at
bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income 12 but later conformed to the decision of the respondent
court rejecting this assertion.13 In fact, as the said court found, the amount was earned through the
joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it.14 Ultimately, after its
incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
 and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. .
. . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.

SO ORDERED.
 THIRD DIVISION

G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated
March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC)
liable to pay franchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No.
120, as amended.4 It is tasked to undertake the "development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner
has, among others, the power to construct, operate and maintain power plants, auxiliary plants,
power stations and substations for the purpose of developing hydraulic power and supplying such
power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latter's gross receipts for the preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees11 in accordance with sec.
13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
 the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power."12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and
2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been
repealed by section 193 of Rep. Act No. 7160,14 which reads as follows:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code."

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the
following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act
No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied
repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the
national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may expressly repeal a law by incorporating
therein repealing provisions which expressly and specifically cite(s) the particular law or
laws, and portions thereof, that are intended to be repealed. A declaration in a statute,
usually in its repealing clause, that a particular and specific law, identified by its number or
title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
is an implied repealing clause because it fails to identify the act or acts that are intended to
be repealed. It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and repugnancy for the
legislative is presumed to know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law
does not repeal a special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus, despite the passage of
R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.
 Another point going against plaintiff in this case is the ruling of the Supreme Court in the
case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it
was held that:

'Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government. xxx Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original
charter and its shares of stocks owned by the National Government, is beyond the taxing
power of the Local Government. Corollary to this, it should be noted here that in the NPC
Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the
Philippines through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are primary objectives
of the nations which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To
allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is
limited to that which is provided for in its charter or other statute. Any grant of taxing power is
to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum
of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the
tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision.
This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local Government
Code refers merely to private persons or corporations in which category it (NPC) does not
belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the
NPC Charter which is a special lawfinds the answer in Section 193 of the LGC to the effect
that 'tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations except local water
districts xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20
In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC
NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO
CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION
TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION

FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE
LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION,
WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN

EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER
THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in
relation to section 137 of the LGC, viz:

"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.

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

x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that are engaged in trade or
occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of the public welfare, security
and safety." From the phraseology of this provision, the petitioner claims that the word "private"
modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise,"
petitioner submits that it should refer specifically to franchises granted to private natural persons and
to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity
regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and improvement of its
facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government,25 and as such, may
not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation26 where this Court held that local governments have no power
to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually
is exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by a mere local government.

'The states have no power by taxation or otherwise, to retard, impede, burden or in

any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)'

This doctrine emanates from the 'supremacy' of the National Government over local
governments.

'Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even seriously burden it from accomplishment of them.'
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the power
to tax as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its
charter cannot be amended or modified impliedly by the local government code which is a general
law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored and as much as possible, effect must be given to all enactments of the legislature.
Moreover, it has to be conceded that the charter of the NPC constitutes a special law.
Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot be construed to have repealed
a special law. Where there is a conflict between a general law and a special statute, the
special statute should prevail since it evinces the legislative intent more clearly than the
general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC. It alleges that the power of the local government to impose franchise tax is
subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the
least limitable and most demanding of all powers, including the power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity,
and taxation has become a tool to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees
and charges shall accrue exclusively to the Local Governments."

This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country's highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the
purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz:
 "Section 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and
operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local Government
Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These
include the Barrio Charter of 1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of
196739 and the Local Government Code of 1983.40 Despite these initiatives, however, the shackles of
dependence on the national government remained. Local government units were faced with the
same problems that hamper their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of
income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence
on external sources of income, and (e) limited supervisory control over personnel of national line
agencies.41

Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC effectively
deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes
which were prohibited by previous laws such as the imposition of taxes on forest products, forest
concessionaires, mineral products, mining operations, and the like. The LGC likewise provides
enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and
leaves the determination of the actual rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when
specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the Local Government Units.-
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

x x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation44 relied upon by the petitioner to support its claim no longer applies. To
emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering
the local government units to tax instrumentalities of the National Government was in effect.
However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.46 In enacting the LGC,
Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit.
Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, 'real property owned by the Republic
of the Philippines or any of its political subdivisions except when the beneficial use thereof
has been granted for consideration or otherwise, to a taxable person as provided in the item
(a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does
not belong to citizens of the country generally as a matter of common right.48 In its specific sense, a
franchise may refer to a general or primary franchise, or to a special or secondary franchise. The
former relates to the right to exist as a corporation, by virtue of duly approved articles of
incorporation, or a charter pursuant to a special law creating the corporation.49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the
corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an
existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect
poles or string wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property, except such special or secondary franchises as are charged
with a public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is used in the
context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state."53 It is not levied on
the corporation simply for existing as a corporation, upon its property54 or its income,55 but on its
exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise.56 It is within this
context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise
tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter,
defining its composition, capitalization, the appointment and the specific duties of its corporate
officers, and its corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as
amended, vests the petitioner the following powers which are not available to ordinary
corporations, viz:

"x x x
(e) To conduct investigations and surveys for the development of water power in any part of
the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters
from lands of riparian owners and from persons owning or interested in waters which are or
may be necessary for said purposes, upon payment of just compensation therefor; to alter,
straighten, obstruct or increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs,
pipes, mains, transmission lines, power stations and substations, and other works for the
purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the
Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install,
maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the production of electric
power; to establish, develop, operate, maintain and administer power and lighting systems
for the transmission and utilization of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems and other government
institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x
x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary, convenient or proper to carry out the purposes
for which the Corporation was created: Provided, That in case a right of way is necessary for
its transmission lines, easement of right of way shall only be sought: Provided, however,
That in case the property itself shall be acquired by purchase, the cost thereof shall be the
fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume,
street, avenue, highway or railway of private and public ownership, as the location of said
works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided
by law for instituting condemnation proceedings by the national, provincial and municipal
governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs
of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for watersheds for a specific project,
the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all
areas embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;
 (o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures
to prevent environmental pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40,59 nationalizing
the electric power industry. Although Exec. Order No. 21560 thereafter allowed private sector
participation in the generation of electricity, the transmission of electricity remains the monopoly of
the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as
amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the
franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because
its stocks are wholly owned by the National Government, and its charter characterized it as a "non-
profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and be sued under its own
name,61 and can exercise all the powers of a corporation under the Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
202963 classifies government-owned or controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which is directly
chartered by special law or if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting capital stock x x x."
(emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are
treated as absolute obligation on the part of the state to perform while proprietary functions are those
that are undertaken only by way of advancing the general interest of society, and are merely optional
on the government.64 Included in the class of GOCCs performing proprietary functions are "business-
like" entities such as the National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and
the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and
sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply and irrigation companies,
gas, coal or light companies, power plants, ice plant among others; all of which are declared by this
Court as ministrant or proprietary functions of government aimed at advancing the general interest of
society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the
proper transaction of its business or to carry out the purposes for which it was organized, to
contract indebtedness and issue bonds subject to approval of the President upon
recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry
out the business and purposes for which it was organized, or which, from time to time, may
be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the
said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote "all its returns from its
capital investment, as well as excess revenues from its operation, for expansion"70 while other
franchise holders have the option to distribute their profits to its stockholders by declaring dividends.
We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter
subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to
exist clearly and categorically, and supported by clear legal provisions.71 In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all
income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities." However, section 193 of
the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by
private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an
express, albeit general, repeal of all statutes granting tax exemptions from local taxes.72 It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-
stock and non-profit hospital or educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that
expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can
impose franchise tax "notwithstanding any exemption granted by any law or other special law." This
particular provision of the LGC does not admit any exception. In City Government of San Pablo,
Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an
issue before this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we
ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO
under special laws, viz:

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC
to support their position that MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
'notwithstanding any exemption granted by any law or other special law' is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or presently
enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations except (1) local water districts, (2) cooperatives duly registered under
R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to
the contrary, and we find no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar based on the incoming receipts realized
within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on (sic) Sections
137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used."76 (emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No.
165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend to exempt the petitioner
from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises."78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

EN BANC

G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932,
the date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for
P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both
the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a
will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate were begun in
the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

 5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be
directed that the same be used only for the education of my brother's children and their
descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew
Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed
trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until
February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against
the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the
defendant filed a motion in the testamentary proceedings pending before the Court of First Instance
of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to
pay to the Government the said sum of P2,052.74. The motion was granted. On September 15,
1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that
unless the amount was promptly refunded suit would be brought for its recovery. The defendant
overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court
with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir,
Matthew Hanley, from the moment of the death of the former, and that from the time, the
latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the
estate of said deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon
the death of the testator, and not, as it should have been held, upon the value thereof at the
expiration of the period of ten years after which, according to the testator's will, the property
could be and was to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate
subject to said tax, the amounts allowed by the court as compensation to the "trustees" and
paid to them from the decedent's estate.
 V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10,
1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed
by the defendant against the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the testator's death, or on its value ten
years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act
No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the
payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his
appeal be paid by the estate? Other points of incidental importance, raised by the parties in their
briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code,
"the rights to the succession of a person are transmitted from the moment of his death." "In other
words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the ancestor as
completely as if the ancestor had executed and delivered to them a deed for the same before his
death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co.,
vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14
Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan
vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship
Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil.,
396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the
Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced
heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no
distinction between different classes of heirs. That article does not speak of forced heirs; it does not
even use the word "heir". It speaks of the rights of succession and the transmission thereof from the
moment of death. The provision of section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to effect transmission of property does
not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will
implies its due execution but once probated and allowed the transmission is effective as of the death
of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when
actual transmission of the inheritance takes place, succession takes place in any event at the
moment of the decedent's death. The time when the heirs legally succeed to the inheritance may
differ from the time when the heirs actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el
heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho
o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el
articulo 989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also,
art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not
be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.

(b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or administrator
before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and interest due and
unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of

Internal Revenue by the Clerk of Court within thirty days after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation
from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-
quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the
tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the real properties in question had a
reasonable value of only P5,787. This amount added to the value of the personal property left by the
deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding
deductions, interest and surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes
takes its being and if, upon the death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the
time of the decedent's death, regardless of any subsequent contingency value of any subsequent
increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and
Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep.,
747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death,
and hence is ordinarily measured as to any beneficiary by the value at that time of such property as
passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation,
p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37,
pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate
vests in possession or the contingency is settled. This rule was formerly followed in New York and
has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This
rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the
property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon
examination of cases and authorities that New York has varied and now requires the immediate
appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its
out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In
re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y.,
519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp.,
1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul.
Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net
value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of
only P480.81. This sum represents the expenses and disbursements of the executors until March
10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends
that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP,
HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative
Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax,
when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial
expenses of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders,
16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him
may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute
in the Philippines which requires trustees' commissions to be deducted in determining the net value
of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust
has been created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div.,
363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial expenses are expenses of
administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878;
101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the administration of
the estate, but in the management thereof for the benefit of the legatees or devises, does not come
properly within the class or reason for exempting administration expenses. . . . Service rendered in
that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. .
. . Trusts . . . of the character of that here before the court, are created for the the benefit of those to
whom the property ultimately passes, are of voluntary creation, and intended for the preservation of
the estate. No sound reason is given to support the contention that such expenses should be taken
into consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3
of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law
in force when the testator died on May 27, 1922. The law at the time was section 1544 above-
mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death
of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax
statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup.
Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly
clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U.
S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations
No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not
been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive
effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of
the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on
both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty
days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax,
instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use,
however, this sense has been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p.
1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to
for the collection of taxes are not classed as penal laws, although there are authorities to the
contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468;
12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St.,
150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not
applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No.
3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax
does not render one delinqent until and unless the entire period has eplased within which the
taxpayer is authorized by law to make such payment without being subjected to the payment of
penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil.,
239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was
made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true
that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No
particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two
words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by
will the testator must indicate in the will his intention so to do by using language sufficient to
separate the legal from the equitable estate, and with sufficient certainty designate the beneficiaries,
their interest in the ttrust, the purpose or object of the trust, and the property or subject matter
thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of
three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or
ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp.
705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that
certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The
probate court certainly exercised sound judgment in appointment a trustee to carry into effect the
provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582
in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the
payment of the inheritance tax. The corresponding inheritance tax should have been paid on or
before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated
that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que
trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que
trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possesson of the trust estate he thereby admitted that the estate
belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p.
692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as
the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p.
542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type
at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty
years, or for a longer period which does not offend the rule against petuities. The collection of the tax
would then be left to the will of a private individual. The mere suggestion of this result is a sufficient
warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs.
Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed.,
558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs.
Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of
money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is
allowed to object to or resist the payment of taxes solely because no personal benefit to him can be
pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While
courts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn,
280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so
loose a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs.
Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No.
16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros.,
Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai
Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.)
When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed
this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court
is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578,
Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this
policy of the law. It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time
and by mutual agreement closed their homes and stores and remained therein, does not authorize
the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to
accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment to the public." (Dows
vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance
tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease
such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec.
1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector
of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date
fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that
date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19
as the net value of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax
and interest thus computed should be added the sum of P724.88, representing a surhcarge of 25
per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant
(Exh. 29), giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.

Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.

EN BANC

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a
re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund
of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two per
cent of the gross revenue or gross earning derived by the grantee from its operations
under this franchise. Such tax shall be due and payable quarterly and shall be in lieu
of all taxes of any kind, nature or description, levied, established or collected by any
municipal, provincial or national automobiles, Provided, that if, after the audit of the
accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax is
shown to be due, the deficiency tax shall be payable within the ten days from the
receipt of the assessment. The grantee shall pay the tax on its real property in
conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Edu issued a regulation requiring all
tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come
within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against
Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with
the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action.
In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit
Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of the police power of the state. They contended that while
Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or
earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle
registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on
the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by
the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus
Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the
case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at
bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8
of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks
of "registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid., Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence the
incipient, of the section relied upon by defendant-appellee under the Back Pay Law,
It is not held liable for a tax but for a registration fee. It therefore cannot make use of
a backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30,
1969.) A special science fund was thereby created and its title expressly sets forth
that a tax on privately-owned passenger automobiles, motorcycles and scooters was
imposed. The rates thereof were provided for in its Section 3 which clearly specifies
the" Philippine tax."(Cooley to be paid as distinguished from the registration fee
 under the Motor Vehicle Act. There cannot be any clearer expression therefore of the
legislative will, even on the assumption that the earlier legislation could by
subdivision the point be susceptible of the interpretation that a tax rather than a fee
was levied. What is thus most apparent is that where the legislative body relies on its
authority to tax it expressly so states, and where it is enacting a regulatory measure,
it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,
held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name
but the object of the charge determines whether it is a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees are exceptional. for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the
value of the services performed and where the amount collected eventually finds its
way into the treasury of the branch of the government whose officer or officers
collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.)

From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portionabout 5 per centumof the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides that
all such money shall accrue to the funds for the construction and maintenance of
public roads, streets and bridges. It is thus obvious that the fees are not collected for
regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express
object is to provide revenue with which the Government is to discharge one of its
principal functionsthe construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act
shall be imposed," thus implying that the charges therein imposedthough called
feesare of the category of taxes. The provision is contained in section 70, of
subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of
chauffeur, by any municipal corporation, the provisions of any city
charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other
competent authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries, within their
respective jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the use
 of such public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any toll
fee." be charged or collected until and unless the approved schedule
of tolls shall have been posted levied, in a conspicuous place at such
toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law
(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.Twenty per centum of the money

collected under the provisions of this Act shall accrue to the road and bridge funds of
the different provinces and chartered cities in proportion to the centum shall during
the next previous year and the remaining eighty per centum shall be deposited in the
Philippine Treasury to create a special fund for the construction and maintenance of
national and provincial roads and bridges. as well as the streets and bridges in the
chartered cities to be alloted by the Secretary of Public Works and Communications
for projects recommended by the Director of Public Works in the different provinces
and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of

this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land Transportation
Commission but not to exceed twenty per cent of the total collection during one year,
shall be set aside for the purpose. (As amended by RA 64-67, approved August 6,
1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction
and maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising
from the use of the term "fees," which appears to have been favored by the legislature to distinguish
fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.No original registration of motor

vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation,
As stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of
taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. If the purpose is primarily revenue, or
if revenue is at least one of the real and substantial purposes, then the exaction is
properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of
1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-
593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the law
refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or
fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax,
Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to
impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an
"additional" tax," where the law could have referred to an original tax and not one in addition to the
tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act
41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition
in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as
the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal
to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the
motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of
the Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for
rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular
traffic exploded in number and motor vehicles became absolute necessities without which modem
life as we know it would stand still, Congress found the registration of vehicles a very convenient
way of raising much needed revenues. Without changing the earlier deputy. of registration payments
as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant
to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of
government even if one fifth or less of the amount collected is set aside for the operating expenses
of the agency administering the program.
May the respondent administrative agency be required to refund the amounts stated in the complaint
of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448
dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July
11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%)
of all gross receipts was provided as "in lieu of any and all taxes of any kind, nature,
or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby expressly
exempted." The issue raised to this Court now is the validity of the respondent court's
decision which ruled that the exemption under Republic Act No. 41-42). was
repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary

notwithstanding, all corporate taxpayers not specifically exempt under
Sections 24 (c) (1) of this Code shall pay the rates provided in this
section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable
net income as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the statute.
There can be no doubt as to the power of Congress to repeal the earlier exemption it
granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of
the Constitution as amended in 1973 expressly provide that no franchise shall be
granted to any individual, firm, or corporation except under the condition that it shall
be subject to amendment, alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public interest involved. The
country needs increased revenues. The repealing clause is clear and unambiguous.
There is a listing of entities entitled to tax exemption. The petitioner is not covered by
the provision. Considering the foregoing, the Court Resolved to DENY the petition for
lack of merit. The decision of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:
 In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect to
international airtransport service, only the gross passengers, mail,
and freight revenues. from its outgoing flights shall be subject to this
law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of
any kind, nature or description imposed, levied, established, assessed, or collected
by any municipal, city, provincial, or national authority or government, agency, now or
in the future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees
paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the
petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.

EN BANC

G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO, petitioner,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 August 25, 1994

JUAN T. DAVID, petitioner,

vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.

G.R. No. 115543 August 25, 1994

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,

vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.

G.R. No. 115544 August 25, 1994

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; PUBLISHING

CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115754 August 25, 1994

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 August 25, 1994

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.

CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO TAADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 August 25, 1994

PHILIPPINE AIRLINES, INC., petitioner,

vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115873 August 25, 1994

COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115931 August 25, 1994

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and ASSOCIATION OF

PHILIPPINE BOOK-SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO,
as the Commissioner of Internal Revenue and HON. GUILLERMO PARAYNO, JR., in his
capacity as the Commissioner of Customs, respondents.

Arturo M. Tolentino for and in his behalf.

Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No. 115525.

Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco.

Villaranza and Cruz for petitioners in G.R. No. 115544.

Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754.

Salonga, Hernandez & Allado for Freedon From Debts Coalition, Inc. & Phil. Bible Society.

Estelito P. Mendoza for petitioner in G.R. No. 115852.

Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in G.R. No. 115873.

R.B. Rodriguez & Associates for petitioners in G.R. No. 115931.

Reve A.V. Saguisag for MABINI.

MENDOZA, J.:

The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well
as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross
value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the
sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT
system and enhance its administration by amending the National Internal Revenue Code.

These are various suits for certiorari and prohibition, challenging the constitutionality of Republic Act
No. 7716 on various grounds summarized in the resolution of July 6, 1994 of this Court, as follows:

I. Procedural Issues:

A. Does Republic Act No. 7716 violate Art. VI, 24 of the Constitution?
 B. Does it violate Art. VI, 26(2) of the Constitution?

C. What is the extent of the power of the Bicameral Conference Committee?

II. Substantive Issues:

A. Does the law violate the following provisions in the Bill of Rights (Art. III)?

1. 1

2. 4

3. 5

4. 10

B. Does the law violate the following other provisions of the Constitution?

1. Art. VI, 28(1)

2. Art. VI, 28(3)

These questions will be dealt in the order they are stated above. As will presently be explained not
all of these questions are judicially cognizable, because not all provisions of the Constitution are self
executing and, therefore, judicially enforceable. The other departments of the government are
equally charged with the enforcement of the Constitution, especially the provisions relating to them.

I. PROCEDURAL ISSUES

The contention of petitioners is that in enacting Republic Act No. 7716, or the Expanded Value-
Added Tax Law, Congress violated the Constitution because, although H. No. 11197 had originated
in the House of Representatives, it was not passed by the Senate but was simply consolidated with
the Senate version (S. No. 1630) in the Conference Committee to produce the bill which the
President signed into law. The following provisions of the Constitution are cited in support of the
proposition that because Republic Act No. 7716 was passed in this manner, it did not originate in the
House of Representatives and it has not thereby become a law:

Art. VI, 24: All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments.

Id., 26(2): No bill passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final form have
been distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

It appears that on various dates between July 22, 1992 and August 31, 1993, several bills 1 were
introduced in the House of Representatives seeking to amend certain provisions of the National
Internal Revenue Code relative to the value-added tax or VAT. These bills were referred to the
House Ways and Means Committee which recommended for approval a substitute measure, H. No.
11197, entitled

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN

ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110 OF
TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237 AND 238 OF TITLE IX,
AND REPEALING SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED

The bill (H. No. 11197) was considered on second reading starting November 6, 1993 and, on
November 17, 1993, it was approved by the House of Representatives after third and final reading.

It was sent to the Senate on November 23, 1993 and later referred by that body to its Committee on
Ways and Means.

On February 7, 1994, the Senate Committee submitted its report recommending approval of S. No.
1630, entitled

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN

ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF TITLE
IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113, 114 and 116 OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES

It was stated that the bill was being submitted "in substitution of Senate Bill No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197."

On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It finished debates on
the bill and approved it on second reading on March 24, 1994. On the same day, it approved the bill
on third reading by the affirmative votes of 13 of its members, with one abstention.

H. No. 11197 and its Senate version (S. No. 1630) were then referred to a conference committee
which, after meeting four times (April 13, 19, 21 and 25, 1994), recommended that "House Bill No.
11197, in consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy
of the bill as reconciled and approved by the conferees."

The Conference Committee bill, entitled "AN ACT RESTRUCTURING THE VALUE-ADDED TAX
(VAT) SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES," was
thereafter approved by the House of Representatives on April 27, 1994 and by the Senate on May 2,
1994. The enrolled bill was then presented to the President of the Philippines who, on May 5, 1994,
signed it. It became Republic Act No. 7716. On May 12, 1994, Republic Act No. 7716 was published
in two newspapers of general circulation and, on May 28, 1994, it took effect, although its
implementation was suspended until June 30, 1994 to allow time for the registration of business
entities. It would have been enforced on July 1, 1994 but its enforcement was stopped because the
Court, by the vote of 11 to 4 of its members, granted a temporary restraining order on June 30,
1994.
First. Petitioners' contention is that Republic Act No. 7716 did not "originate exclusively" in the
House of Representatives as required by Art. VI, 24 of the Constitution, because it is in fact the
result of the consolidation of two distinct bills, H. No. 11197 and S. No. 1630. In this connection,
petitioners point out that although Art. VI, SS 24 was adopted from the American Federal
Constitution, 2 it is notable in two respects: the verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as on other bills" in the American version is
omitted. This means, according to them, that to be considered as having originated in the House,
Republic Act No. 7716 must retain the essence of H. No. 11197.

This argument will not bear analysis. To begin with, it is not the law but the revenue bill which
is required by the Constitution to "originate exclusively" in the House of Representatives. It is
important to emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. The possibility of a third
version by the conference committee will be discussed later. At this point, what is important to note
is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue
statute and not only the bill which initiated the legislative process culminating in the enactment of
the law must substantially be the same as the House bill would be to deny the Senate's power not
only to "concur with amendments" but also to "propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior to
the Senate.

The contention that the constitutional design is to limit the Senate's power in respect of revenue bills
in order to compensate for the grant to the Senate of the treaty-ratifying power 3 and thereby
equalize its powers and those of the House overlooks the fact that the powers being compared are
different. We are dealing here with the legislative power which under the Constitution is vested not in
any particular chamber but in the Congress of the Philippines, consisting of "a Senate and a House
of Representatives." 4 The exercise of the treaty-ratifying power is not the exercise of legislative
power. It is the exercise of a check on the executive power. There is, therefore, no justification for
comparing the legislative powers of the House and of the Senate on the basis of the possession of
such nonlegislative power by the Senate. The possession of a similar power by the U.S.
Senate 5 has never been thought of as giving it more legislative powers than the House of
Representatives.

In the United States, the validity of a provision ( 37) imposing an ad valorem tax based on the
weight of vessels, which the U.S. Senate had inserted in the Tariff Act of 1909, was upheld against
the claim that the provision was a revenue bill which originated in the Senate in contravention of Art.
I, 7 of the U.S. Constitution. 6 Nor is the power to amend limited to adding a provision or two in a
revenue bill emanating from the House. The U.S. Senate has gone so far as changing the whole of
bills following the enacting clause and substituting its own versions. In 1883, for example, it struck
out everything after the enacting clause of a tariff bill and wrote in its place its own measure, and the
House subsequently accepted the amendment. The U.S. Senate likewise added 847 amendments to
what later became the Payne-Aldrich Tariff Act of 1909; it dictated the schedules of the Tariff Act of
1921; it rewrote an extensive tax revision bill in the same year and recast most of the tariff bill of
1922. 7 Given, then, the power of the Senate to propose amendments, the Senate can propose its
own version even with respect to bills which are required by the Constitution to originate in the
House.

It is insisted, however, that S. No. 1630 was passed not in substitution of H. No. 11197 but of
another Senate bill (S. No. 1129) earlier filed and that what the Senate did was merely to "take [H.
No. 11197] into consideration" in enacting S. No. 1630. There is really no difference between the
Senate preserving H. No. 11197 up to the enacting clause and then writing its own version following
the enacting clause (which, it would seem, petitioners admit is an amendment by substitution), and,
on the other hand, separately presenting a bill of its own on the same subject matter. In either case
the result are two bills on the same subject.

Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills,
bills authorizing an increase of the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local needs and problems. On
the other hand, the senators, who are elected at large, are expected to approach the same problems
from the national perspective. Both views are thereby made to bear on the enactment of such laws.

Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a body is withheld pending
receipt of the House bill. The Court cannot, therefore, understand the alarm expressed over the fact
that on March 1, 1993, eight months before the House passed H. No. 11197, S. No. 1129 had been
filed in the Senate. After all it does not appear that the Senate ever considered it. It was only after
the Senate had received H. No. 11197 on November 23, 1993 that the process of legislation in
respect of it began with the referral to the Senate Committee on Ways and Means of H. No. 11197
and the submission by the Committee on February 7, 1994 of S. No. 1630. For that matter, if the
question were simply the priority in the time of filing of bills, the fact is that it was in the House that a
bill (H. No. 253) to amend the VAT law was first filed on July 22, 1992. Several other bills had been
filed in the House before S. No. 1129 was filed in the Senate, and H. No. 11197 was only a
substitute of those earlier bills.

Second. Enough has been said to show that it was within the power of the Senate to propose S. No.
1630. We now pass to the next argument of petitioners that S. No. 1630 did not pass three readings
on separate days as required by the Constitution 8 because the second and third readings were done
on the same day, March 24, 1994. But this was because on February 24, 1994 9 and again on March
22, 1994, 10 the President had certified S. No. 1630 as urgent. The presidential certification
dispensed with the requirement not only of printing but also that of reading the bill on separate days.
The phrase "except when the President certifies to the necessity of its immediate enactment, etc." in
Art. VI, 26(2) qualifies the two stated conditions before a bill can become a law: (i) the bill has
passed three readings on separate days and (ii) it has been printed in its final form and distributed
three days before it is finally approved.

In other words, the "unless" clause must be read in relation to the "except" clause, because the two
are really coordinate clauses of the same sentence. To construe the "except" clause as simply
dispensing with the second requirement in the "unless" clause (i.e., printing and distribution three
days before final approval) would not only violate the rules of grammar. It would also negate the very
premise of the "except" clause: the necessity of securing the immediate enactment of a bill which is
certified in order to meet a public calamity or emergency. For if it is only the printing that is
dispensed with by presidential certification, the time saved would be so negligible as to be of any
use in insuring immediate enactment. It may well be doubted whether doing away with the necessity
of printing and distributing copies of the bill three days before the third reading would insure speedy
enactment of a law in the face of an emergency requiring the calling of a special election for
President and Vice-President. Under the Constitution such a law is required to be made within seven
days of the convening of Congress in emergency session. 11

That upon the certification of a bill by the President the requirement of three readings on separate
days and of printing and distribution can be dispensed with is supported by the weight of legislative
practice. For example, the bill defining the certiorari jurisdiction of this Court which, in consolidation
with the Senate version, became Republic Act No. 5440, was passed on second and third readings
in the House of Representatives on the same day (May 14, 1968) after the bill had been certified by
the President as urgent. 12

There is, therefore, no merit in the contention that presidential certification dispenses only with the
requirement for the printing of the bill and its distribution three days before its passage but not with
the requirement of three readings on separate days, also.

It is nonetheless urged that the certification of the bill in this case was invalid because there was no
emergency, the condition stated in the certification of a "growing budget deficit" not being an unusual
condition in this country.

It is noteworthy that no member of the Senate saw fit to controvert the reality of the factual basis of
the certification. To the contrary, by passing S. No. 1630 on second and third readings on March 24,
1994, the Senate accepted the President's certification. Should such certification be now reviewed
by this Court, especially when no evidence has been shown that, because S. No. 1630 was taken up
on second and third readings on the same day, the members of the Senate were deprived of the
time needed for the study of a vital piece of legislation?

The sufficiency of the factual basis of the suspension of the writ of habeas corpus or declaration of
martial law under Art. VII, 18, or the existence of a national emergency justifying the delegation of
extraordinary powers to the President under Art. VI, 23(2), is subject to judicial review because
basic rights of individuals may be at hazard. But the factual basis of presidential certification of bills,
which involves doing away with procedural requirements designed to insure that bills are duly
considered by members of Congress, certainly should elicit a different standard of review.

Petitioners also invite attention to the fact that the President certified S. No. 1630 and not H. No.
11197. That is because S. No. 1630 was what the Senate was considering. When the matter was
before the House, the President likewise certified H. No. 9210 the pending in the House.

Third. Finally it is contended that the bill which became Republic Act No. 7716 is the bill which the
Conference Committee prepared by consolidating H. No. 11197 and S. No. 1630. It is claimed that
the Conference Committee report included provisions not found in either the House bill or the Senate
bill and that these provisions were "surreptitiously" inserted by the Conference Committee. Much is
made of the fact that in the last two days of its session on April 21 and 25, 1994 the Committee met
behind closed doors. We are not told, however, whether the provisions were not the result of the
give and take that often mark the proceedings of conference committees.

Nor is there anything unusual or extraordinary about the fact that the Conference Committee met in
executive sessions. Often the only way to reach agreement on conflicting provisions is to meet
behind closed doors, with only the conferees present. Otherwise, no compromise is likely to be
made. The Court is not about to take the suggestion of a cabal or sinister motive attributed to the
conferees on the basis solely of their "secret meetings" on April 21 and 25, 1994, nor read anything
into the incomplete remarks of the members, marked in the transcript of stenographic notes by
ellipses. The incomplete sentences are probably due to the stenographer's own limitations or to the
incoherence that sometimes characterize conversations. William Safire noted some such lapses in
recorded talks even by recent past Presidents of the United States.

In any event, in the United States conference committees had been customarily held in executive
sessions with only the conferees and their staffs in attendance. 13 Only in November 1975 was a new
rule adopted requiring open sessions. Even then a majority of either chamber's conferees may vote
in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
explained:

Under congressional rules of procedure, conference committees are not expected to

make any material change in the measure at issue, either by deleting provisions to
which both houses have already agreed or by inserting new provisions. But this is a
difficult provision to enforce. Note the problem when one house amends a proposal
originating in either house by striking out everything following the enacting clause
and substituting provisions which make it an entirely new bill. The versions are now
altogether different, permitting a conference committee to draft essentially a new bill.
. . . 15

The result is a third version, which is considered an "amendment in the nature of a substitute," the
only requirement for which being that the third version be germane to the subject of the House and
Senate bills. 16

Indeed, this Court recently held that it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the House bill or in the Senate bill. 17 If the
committee can propose an amendment consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the subject of the bills before the committee.
After all, its report was not final but needed the approval of both houses of Congress to become valid
as an act of the legislative department. The charge that in this case the Conference Committee
acted as a third legislative chamber is thus without any basis. 18

Nonetheless, it is argued that under the respective Rules of the Senate and the House of
Representatives a conference committee can only act on the differing provisions of a Senate bill and
a House bill, and that contrary to these Rules the Conference Committee inserted provisions not
found in the bills submitted to it. The following provisions are cited in support of this contention:

Rules of the Senate

Rule XII:

26. In the event that the Senate does not agree with the House of Representatives
on the provision of any bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet within ten days after their
composition.

The President shall designate the members of the conference committee in

accordance with subparagraph (c), Section 3 of Rule III.

Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in or amendments to the subject measure, and shall be
signed by the conferees.

The consideration of such report shall not be in order unless the report has been filed
with the Secretary of the Senate and copies thereof have been distributed to the
Members.

(Emphasis added)
 Rules of the House of Representatives

Rule XIV:

85. Conference Committee Reports. In the event that the House does not agree
with the Senate on the amendments to any bill or joint resolution, the differences may
be settled by conference committees of both Chambers.

The consideration of conference committee reports shall always be in order, except

when the journal is being read, while the roll is being called or the House is dividing
on any question. Each of the pages of such reports shall be signed by the
conferees. Each report shall contain a detailed, sufficiently explicit statement of the
changes in or amendments to the subject measure.

The consideration of such report shall not be in order unless copies thereof are
distributed to the Members: Provided, That in the last fifteen days of each session
period it shall be deemed sufficient that three copies of the report, signed as above
provided, are deposited in the office of the Secretary General.

(Emphasis added)

To be sure, nothing in the Rules limits a conference committee to a consideration of conflicting

provisions. But Rule XLIV, 112 of the Rules of the Senate is cited to the effect that "If there is no
Rule applicable to a specific case the precedents of the Legislative Department of the Philippines
shall be resorted to, and as a supplement of these, the Rules contained in Jefferson's Manual." The
following is then quoted from the Jefferson's Manual:

The managers of a conference must confine themselves to the differences

committed to them. . . and may not include subjects not within disagreements, even
though germane to a question in issue.

Note that, according to Rule XLIX, 112, in case there is no specific rule applicable, resort must be
to the legislative practice. The Jefferson's Manual is resorted to only as supplement. It is common
place in Congress that conference committee reports include new matters which, though germane,
have not been committed to the committee. This practice was admitted by Senator Raul S. Roco,
petitioner in G.R. No. 115543, during the oral argument in these cases. Whatever, then, may be
provided in the Jefferson's Manual must be considered to have been modified by the legislative
practice. If a change is desired in the practice it must be sought in Congress since this question is
not covered by any constitutional provision but is only an internal rule of each house. Thus, Art. VI,
16(3) of the Constitution provides that "Each House may determine the rules of its proceedings. . . ."

This observation applies to the other contention that the Rules of the two chambers were likewise
disregarded in the preparation of the Conference Committee Report because the Report did not
contain a "detailed and sufficiently explicit statement of changes in, or amendments to, the subject
measure." The Report used brackets and capital letters to indicate the changes. This is a standard
practice in bill-drafting. We cannot say that in using these marks and symbols the Committee
violated the Rules of the Senate and the House. Moreover, this Court is not the proper forum for the
enforcement of these internal Rules. To the contrary, as we have already ruled, "parliamentary rules
are merely procedural and with their observance the courts have no concern." 19 Our concern is with
the procedural requirements of the Constitution for the enactment of laws. As far as these
requirements are concerned, we are satisfied that they have been faithfully observed in these cases.
Nor is there any reason for requiring that the Committee's Report in these cases must have
undergone three readings in each of the two houses. If that be the case, there would be no end to
negotiation since each house may seek modifications of the compromise bill. The nature of the bill,
therefore, requires that it be acted upon by each house on a "take it or leave it" basis, with the only
alternative that if it is not approved by both houses, another conference committee must be
appointed. But then again the result would still be a compromise measure that may not be wholly
satisfying to both houses.

Art. VI, 26(2) must, therefore, be construed as referring only to bills introduced for the first time in
either house of Congress, not to the conference committee report. For if the purpose of requiring
three readings is to give members of Congress time to study bills, it cannot be gainsaid that H. No.
11197 was passed in the House after three readings; that in the Senate it was considered on first
reading and then referred to a committee of that body; that although the Senate committee did not
report out the House bill, it submitted a version (S. No. 1630) which it had prepared by "taking into
consideration" the House bill; that for its part the Conference Committee consolidated the two bills
and prepared a compromise version; that the Conference Committee Report was thereafter
approved by the House and the Senate, presumably after appropriate study by their members. We
cannot say that, as a matter of fact, the members of Congress were not fully informed of the
provisions of the bill. The allegation that the Conference Committee usurped the legislative power of
Congress is, in our view, without warrant in fact and in law.

Fourth. Whatever doubts there may be as to the formal validity of Republic Act No. 7716 must be
resolved in its favor. Our cases 20 manifest firm adherence to the rule that an enrolled copy of a bill is
conclusive not only of its provisions but also of its due enactment. Not even claims that a proposed
constitutional amendment was invalid because the requisite votes for its approval had not been
obtained 21 or that certain provisions of a statute had been "smuggled" in the printing of the bill 22 have
moved or persuaded us to look behind the proceedings of a coequal branch of the government.
There is no reason now to depart from this rule.

No claim is here made that the "enrolled bill" rule is absolute. In fact in one case 23 we "went behind"
an enrolled bill and consulted the Journal to determine whether certain provisions of a statute had
been approved by the Senate in view of the fact that the President of the Senate himself, who had
signed the enrolled bill, admitted a mistake and withdrew his signature, so that in effect there was no
longer an enrolled bill to consider.

But where allegations that the constitutional procedures for the passage of bills have not been
observed have no more basis than another allegation that the Conference Committee
"surreptitiously" inserted provisions into a bill which it had prepared, we should decline the invitation
to go behind the enrolled copy of the bill. To disregard the "enrolled bill" rule in such cases would be
to disregard the respect due the other two departments of our government.

Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made by the Philippine
Airlines, Inc., petitioner in G.R. No. 11582, namely, that it violates Art. VI, 26(1) which provides that
"Every bill passed by Congress shall embrace only one subject which shall be expressed in the title
thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided for removal of
exemption of PAL transactions from the payment of the VAT and that this was made only in the
Conference Committee bill which became Republic Act No. 7716 without reflecting this fact in its
title.

The title of Republic Act No. 7716 is:

 AN ACT RESTRUCTURING THE VALUE- ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.

Among the provisions of the NIRC amended is 103, which originally read:

103. Exempt transactions. The following shall be exempt from the value-added
tax:

....

(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory. Among the transactions exempted from the VAT
were those of PAL because it was exempted under its franchise (P.D. No. 1590) from
the payment of all "other taxes . . . now or in the near future," in consideration of the
payment by it either of the corporate income tax or a franchise tax of 2%.

As a result of its amendment by Republic Act No. 7716, 103 of the NIRC now provides:

103. Exempt transactions. The following shall be exempt from the value-added
tax:

....

(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .

The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is
concerned.

The question is whether this amendment of 103 of the NIRC is fairly embraced in the title of
Republic Act No. 7716, although no mention is made therein of P.D. No. 1590 as among those
which the statute amends. We think it is, since the title states that the purpose of the statute is to
expand the VAT system, and one way of doing this is to widen its base by withdrawing some of the
exemptions granted before. To insist that P.D. No. 1590 be mentioned in the title of the law, in
addition to 103 of the NIRC, in which it is specifically referred to, would be to insist that the title of a
bill should be a complete index of its content.

The constitutional requirement that every bill passed by Congress shall embrace only one subject
which shall be expressed in its title is intended to prevent surprise upon the members of Congress
and to inform the people of pending legislation so that, if they wish to, they can be heard regarding it.
If, in the case at bar, petitioner did not know before that its exemption had been withdrawn, it is not
because of any defect in the title but perhaps for the same reason other statutes, although
published, pass unnoticed until some event somehow calls attention to their existence. Indeed, the
title of Republic Act No. 7716 is not any more general than the title of PAL's own franchise under
P.D. No. 1590, and yet no mention is made of its tax exemption. The title of P.D. No. 1590 is:
 AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO
ESTABLISH, OPERATE, AND MAINTAIN AIR-TRANSPORT SERVICES IN THE
PHILIPPINES AND BETWEEN THE PHILIPPINES AND OTHER COUNTRIES.

The trend in our cases is to construe the constitutional requirement in such a manner that courts do
not unduly interfere with the enactment of necessary legislation and to consider it sufficient if the title
expresses the general subject of the statute and all its provisions are germane to the general subject
thus expressed. 24

It is further contended that amendment of petitioner's franchise may only be made by special law, in
view of 24 of P.D. No. 1590 which provides:

This franchise, as amended, or any section or provision hereof may only be modified,
amended, or repealed expressly by a special law or decree that shall specifically
modify, amend, or repeal this franchise or any section or provision thereof.

This provision is evidently intended to prevent the amendment of the franchise by mere implication
resulting from the enactment of a later inconsistent statute, in consideration of the fact that a
franchise is a contract which can be altered only by consent of the parties. Thus in Manila Railroad
Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for the payment of tax on
certain goods and articles imported into the Philippines, did not amend the franchise of plaintiff,
which exempted it from all taxes except those mentioned in its franchise. It was held that a special
law cannot be amended by a general law.

In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's franchise (P.D. No.
1590) by specifically excepting from the grant of exemptions from the VAT PAL's exemption under
P.D. No. 1590. This is within the power of Congress to do under Art. XII, 11 of the Constitution,
which provides that the grant of a franchise for the operation of a public utility is subject to
amendment, alteration or repeal by Congress when the common good so requires.

II. SUBSTANTIVE ISSUES

A. Claims of Press Freedom, Freedom of Thought

and Religious Freedom

The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of
newspaper publishers established for the improvement of journalism in the Philippines. On the other
hand, petitioner in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit organization
engaged in the printing and distribution of bibles and other religious articles. Both petitioners claim
violations of their rights under 4 and 5 of the Bill of Rights as a result of the enactment of the
VAT Law.

The PPI questions the law insofar as it has withdrawn the exemption previously granted to the press
under 103 (f) of the NIRC. Although the exemption was subsequently restored by administrative
regulation with respect to the circulation income of newspapers, the PPI presses its claim because of
the possibility that the exemption may still be removed by mere revocation of the regulation of the
Secretary of Finance. On the other hand, the PBS goes so far as to question the Secretary's power
to grant exemption for two reasons: (1) The Secretary of Finance has no power to grant tax
exemption because this is vested in Congress and requires for its exercise the vote of a majority of
all its members 26 and (2) the Secretary's duty is to execute the law.
 103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions
previously granted exemption were:

(f) Printing, publication, importation or sale of books and any newspaper, magazine,
review, or bulletin which appears at regular intervals with fixed prices for subscription
and sale and which is devoted principally to the publication of advertisements.

Republic Act No. 7716 amended 103 by deleting (f) with the result that print media became
subject to the VAT with respect to all aspects of their operations. Later, however, based on a
memorandum of the Secretary of Justice, respondent Secretary of Finance issued Revenue
Regulations No. 11-94, dated June 27, 1994, exempting the "circulation income of print media
pursuant to 4 Article III of the 1987 Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of "circulation income" has left income from
advertisements still subject to the VAT.

It is unnecessary to pass upon the contention that the exemption granted is beyond the authority of
the Secretary of Finance to give, in view of PPI's contention that even with the exemption of the
circulation revenue of print media there is still an unconstitutional abridgment of press freedom
because of the imposition of the VAT on the gross receipts of newspapers from advertisements and
on their acquisition of paper, ink and services for publication. Even on the assumption that no
exemption has effectively been granted to print media transactions, we find no violation of press
freedom in these cases.

To be sure, we are not dealing here with a statute that on its face operates in the area of press
freedom. The PPI's claim is simply that, as applied to newspapers, the law abridges press freedom.
Even with due recognition of its high estate and its importance in a democratic society, however, the
press is not immune from general regulation by the State. It has been held:

The publisher of a newspaper has no immunity from the application of general laws.
He has no special privilege to invade the rights and liberties of others. He must
answer for libel. He may be punished for contempt of court. . . . Like others, he must
pay equitable and nondiscriminatory taxes on his business. . . . 27

The PPI does not dispute this point, either.

What it contends is that by withdrawing the exemption previously granted to print media transactions
involving printing, publication, importation or sale of newspapers, Republic Act No. 7716 has singled
out the press for discriminatory treatment and that within the class of mass media the law
discriminates against print media by giving broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a differential treatment of the press by the law,
much less any censorial motivation for its enactment. If the press is now required to pay a value-
added tax on its transactions, it is not because it is being singled out, much less targeted, for special
treatment but only because of the removal of the exemption previously granted to it by law. The
withdrawal of exemption is all that is involved in these cases. Other transactions, likewise previously
granted exemption, have been delisted as part of the scheme to expand the base and the scope of
the VAT system. The law would perhaps be open to the charge of discriminatory treatment if the only
privilege withdrawn had been that granted to the press. But that is not the case.

The situation in the case at bar is indeed a far cry from those cited by the PPI in support of its claim
that Republic Act No. 7716 subjects the press to discriminatory taxation. In the cases cited, the
discriminatory purpose was clear either from the background of the law or from its operation. For
example, in Grosjean v. American Press Co., 28 the law imposed a license tax equivalent to 2% of the
gross receipts derived from advertisements only on newspapers which had a circulation of more
than 20,000 copies per week. Because the tax was not based on the volume of advertisement alone
but was measured by the extent of its circulation as well, the law applied only to the thirteen large
newspapers in Louisiana, leaving untaxed four papers with circulation of only slightly less than
20,000 copies a week and 120 weekly newspapers which were in serious competition with the
thirteen newspapers in question. It was well known that the thirteen newspapers had been critical of
Senator Huey Long, and the Long-dominated legislature of Louisiana respondent by taxing what
Long described as the "lying newspapers" by imposing on them "a tax on lying." The effect of the tax
was to curtail both their revenue and their circulation. As the U.S. Supreme Court noted, the tax was
"a deliberate and calculated device in the guise of a tax to limit the circulation of information to which
the public is entitled in virtue of the constitutional guaranties." 29 The case is a classic illustration of
the warning that the power to tax is the power to destroy.

In the other case 30 invoked by the PPI, the press was also found to have been singled out because
everything was exempt from the "use tax" on ink and paper, except the press. Minnesota imposed a
tax on the sales of goods in that state. To protect the sales tax, it enacted a complementary tax on
the privilege of "using, storing or consuming in that state tangible personal property" by eliminating
the residents' incentive to get goods from outside states where the sales tax might be lower.
The Minnesota Star Tribune was exempted from both taxes from 1967 to 1971. In 1971, however,
the state legislature amended the tax scheme by imposing the "use tax" on the cost of paper and ink
used for publication. The law was held to have singled out the press because (1) there was no
reason for imposing the "use tax" since the press was exempt from the sales tax and (2) the "use
tax" was laid on an "intermediate transaction rather than the ultimate retail sale." Minnesota had a
heavy burden of justifying the differential treatment and it failed to do so. In addition, the U.S.
Supreme Court found the law to be discriminatory because the legislature, by again amending the
law so as to exempt the first $100,000 of paper and ink used, further narrowed the coverage of the
tax so that "only a handful of publishers pay any tax at all and even fewer pay any significant amount
of tax." 31 The discriminatory purpose was thus very clear.

More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law which taxed
general interest magazines but not newspapers and religious, professional, trade and sports journals
was discriminatory because while the tax did not single out the press as a whole, it targeted a small
group within the press. What is more, by differentiating on the basis of contents (i.e., between
general interest and special interests such as religion or sports) the law became "entirely
incompatible with the First Amendment's guarantee of freedom of the press."

These cases come down to this: that unless justified, the differential treatment of the press creates
risks of suppression of expression. In contrast, in the cases at bar, the statute applies to a wide
range of goods and services. The argument that, by imposing the VAT only on print media whose
gross sales exceeds P480,000 but not more than P750,000, the law discriminates 33 is without merit
since it has not been shown that as a result the class subject to tax has been unreasonably
narrowed. The fact is that this limitation does not apply to the press along but to all sales. Nor is
impermissible motive shown by the fact that print media and broadcast media are treated differently.
The press is taxed on its transactions involving printing and publication, which are different from the
transactions of broadcast media. There is thus a reasonable basis for the classification.

The cases canvassed, it must be stressed, eschew any suggestion that "owners of newspapers are
immune from any forms of ordinary taxation." The license tax in the Grosjean case was declared
invalid because it was "one single in kind, with a long history of hostile misuse against the freedom
of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States and the Federal Government can subject
newspapers to generally applicable economic regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of the PBS that the removal of the
exemption of printing, publication or importation of books and religious articles, as well as their
printing and publication, likewise violates freedom of thought and of conscience. For as the U.S.
Supreme Court unanimously held in Jimmy Swaggart Ministries v. Board of Equalization, 36 the Free
Exercise of Religion Clause does not prohibit imposing a generally applicable sales and use tax on
the sale of religious materials by a religious organization.

This brings us to the question whether the registration provision of the law, 37 although of general
applicability, nonetheless is invalid when applied to the press because it lays a prior restraint on its
essential freedom. The case of American Bible Society v. City of Manila 38 is cited by both the PBS
and the PPI in support of their contention that the law imposes censorship. There, this Court held
that an ordinance of the City of Manila, which imposed a license fee on those engaged in the
business of general merchandise, could not be applied to the appellant's sale of bibles and other
religious literature. This Court relied on Murdock v. Pennsylvania, 39 in which it was held that, as a
license fee is fixed in amount and unrelated to the receipts of the taxpayer, the license fee, when
applied to a religious sect, was actually being imposed as a condition for the exercise of the sect's
right under the Constitution. For that reason, it was held, the license fee "restrains in advance those
constitutional liberties of press and religion and inevitably tends to suppress their exercise." 40

But, in this case, the fee in 107, although a fixed amount (P1,000), is not imposed for the exercise
of a privilege but only for the purpose of defraying part of the cost of registration. The registration
requirement is a central feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input tax, even as he collects
an output tax on sales made or services rendered. The registration fee is thus a mere administrative
fee, one not imposed on the exercise of a privilege, much less a constitutional right.

For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it offends
the free speech, press and freedom of religion guarantees of the Constitution to be without merit. For
the same reasons, we find the claim of the Philippine Educational Publishers Association (PEPA) in
G.R. No. 115931 that the increase in the price of books and other educational materials as a result
of the VAT would violate the constitutional mandate to the government to give priority to education,
science and technology (Art. II, 17) to be untenable.

B. Claims of Regressivity, Denial of Due Process,

Equal Protection, and Impairment
of Contracts

There is basis for passing upon claims that on its face the statute violates the guarantees of freedom
of speech, press and religion. The possible "chilling effect" which it may have on the essential
freedom of the mind and conscience and the need to assure that the channels of communication are
open and operating importunately demand the exercise of this Court's power of review.

There is, however, no justification for passing upon the claims that the law also violates the rule that
taxation must be progressive and that it denies petitioners' right to due process and that equal
protection of the laws. The reason for this different treatment has been cogently stated by an
eminent authority on constitutional law thus: "[W]hen freedom of the mind is imperiled by law, it is
freedom that commands a momentum of respect; when property is imperiled it is the lawmakers'
judgment that commands respect. This dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set up a hierarchy of values within the
due process clause." 41
Indeed, the absence of threat of immediate harm makes the need for judicial intervention less
evident and underscores the essential nature of petitioners' attack on the law on the grounds of
regressivity, denial of due process and equal protection and impairment of contracts as a mere
academic discussion of the merits of the law. For the fact is that there have even been no notices of
assessments issued to petitioners and no determinations at the administrative levels of their claims
so as to illuminate the actual operation of the law and enable us to reach sound judgment regarding
so fundamental questions as those raised in these suits.

Thus, the broad argument against the VAT is that it is regressive and that it violates the requirement
that "The rule of taxation shall be uniform and equitable [and] Congress shall evolve a progressive
system of taxation." 42Petitioners in G.R. No. 115781 quote from a paper, entitled "VAT Policy Issues:
Structure, Regressivity, Inflation and Exports" by Alan A. Tait of the International Monetary Fund,
that "VAT payment by low-income households will be a higher proportion of their incomes (and
expenditures) than payments by higher-income households. That is, the VAT will be regressive."
Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption goods of those
who are in the higher-income bracket, which before were taxed at a rate higher than 10%, has been
reduced, while basic commodities, which before were taxed at rates ranging from 3% to 5%, are now
taxed at a higher rate.

Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by
respondents that in fact it distributes the tax burden to as many goods and services as possible
particularly to those which are within the reach of higher-income groups, even as the law exempts
basic goods and services. It is thus equitable. The goods and properties subject to the VAT are
those used or consumed by higher-income groups. These include real properties held primarily for
sale to customers or held for lease in the ordinary course of business, the right or privilege to use
industrial, commercial or scientific equipment, hotels, restaurants and similar places, tourist buses,
and the like. On the other hand, small business establishments, with annual gross sales of less than
P500,000, are exempted. This, according to respondents, removes from the coverage of the law
some 30,000 business establishments. On the other hand, an occasional paper 43 of the Center for
Research and Communication cities a NEDA study that the VAT has minimal impact on inflation and
income distribution and that while additional expenditure for the lowest income class is only P301 or
1.49% a year, that for a family earning P500,000 a year or more is P8,340 or 2.2%.

Lacking empirical data on which to base any conclusion regarding these arguments, any discussion
whether the VAT is regressive in the sense that it will hit the "poor" and middle-income group in
society harder than it will the "rich," as the Cooperative Union of the Philippines (CUP) claims in G.R.
No. 115873, is largely an academic exercise. On the other hand, the CUP's contention that
Congress' withdrawal of exemption of producers cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric cooperatives, not only goes against the
constitutional policy to promote cooperatives as instruments of social justice (Art. XII, 15) but also
denies such cooperatives the equal protection of the law is actually a policy argument. The
legislature is not required to adhere to a policy of "all or none" in choosing the subject of taxation. 44

Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in
G.R. 115754, that the VAT will reduce the mark up of its members by as much as 85% to 90% any
more concrete. It is a mere allegation. On the other hand, the claim of the Philippine Press Institute,
petitioner in G.R. No. 115544, that the VAT will drive some of its members out of circulation because
their profits from advertisements will not be enough to pay for their tax liability, while purporting to be
based on the financial statements of the newspapers in question, still falls short of the establishment
of facts by evidence so necessary for adjudicating the question whether the tax is oppressive and
confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by
the Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress,
just like the directive to it to give priority to the enactment of laws for the enhancement of human
dignity and the reduction of social, economic and political inequalities (Art. XIII, 1), or for the
promotion of the right to "quality education" (Art. XIV, 1). These provisions are put in the
Constitution as moral incentives to legislation, not as judicially enforceable rights.

At all events, our 1988 decision in Kapatiran 45 should have laid to rest the questions now raised
against the VAT. There similar arguments made against the original VAT Law (Executive Order No.
273) were held to be hypothetical, with no more basis than newspaper articles which this Court
found to be "hearsay and [without] evidentiary value." As Republic Act No. 7716 merely expands the
base of the VAT system and its coverage as provided in the original VAT Law, further debate on the
desirability and wisdom of the law should have shifted to Congress.

Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the
imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior
to the effectivity of the law would violate the constitutional provision that "No law impairing the
obligation of contracts shall be passed." It is enough to say that the parties to a contract cannot,
through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State.
For not only are existing laws read into contracts in order to fix obligations as between parties, but
the reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure the peace and good order
of society. 46

In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's
power of taxation save only where a tax exemption has been granted for a valid
consideration. 47 Such is not the case of PAL in G.R. No. 115852, and we do not understand it to
make this claim. Rather, its position, as discussed above, is that the removal of its tax exemption
cannot be made by a general, but only by a specific, law.

The substantive issues raised in some of the cases are presented in abstract, hypothetical form
because of the lack of a concrete record. We accept that this Court does not only adjudicate private
cases; that public actions by "non-Hohfeldian" 48 or ideological plaintiffs are now cognizable provided
they meet the standing requirement of the Constitution; that under Art. VIII, 1, 2 the Court has a
"special function" of vindicating constitutional rights. Nonetheless the feeling cannot be escaped that
we do not have before us in these cases a fully developed factual record that alone can impart to our
adjudication the impact of actuality 49 to insure that decision-making is informed and well grounded.
Needless to say, we do not have power to render advisory opinions or even jurisdiction over
petitions for declaratory judgment. In effect we are being asked to do what the Conference
Committee is precisely accused of having done in these cases to sit as a third legislative chamber
to review legislation.

We are told, however, that the power of judicial review is not so much power as it is duty imposed on
this Court by the Constitution and that we would be remiss in the performance of that duty if we
decline to look behind the barriers set by the principle of separation of powers. Art. VIII, 1, 2 is
cited in support of this view:

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.
To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in 1803,
to justify the assertion of this power in Marbury v. Madison:

It is emphatically the province and duty of the judicial department to say what the law
is. Those who apply the rule to particular cases must of necessity expound and
interpret that rule. If two laws conflict with each other, the courts must decide on the
operation of each. 50

Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:

And when the judiciary mediates to allocate constitutional boundaries, it does not
assert any superiority over the other departments; it does not in reality nullify or
invalidate an act of the legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims of authority under
the Constitution and to establish for the parties in an actual controversy the rights
which that instrument secures and guarantees to them. 51

This conception of the judicial power has been affirmed in several

cases 52 of this Court following Angara.

It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in what is
essentially a case that at best is not ripe for adjudication. That duty must still be performed in the
context of a concrete case or controversy, as Art. VIII, 5(2) clearly defines our jurisdiction in terms
of "cases," and nothing but "cases." That the other departments of the government may have
committed a grave abuse of discretion is not an independent ground for exercising our power.
Disregard of the essential limits imposed by the case and controversy requirement can in the long
run only result in undermining our authority as a court of law. For, as judges, what we are called
upon to render is judgment according to law, not according to what may appear to be the opinion of
the day.

_______________________________

In the preceeding pages we have endeavored to discuss, within limits, the validity of Republic Act
No. 7716 in its formal and substantive aspects as this has been raised in the various cases before
us. To sum up, we hold:

(1) That the procedural requirements of the Constitution have been complied with by Congress in the
enactment of the statute;

(2) That judicial inquiry whether the formal requirements for the enactment of statutes beyond
those prescribed by the Constitution have been observed is precluded by the principle of
separation of powers;

(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the
free exercise of religion, nor deny to any of the parties the right to an education; and

(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive,
oppressive and confiscatory and that it violates vested rights protected under the Contract Clause
are prematurely raised and do not justify the grant of prospective relief by writ of prohibition.

WHEREFORE, the petitions in these cases are DISMISSED.

 EN BANC

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 115525 October 30, 1995

JUAN T. DAVID, petitioner,

vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.

G.R. No. 115543 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,

vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.

G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.
CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995

PHILIPPINE AIRLINES, INC., petitioner,

vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115873 October 30, 1995

COOPERATIVE UNION OF THE PHILIPPINES, petitioner,

vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115931 October 30, 1995

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF

PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO,
as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his
capacity as the Commissioner of Customs, respondents.

RESOLUTION

MENDOZA, J.:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational Publishers Association,
Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply.
In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.

On June 27, 1995 the matter was submitted for resolution.

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders
Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, 24 of the Constitution. Although
they admit that H. No. 11197 was filed in the House of Representatives where it passed three
readings and that afterward it was sent to the Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that the Senate did not pass it on second and
third readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have
done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text of
S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes
the text (only the text) of the House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment
to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the enrolled bills. These were:

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the President
on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the
House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February 3,
1992.

R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD
TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by
the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by
the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the
Senate on October 21, 1991.

On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates on
which the laws were approved by the President and dates the separate bills of the two chambers of
Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR

THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO
REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE,
AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE (December 28, 1992)

House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO

PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL

SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF
THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF
GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES
RENDERED BY CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED

CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO
THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,
1993)

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION

OF THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE
 CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR
OTHER PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES

OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE
OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A
NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5,
1994)

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of
its power to propose amendments to bills required to originate in the House, passed its own version
of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.

On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would make
if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into Consideration . . . H.B. 11197."

Indeed, so far as pertinent, the Rules of the Senate only provide:

RULE XXIX

AMENDMENTS

xxx xxx xxx

68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is

submitted in writing.

Any of said amendments may be withdrawn before a vote is taken thereon.

69. No amendment which seeks the inclusion of a legislative provision foreign to the
subject matter of a bill (rider) shall be entertained.

xxx xxx xxx

 70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution.
(emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.

Art. I, 7, cl. 1 of the U.S. Constitution reads:

All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.

Art. VI, 24 of our Constitution reads:

All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and
"the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be
like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be
recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the following
provision:

All bills appropriating public funds, revenue or tariff bills, bills of local application, and
private bills shall originate exclusively in the Assembly, but the Senate may propose
or concur with amendments. In case of disapproval by the Senate of any such bills,
the Assembly may repass the same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted and may be submitted to
the President for corresponding action. In the event that the Senate should fail to
finally act on any such bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill
shall be deemed enacted and may be submitted to the President for corresponding
action.

The special committee on the revision of laws of the Second National Assembly vetoed the proposal.
It deleted everything after the first sentence. As rewritten, the proposal was approved by the National
Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO,
KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the
people and ratified by them in the elections held on June 18, 1940.

This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text from
which the framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments
must be understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by
the House, however, the Senate certainly can pass its own version on the same subject matter. This
follows from the coequality of the two chambers of Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur is
clear from the following commentaries:

The power of the Senate to propose or concur with amendments is apparently

without restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the
United States Congress contained provisions for the imposition of an inheritance tax .
This was changed by the Senate into a corporation tax. The amending authority of
the Senate was declared by the United States Supreme Court to be sufficiently broad
to enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55
L. ed. 389].

(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247

(1961))

The above-mentioned bills are supposed to be initiated by the House of

Representatives because it is more numerous in membership and therefore also
more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation
involved.

The Senate is, however, allowed much leeway in the exercise of its power to propose
or concur with amendments to the bills initiated by the House of Representatives.
Thus, in one case, a bill introduced in the U.S. House of Representatives was
changed by the Senate to make a proposed inheritance tax a corporation tax. It is
also accepted practice for the Senate to introduce what is known as an amendment
by substitution, which may entirely replace the bill initiated in the House of
Representatives.

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is
referred may do any of the following:
 (1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new bill
as a substitute, in which case it will be known as a committee bill; or (4) to make no
report at all.

(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause must be
preserved although the text of the Senate amendment may be incorporated in place of the original
body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S.
No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as any
which the Senate could have made.

II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that
S. No. 1630 is an independent and distinct bill. Hence their repeated references to its certification
that it was passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S.
Res. No. 734 and H.B. No. 11197," implying that there is something substantially different between
the reference to S. No. 1129 and the reference to H. No. 11197. From this premise, they conclude
that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates that
the provisions of the Senate bill were precisely intended to be amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was
a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the
Senate on second and three readings. It was enough that after it was passed on first reading it was
referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be
passed by the House of Representatives before the two bills could be referred to the Conference
Committee.

There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When
the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank
deposits), were referred to a conference committee, the question was raised whether the two bills
could be the subject of such conference, considering that the bill from one house had not been
passed by the other and vice versa. As Congressman Duran put the question:

MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill
is passed by the House but not passed by the Senate, and a Senate bill of a similar
nature is passed in the Senate but never passed in the House, can the two bills be
the subject of a conference, and can a law be enacted from these two bills? I
understand that the Senate bill in this particular instance does not refer to
investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of
deposits in banks but also investigation of investments in government securities.
Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report of the conference committee is in order. It is precisely in

cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of
that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct
and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that
because the President separately certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The certification had to be made of the version
of the same revenue bill which at the moment was being considered. Otherwise, to follow petitioners'
theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the certification, is under consideration. Since on
March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified.
For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was being considered by the House. This bill
was later substituted, together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision
that the phrase "except when the President certifies to the necessity of its immediate enactment,
etc." in Art. VI, 26 (2) qualifies not only the requirement that "printed copies [of a bill] in its final form
[must be] distributed to the members three days before its passage" but also the requirement that
before a bill can become a law it must have passed "three readings on separate days." There is not
only textual support for such construction but historical basis as well.

Art. VI, 21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar days
prior to its passage, except when the President shall have certified to the necessity of
its immediate enactment. Upon the last reading of a bill, no amendment thereof shall
be allowed and the question upon its passage shall be taken immediately thereafter,
and the yeas and nays entered on the Journal.

When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):

(2) No bill shall become a law unless it has passed three readings on separate days,
and printed copies thereof in its final form have been distributed to the Members
three days before its passage, except when the Prime Minister certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal.

This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the
present Constitution, thus:
 (2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

The exception is based on the prudential consideration that if in all cases three readings on separate
days are required and a bill has to be printed in final form before it can be passed, the need for a law
may be rendered academic by the occurrence of the very emergency or public calamity which it is
meant to address.

Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case, an
enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.

Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the call
of the President by voting on the bill on second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance of the President's certification, the
respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the
judicial hand.

At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it
was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24,
1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on
third reading.

The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of
the constitutional policy of full public disclosure and the people's right to know (Art. II, 28 and Art.
III, 7) the Conference Committee met for two days in executive session with only the conferees
present.

As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new
rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
staff members were present. These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not stenographers as in this case who
on the last two days of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of
their meetings. Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing versions of
the House and the Senate.

Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of a
statement detailing the changes.

The same question now presented was raised when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a
point of order. He said:

MR. BENGZON. My point of order is that it is out of order to consider the report of
the conference committee regarding House Bill No. 2557 by reason of the provision
of Section 11, Article XII, of the Rules of this House which provides specifically that
the conference report must be accompanied by a detailed statement of the effects of
the amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.

Petitioner Tolentino, then the Majority Floor Leader, answered:

MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection
with the point of order raised by the gentleman from Pangasinan.

There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill
have been amended. In this case before us an entire bill is presented; therefore, it
can be easily seen from the reading of the bill what the provisions are. Besides, this
procedure has been an established practice.

After some interruption, he continued:

MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for
the provisions of the Rules, and the reason for the requirement in the provision cited
by the gentleman from Pangasinan is when there are only certain words or phrases
inserted in or deleted from the provisions of the bill included in the conference report,
and we cannot understand what those words and phrases mean and their relation to
the bill. In that case, it is necessary to make a detailed statement on how those
words and phrases will affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report, that is not necessary. So when the reason
for the Rule does not exist, the Rule does not exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained
by a vote of 48 to 5. (Id.,
p. 4058)

Nor is there any doubt about the power of a conference committee to insert new provisions as long
as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving differences between the Senate
and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."

Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually became R.A.
No. 7354 and that copies thereof in its final form were not distributed among the
members of each House. Both the enrolled bill and the legislative journals certify that
the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the
Constitution. We are bound by such official assurances from a coordinate
department of the government, to which we owe, at the very least, a becoming
courtesy.

(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a

1979 study:

Conference committees may be of two types: free or instructed. These committees

may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and this is
why they are often critically referred to as "the little legislatures." Once bills have
been sent to them, the conferees have almost unlimited authority to change the
clauses of the bills and in fact sometimes introduce new measures that were not in
the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it
this way: "I killed a bill on export incentives for my interest group [copra] in the
conference committee but I could not have done so anywhere else." The conference
committee submits a report to both houses, and usually it is accepted. If the report is
not accepted, then the committee is discharged and new members are appointed.

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND

LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We cite it only
to say that conference committees here are no different from their counterparts in the United States
whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under
Art. VI, 16(3) each house has the power "to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26
(1) of the Constitution which provides that "Every bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof." PAL contends that the amendment of its
franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.

Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or
description, imposed, levied, established, assessed or collected by any municipal, city, provincial or
national authority or government agency, now or in the future."

PAL was exempted from the payment of the VAT along with other entities by 103 of the National
Internal Revenue Code, which provides as follows:

103. Exempt transactions. The following shall be exempt from the value-added
tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
103, as follows:

103. Exempt transactions. The following shall be exempt from the value-added
tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .

The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING

ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.

By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in
the way of accomplishing the purpose of the law.

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions
of the NIRC, among which is 103(q), in order to widen the base of the VAT. Actually, it is the bill
which becomes a law that is required to express in its title the subject of legislation. The titles of H.
No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions
sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.

In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It
contained a provision repealing all franking privileges. It was contended that the withdrawal of
franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court
held:

To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley, Constitutional Limitations,
8th Ed., p. 297] As has been correctly explained:

The details of a legislative act need not be specifically stated in its

title, but matter germane to the subject as expressed in the title, and
adopted to the accomplishment of the object in view, may properly be
included in the act. Thus, it is proper to create in the same act the
machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its
execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have
special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)

(227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the
press is not exempt from the taxing power of the State and that what the constitutional guarantee of
free press prohibits are laws which single out the press or target a group belonging to the press for
special treatment or which in any way discriminate against the press on the basis of the content of
the publication, and R.A. No. 7716 is none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L.
Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts
only of newspapers whose weekly circulation was over 20,000, with the result that the tax applied
only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long
who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have
been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing
or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes.
It was, however, later made to pay a special use tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously
granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially
withdrawn, in an effort to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:

(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

 (h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)

The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection

afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the
First Amendment along with the wares and merchandise of hucksters and peddlers
and treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with
the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to those
who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the
petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by
7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration
and enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the
PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the
payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the
VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of
Internal Revenue.

VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing contracts of
the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it
is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.

The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend
to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).

It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.

The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord,
City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform.
...

The sales tax adopted in EO 273 is applied similarly on all goods and services sold
to the public, which are not exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.

(At 382-383)

The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of
the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are
also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).

Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:
 (a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)

On the other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real properties
held primarily for sale to customers or for lease in the ordinary course of trade or business, the right
or privilege to use patent, copyright, and other similar property or right, the right or privilege to use
industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television,
satellite transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record
which can impart to adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its effect on property rights.
For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is
not made concrete by a series of hypothetical questions asked which are no different from those
dealt with in advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere

allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a
provision as void on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses
are invoked, considering that they are not fixed rules but rather broad standards,
 there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.

Nor is hardship to taxpayers alone 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.

We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.

Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P.
Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this
Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the
government.

VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a
definite policy of granting tax exemption to cooperatives that the present Constitution embodies
provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until December
31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of
tax exemptions," by providing the following in Art. XII:

1. The goals of the national economy are a more equitable distribution of

opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
 productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged
to broaden the base of their ownership.

15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in
1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not
the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives
had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put
an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter
of policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and
non-stock, non-profit educational institutions by reason of Art. XIV, 4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the
equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that
there is greater need to provide cheaper electric power to as many people as possible, especially
those living in the rural areas, than there is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.

We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution of
these cases. We have now come to the conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency
must be addressed to Congress as the body which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress should later thrust to the courts the burden of
reviewing measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining
order previously issued is hereby lifted.

SO ORDERED.

EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective,1 prohibitive and coercive remedies provided by Rule 65 of the
Rules of Court,2upon the following posited grounds, viz.:3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution;4

2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;"5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund,6 because it contravenes 8, paragraph 2 (2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order
also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion;8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept,
process and pay claims not authorized under P.D. 1956."9

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected
through the taxing power of a State, such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was created." 11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
 tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al. 14

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by exchange
rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order No.
137 dated 27 February 1987, this Trust Account may be funded from any of the
following sources:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
 from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences that
such frequent oil price adjustments may have upon the economy. Thus, the OPSF
serves as a pocket, as it were, into which a portion of the purchase price of oil and
petroleum products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as underrecovery of, costs
of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those portions of
their costs which they would not otherwise recover given the level of domestic prices
existing at any given time. To the extent that some tax revenues are also put into it,
the OPSF is in effect a device through which the domestic prices of petroleum
products are subsidized in part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign authority we designate
as the police power of the State. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil clearly critical in importance considering, among
other things, the continuing high level of dependence of the country on imported
crude oil are appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality
of the sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
 intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by

the fact that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what
is involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed,
suffices to guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix
a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
 pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.

In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2
(2) of P.D. 1956, amended 23 the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other
factors' (as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result
in the reduction of domestic prices of petroleum products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed
upon the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs.
 What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly
allows the cost underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of
domestic prices of petroleum products. Under the same provision, however, the payment of
inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher
price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate,
doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A.
6952, establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the
reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.

SO ORDERED.

EN BANC

G.R. No. 92585 May 8, 1992

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

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority
of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil
Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its
claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising
from sales to the National Power Corporation, Atlas Consolidated Mining and Development
Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER), preventing it from
exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and
disallowing its claims which are still pending resolution before the Office of Energy Affairs (OEA) and
the Department of Finance (DOF).

Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty (30)
days from receipt of a copy thereof. The certiorari referred to is the special civil action
for certiorari under Rule 65 of the Rules of Court. 4

Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings
and rulings of the administrator of the fund itself and in disallowing a claim which is still pending
resolution at the OEA level, and (b) "grave abuse of discretion and completely without
jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount that it may be
required under the law to remit to the OPSF against any amount that it may receive by way of
reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court,
and, considering further the importance of the issues raised, the error in the designation of the
remedy pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.)
No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as
follows:

Sec. 8 . There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization Fund may be sourced from any of the
following:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this Decree
arising from exchange rate adjustment, as may be determined by the
Minister of Finance in consultation with the Board of Energy;
 b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment by persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.

The Fund herein created shall be used for the following:

1) To reimburse the oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate adjustment
and/or increase in world market prices of crude oil;

2) To reimburse the oil companies for possible cost under-recovery

incurred as a result of the reduction of domestic prices of petroleum
products. The magnitude of the underrecovery, if any, shall be
determined by the Ministry of Finance. "Cost underrecovery" shall
include the following:

i. Reduction in oil company take as directed by the

Board of Energy without the corresponding reduction
in the landed cost of oil inventories in the possession
of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result

of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry

of Finance to result in cost underrecovery.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of
Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not
disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as
Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the
years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid
Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and
informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be
held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with
the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:

1986 P233,190,916.00
1987 335,065,650.00
1988 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from
receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected
against outstanding claims in 1989 and subsequent periods. 7

In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement
certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to
March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of
government transactions of national government agencies and government-owned or controlled
corporations. 8

In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF
and repeated its earlier directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit
action on the reimbursement claims. 9

By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the
payment of the collections and the recovery of claims, since the outright payment of the sum of
P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will
cause a very serious impairment of its cash position. 10 The proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate

monitoring of payments and reimbursements will be administered by
the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.

(2) For the retroactive period, Caltex will deliver to OEA, P1.287
billion as payment to OPSF, similarly OEA will deliver to Caltex the
same amount in cash reimbursement from OPSF.

(3) The COA audit will commence immediately and will be conducted
expeditiously.

(4) The review of current claims (1989) will be conducted

expeditiously to preclude further accumulation of reimbursement from
OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921
accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances and
reimbursements for the current and ensuing years. 11 Decision No. 921 reads:

This pertains to the within separate requests of Mr. Manuel A. Estrella, President,
Petron Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex
 (Philippines) Inc., for reconsideration of this Commission's adverse action embodied
in its letters dated February 2, 1989 and March 9, 1989, the former directing
immediate remittance to the Oil Price Stabilization Fund of collections made by the
firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter
reiterating the same directive but further advising the firms to desist from offsetting
collections against their claims with the notice that "this Commission will hold in
abeyance the audit of all . . . claims for reimbursement from the OPSF."

It appears that under letters of authority issued by the Chairman, Energy Regulatory
Board, the aforenamed oil companies were allowed to offset the amounts due to the
Oil Price Stabilization Fund against their outstanding claims from the said Fund for
the calendar years 1987 and 1988, pending with the then Ministry of Energy, the
government entity charged with administering the OPSF. This Commission, however,
expressing serious doubts as to the propriety of the offsetting of all types of
reimbursements from the OPSF against all categories of remittances, advised these
oil companies that such offsetting was bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in support thereof clearly manifest their
intent to make arrangements for the remittance to the Office of Energy Affairs of the
amount of collections equivalent to what has been previously offset, provided that
this Commission authorizes the Office of Energy Affairs to prepare the corresponding
checks representing reimbursement from the OPSF. It is alleged that the
implementation of such an arrangement, whereby the remittance of collections due to
the OPSF and the reimbursement of claims from the Fund shall be made within a
period of not more than one week from each other, will benefit the Fund and not
unduly jeopardize the continuing daily cash requirements of these firms.

Upon a circumspect evaluation of the circumstances herein obtaining, this

Commission perceives no further objectionable feature in the proposed arrangement,
provided that 15% of whatever amount is due from the Fund is retained by the Office
of Energy Affairs, the same to be answerable for suspensions or disallowances,
errors or discrepancies which may be noted in the course of audit and surcharges for
late remittances without prejudice to similar future retentions to answer for any
deficiency in such surcharges, and provided further that no offsetting of remittances
and reimbursements for the current and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director
Wenceslao R. De la Paz of the Office of Energy Affairs: 12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and
based on our initial verification of documents submitted to us by your Office in
support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989,
as well as its outstanding claims against the Oil Price Stabilization Fund (OPSF) as
of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines), Inc.
shall be required to remit to OPSF an amount of P1,505,668,906, representing
remittances to the OPSF which were offset against its claims reimbursements (net of
unsubmitted claims). In addition, the Commission hereby authorize (sic) the Office of
Energy Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing
claims initially allowed in audit, the details of which are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled P387,683,535,
which included P130,420,235 representing those claims disallowed by OEA, details
of which is (sic) shown in Schedule 1 as summarized as follows:

Disallowance of COA
Particulars Amount

Recovery of financing charges P162,728,475 /a

Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558

P257,263,300

Disallowances of OEA 130,420,235

Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate
that recovery of financing charges by oil companies is not among the items for which
the OPSF may be utilized. Therefore, it is our view that recovery of financing charges
has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87.

b. Product Sales Sales to International Vessels/Airlines

BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order
No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic)
oil companies should pay OPSF impost on export sales of petroleum products.
Effective February 7, 1987 sales to international vessels/airlines should not be
included as part of its domestic sales. Changing the effectivity date of the resolution
from February 7, 1987 to October 20, 1987 as covered by subsequent ERB
Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in
their domestic sales volumes to international vessels/airlines and claim the
corresponding reimbursements from OPSF during the period. It is our opinion that
the effectivity of the said resolution should be February 7, 1987.

c. Inventory losses Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions including
the related BLA agreement, as they affect the claims for reimbursements of ad
valorem taxes. We observed that oil companies immediately settle ad valorem taxes
for BLA transaction (sic). Loan balances therefore are not tax paid inventories of
Caltex subject to reimbursements but those of the borrower. Hence, we recommend
reduction of the claim for July, August, and November, 1987 amounting to
P14,034,786.
 d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges whether
direct or indirect due and payable by the copper mining companies in distress to the
national and local governments." It is our opinion that LOI 1416 which implements
the exemption from payment of OPSF imposts as effected by OEA has no legal
basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount
as herein authorized shall be subject to availability of funds of OPSF as of May 31,
1989 and applicable auditing rules and regulations. With regard to the disallowances,
it is further informed that the aggrieved party has 30 days within which to appeal the
decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision
based on the following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,

ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF
FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO
EXECUTIVE ORDER NO. 137.

xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF

EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND
APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY
LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS

AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS
VALID.

xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14

On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171 reads
as follows:

Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the
.authority to recover financing charges from the OPSF on the basis of Department of
Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies
to "recover cost of financing working capital associated with crude oil shipments,"
and provided a schedule of reimbursement in terms of peso per barrel. It appears
that on November 6, 1989, the DOF issued a memorandum to the President of the
Philippines explaining the nature of these financing charges and justifying their
reimbursement as follows:

As part of your program to promote economic recovery, . . . oil

companies (were authorized) to refinance their imports of crude oil
and petroleum products from the normal trade credit of 30 days up to
360 days from date of loading . . . Conformably . . ., the oil companies
deferred their foreign exchange remittances for purchases by
refinancing their import bills from the normal 30-day payment term up
to the desired 360 days. This refinancing of importations carried
additional costs (financing charges) which then became, due to
government mandate, an inherent part of the cost of the purchases of
our country's oil requirement.

We beg to disagree with such contention. The justification that financing charges
increased oil costs and the schedule of reimbursement rate in peso per barrel
(Exhibit 1) used to support alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the same formula which the
DOF used in arriving at the reimbursement rate but using comparable percentages
instead of pesos, the ineluctable conclusion is that the oil companies are actually
gaining rather than losing from the extension of credit because such extension
enables them to invest the collections in marketable securities which have much
higher rates than those they incur due to the extension. The Data we used were
obtained from CPI (CALTEX) Management and can easily be verified from our
records.

With respect to product sales or those arising from sales to international vessels or
airlines, . . ., it is believed that export sales (product sales) are entitled to claim
refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the
considered view of this Commission that the OPSF is not liable to refund such surtax
on inventory losses because these are paid to BIR and not OPSF, in view of which
CPI (CALTEX) should seek refund from BIR. . . .

Finally, as regards the sales to Atlas and Marcopper, it is represented that you are
entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July 17,
1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF
imposts which were added to the selling price.

Upon a circumspect evaluation, this Commission believes and so holds that the CPI
(CALTEX) has no authority to claim reimbursement for this uncollected OPSF impost
because LOI 1416 dated July 17, 1984, which exempts distressed mining companies
from "all taxes, duties, import fees and other charges" was issued when OPSF was
not yet in existence and could not have contemplated OPSF imposts at the time of its
formulation. Moreover, it is evident that OPSF was not created to aid distressed
mining companies but rather to help the domestic oil industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it
imputes to the COA the commission of the following errors: 16

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF

FINANCING CHARGES FROM THE OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING

CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM
SALES TO NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR

REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING

ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS
REIMBURSEMENT VIS-A-VIS THE OPSF.

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH

ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition
within ten (10) days from notice. 18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the
Office of the Solicitor General, filed their Comment. 19

This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file
their respective Memoranda within twenty (20) days from notice. 20

In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment
filed on 6 September 1990 be considered as the Memorandum for respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.

I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:

(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a
second purpose, to wit:
 2) To reimburse the oil companies for possible cost underrecovery incurred as a
result of the reduction of domestic prices of petroleum products. The magnitude of
the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy

without the corresponding reduction in the landed cost of oil
inventories in the possession of the oil companies at the time of the
price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing

government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to

result in cost underrecovery.

the "other factors" mentioned therein that may be determined by the Ministry (now Department) of
Finance may include financing charges for "in essence, financing charges constitute unrecovered
cost of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989
Memorandum to the President of the Department of Finance; they "directly translate to cost
underrecovery in cases where the money market placement rates decline and at the same time the
tax on interest income increases. The relationship is such that the presence of underrecovery or
overrecovery is directly dependent on the amount and extent of financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the
basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing working capital associated
with crude oil shipments, the following guidelines on the utilization of the Oil Price
Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk
premium and recovery of financing charges will be implemented:

1. The OPSF foreign exchange premium shall be reduced to a flat

rate of one (1) percent for the first (6) months and 1/32 of one percent
per month thereafter up to a maximum period of one year, to be
applied on crude oil' shipments from January 1, 1987. Shipments with
outstanding financing as of January 1, 1987 shall be charged on the
basis of the fee applicable to the remaining period of financing.

2. In addition, for shipments loaded after January 1987, oil companies

shall be allowed to recover financing charges directly from the OPSF
per barrel of crude oil based on the following schedule:

F
i
n
a
n
c
i
n
 g

P
e
r
i
o
d

R
e
i
m
b
u
r
s
e
m
e
n
t

R
a
t
e

P
e
s
o
s

p
e
r

B
a
r
r
e
l

Less than 180 days None

180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28

The above rates shall be subject to review every sixty

days. 22
Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the
Office of Energy Affairs as follows:

HON. VICENTE T. PATERNO

Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila

Dear Sir:

This refers to the letters of the Oil Industry dated December 4, 1986 and February 5,
1987 and subsequent discussions held by the Price Review committee on February
6, 1987.

On the basis of the representations made, the Department of Finance recognizes the
necessity to reduce the foreign exchange risk premium accruing to the Oil Price
Stabilization Fund (OPSF). Such a reduction would allow the industry to recover
partly associated financing charges on crude oil imports. Accordingly, the OPSF
foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6)
months plus 1/32% of 1% per month thereafter up to a maximum period of one year,
effective January 1, 1987. In addition, since the prevailing company take would still
leave unrecovered financing charges, reimbursement may be secured from the
OPSF in accordance with the provisions of the attached Department of Finance
circular. 23

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the
guidelines for the computation of the foreign exchange risk fee and the recovery of financing charges
from the OPSF, to wit:

B. FINANCE CHARGES

1. Oil companies shall be allowed to recover financing charges

directly from the OPSF for both crude and product shipments loaded
after January 1, 1987 based on the following rates:

F
i
n
a
n
c
i
n
g

P
e
r
i
o
d
 R
e
i
m
b
u
r
s
e
m
e
n
t

R
a
t
e

(
P
B
b
l
.
)

Less than 180 days None

180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28

2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further
guidelines on the recoverability of financing charges, to wit:

Following are the supplemental rules to Department of Finance Circular No. 1-87
dated February 18, 1987 which allowed the recovery of financing charges directly
from the Oil Price Stabilization Fund. (OPSF):

1. The Claim for reimbursement shall be on a per shipment basis.

2. The claim shall be filed with the Office of Energy Affairs together
with the claim on peso cost differential for a particular shipment and
duly certified supporting documents provided for under Ministry of
Finance No. 11-85.

3. The reimbursement shall be on the form of reimbursement

certificate (Annex A) to be issued by the Office of Energy Affairs. The
 said certificate may be used to offset against amounts payable to the
OPSF. The oil companies may also redeem said certificates in cash if
not utilized, subject to availability of funds. 25

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-
017. 26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the
light of the determination of executive agencies. The determination by the Department of Finance
and the OEA that financing charges are recoverable from the OPSF is entitled to great weight and
consideration. 27 The function of the COA, particularly in the matter of allowing or disallowing certain
expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties. 28

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that
petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and not
supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:

1. The Constitution gives the COA discretionary power to disapprove irregular or

unnecessary government expenditures and as the monetary claims of petitioner are
not allowed by law, the COA acted within its jurisdiction in denying them;

2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges
from the OPSF;

3. Under the principle of ejusdem generis, the "other factors" mentioned in the
second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors
which are of the same nature or analogous to those enumerated;"

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of

the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and

5. Department of Finance rules and regulations implementing P.D. No. 1956 do not
likewise allow reimbursement of financing
charges. 29

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of
petitioner that such does not extend to the disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or use of government funds and properties, but only to
the promulgation of accounting and auditing rules for, among others, such disallowance to be
untenable in the light of the provisions of the 1987 Constitution and related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
 expenditures or uses of funds and property, owned or held in trust by, or pertaining
to, the Government, or any of its subdivisions, agencies, or instrumentalities,
including government-owned and controlled corporations with original charters, and
on a post-audit basis: (a) constitutional bodies, commissions and offices that have
been granted fiscal autonomy under this Constitution; (b) autonomous state colleges
and universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity,
directly or indirectly, from or through the government, which are required by law or
the granting institution to submit to such audit as a condition of subsidy or equity.
However, where the internal control system of the audited agencies is inadequate,
the Commission may adopt such measures, including temporary or special pre-audit,
as are necessary and appropriate to correct the deficiencies. It shall keep the general
accounts, of the Government and, for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques and
methods required therefor, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of
government funds and properties.

These present powers, consistent with the declared independence of the Commission, 30 are broader
and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission
was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts
pertaining to the revenues, and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities including government-owned or
controlled corporations, keep the general accounts of the Government and, for such
period as may be provided by law, preserve the vouchers pertaining thereto; and
promulgate accounting and auditing rules and regulations including those for the
prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses
of funds and property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor,
the General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section
2 of Article XI thereofprovided:

Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining
to the revenues and receipts from whatever source, including trust funds derived
from bond issues; and audit, in accordance with law and administrative regulations,
all expenditures of funds or property pertaining to or held in trust by the Government
or the provinces or municipalities thereof. He shall keep the general accounts of the
Government and the preserve the vouchers pertaining thereto. It shall be the duty of
the Auditor General to bring to the attention of the proper administrative officer
expenditures of funds or property which, in his opinion, are irregular, unnecessary,
excessive, or extravagant. He shall also perform such other functions as may be
prescribed by law.
As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures
or uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules
and regulations to prevent the same. His was merely to bring that matter to the attention of the
proper administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs. Aquino, 33 are no longer controlling as the two (2) were decided in the
light of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains
that same power and authority, further strengthened by the definition of the COA's general
jurisdiction in Section 26 of the Government Auditing Code of the Philippines 34 and Administrative
Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing rules and regulations
for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of
funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is
responsible for the enforcement of the rules and regulations, it goes without saying that failure to
comply with them is a ground for disapproving the payment of the proposed expenditure. As
observed by one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G.
Bernas: 37

It should be noted, however, that whereas under Article XI, Section 2, of the 1935
Constitution the Auditor General could not correct "irregular, unnecessary, excessive
or extravagant" expenditures of public funds but could only "bring [the matter] to the
attention of the proper administrative officer," under the 1987 Constitution, as also
under the 1973 Constitution, the Commission on Audit can "promulgate accounting
and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures or uses of government funds and properties." Hence, since the
Commission on Audit must ultimately be responsible for the enforcement of these
rules and regulations, the failure to comply with these regulations can be a ground for
disapproving the payment of a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active
role and invested it with broader and more extensive powers, they did not intend merely to make the
COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent
watchdog of the Government.

The issue of the financing charges boils down to the validity of Department of Finance Circular No.
1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued
pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine
"other factors" which may result in cost underrecovery and a consequent reimbursement from the
OPSF.

The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges
are not included in "cost underrecovery" and, therefore, cannot be considered as one of the "other
factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what
"cost underrecovery" is. It merely states what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

 i. Reduction in oil company takes as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of the
oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government

mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.

These "other factors" can include only those which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they
are in the nature of government mandated price reductions. Hence, any other factor which seeks to
be a part of the enumeration, or which could qualify as a cost underrecovery, must be of the same
class or nature as those specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad
and unrestricted authority to determine or define "other factors."

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or
things, by words of a particular and specific meaning, such general words are not to be construed in
their widest extent, but are held to be as applying only to persons or things of the same kind or class
as those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they
do not have a common characteristic. The first relates to price reduction as directed by the Board of
Energy while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph
(iii) cannot be limited by the enumeration in these subparagraphs. What should be considered for
purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2)
of the Section which explicitly allows cost underrecovery only if such were incurred as a result of the
reduction of domestic prices of petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the
sense that such were incurred as a result of the inability to fully offset financing expenses from yields
in money market placements, they do not, however, fall under the foregoing provision of P.D. No.
1956, as amended, because the same did not result from the reduction of the domestic price of
petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further amended
by Congress, this Court can do nothing. The duty of this Court is not to legislate, but to apply or
interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in this case
have shown, it was at the behest of the Government that petitioner refinanced its oil import
payments from the normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct
in its assertion that owing to the extended period for payment, the financial institution which
refinanced said payments charged a higher interest, thereby resulting in higher financing expenses
for the petitioner. It would appear then that equity considerations dictate that petitioner should
somehow be allowed to recover its financing losses, if any, which may have been sustained because
it accommodated the request of the Government. Although under Section 29 of the National Internal
Revenue Code such losses may be deducted from gross income, the effect of that loss would be
merely to reduce its taxable income, but not to actually wipe out such losses. The Government then
may consider some positive measures to help petitioner and others similarly situated to obtain
substantial relief. An amendment, as aforestated, may then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the
Department of Finance to determine or define "other factors" is to uphold an undue delegation of
legislative power, it clearly appearing that the subject provision does not provide any standard for the
exercise of the authority. It is a fundamental rule that delegation of legislative power may be
sustained only upon the ground that some standard for its exercise is provided and that the
legislature, in making the delegation, has prescribed the manner of the exercise of the delegated
authority. 39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by
reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove
COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently
show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It
cannot have its cake and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner.
The respondents themselves admit in their Comment that underrecovery arising from sales to NPC
are reimbursable because NPC was granted full exemption from the payment of taxes; to prove this,
respondents trace the laws providing for such exemption. 40 The last law cited is the Fiscal Incentives
Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and
duty exemption privileges of the National Power Corporation, including those pertaining to its
domestic purchases of petroleum and petroleum products . . . are restored effective March 10,
1987." In a Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax
exemption was confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to
the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price
Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952
provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for (a)
cost increases of imported crude oil and finished petroleum products
resulting from foreign exchange rate adjustments and/or increases in
world market prices of crude oil; (b) cost underrecovery incurred as a
result of fuel oil sales to the National Power Corporation (NPC); and
(c) other cost underrecoveries incurred as may be finally decided by
the Supreme
Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National
Power Corporation.

III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner
relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable by
the copper mining companies in distress to the national government. Pursuant to this LOI, then
Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising
the oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are
among those declared to be in distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August
1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected by OEA has no legal
basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to claim
reimbursement for this uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued
when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of
its formulation." 43 It is further stated that: "Moreover, it is evident that OPSF was not created to aid
distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices."

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended
to exempt said distressed mining companies from the payment of OPSF dues for the following
reasons:

a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956
creating the OPSF was promulgated on October 10, 1984, while E.O. 137, amending
P.D. 1956, was issued on February 25, 1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line
with the government's effort to prevent the collapse of the copper industry. P.D No.
1956, as amended, was issued for the purpose of minimizing frequent price changes
brought about by exchange rate adjustments and/or changes in world market prices
of crude oil and imported petroleum product's; and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other
charges, whether direct or indirect, due and payable by the copper mining companies
in distress to the Notional and Local Governments . . ." On the other hand, OPSF
dues are not payable by (sic) distressed copper companies but by oil companies. It is
to be noted that the copper mining companies do not pay OPSF dues. Rather, such
imposts are built in or already incorporated in the prices of oil products. 44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining
companies, it does not accord petitioner the same privilege with respect to its obligation to pay
OPSF dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is
apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the
Civil Code, which reads:

Laws shall take effect after fifteen days following the completion of their publication in
the Official Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Taada vs. Tuvera: 46

WHEREFORE, the Court hereby orders respondents to publish in the Official

Gazette all unpublished presidential issuances which are of general application, and
unless so published they shall have no binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated
on 29 December 1986, 47 ruled:
 We hold therefore that all statutes, including those of local application and private
laws, shall be published as a condition for their effectivity, which shall begin fifteen
days after publication unless a different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by
the President in the exercise of legislative powers whenever the same are validly
delegated by the legislature or, at present, directly conferred by the Constitution.
Administrative rules and regulations must also be published if their purpose is to
enforce or implement existing laws pursuant also to a valid delegation.

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately
upon their approval, or as soon thereafter as possible, be published in full in the
Official Gazette, to become effective only after fifteen days from their publication, or
on another date specified by the legislature, in accordance with Article 2 of the Civil
Code.

LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette
after its issuance or at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18
June 1987. As amended, the said provision now reads:

Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwiseprovided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to
Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still
fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor
of the taxing authority. 48 The burden of proof rests upon the party claiming exemption to prove that it
is in fact covered by the exemption so claimed. The party claiming exemption must therefore be
expressly mentioned in the exempting law or at least be within its purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS
and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may
suspend the payment of taxes by copper mining companies, it does not give petitioner the same
privilege with respect to the payment of OPSF dues.

IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49 Respondents,
on the other hand, contend that said amount was already disallowed by the OEA for failure to
substantiate it. 50 In fact, when OEA submitted the claims of petitioner for pre-audit, the
abovementioned amount was already excluded.

An examination of the records of this case shows that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has
already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said
claim must be upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends
that it should be allowed to offset its claims from the OPSF against its contributions to the fund as
this has been allowed in the past, particularly in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides
for "Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner also mentions
communications from the Board of Energy and the Department of Finance that supposedly authorize
compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be
no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes
do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law.
Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because "while this provision empowers the COA to withhold
payment of a government indebtedness to a person who is also indebted to the government and
apply the government indebtedness to the satisfaction of the obligation of the person to the
government, like authority or right to make compensation is not given to the private person." 54The
reason for this, as stated in Commissioner of Internal Revenue vs. Algue, Inc., 55 is that money due
the government, either in the form of taxes or other dues, is its lifeblood and should be collected
without hindrance. Thus, instead of giving petitioner a reason for compensation or set-off, the
Revised Administrative Code makes it the respondents' duty to collect petitioner's indebtedness to
the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a
result of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead
established a special fund . . .," 56 and that the OPSF contributions do not go to the general fund of
the state and are not used for public purpose, i.e., not for the support of the government, the
administration of law, or the payment of public expenses. This alleged lack of a public purpose
behind OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is
inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the
OPSF; the said law provides in part that:

Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx

(3) That no amount of the Petroleum Price Standby Fund shall be

used to pay any oil company which has an outstanding obligation to
the Government without said obligation being offset first, subject to
the requirements of compensation or offset under the Civil Code.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose
because they go to a special fund of the government. Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of the government; taxes may be levied with a
regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the state. 57 There can be no
doubt that the oil industry is greatly imbued with public interest as it vitally affects the general
welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and
cause economic crisis of untold proportions. It would have a chain reaction in terms of, among
others, demands for wage increases and upward spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern which the state, via its police power, may properly
address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. 58Taxes cannot be the subject of compensation because the government and taxpayer
are not mutually creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies
merely act as agents for the Government in the latter's collection since the taxes are, in reality,
passed unto the end-users the consuming public. In that capacity, the petitioner, as one of such
companies, has the primary obligation to account for and remit the taxes collected to the
administrator of the OPSF. This duty stems from the fiduciary relationship between the two;
petitioner certainly cannot be considered merely as a debtor. In respect, therefore, to its collection
for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible.
Firstly, the Government and the petitioner cannot be said to be mutually debtors and creditors of
each other. Secondly, there is no proof that petitioner's claim is already due and liquidated. Under
Article 1279 of the Civil Code, in order that compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) both debts consist in a sum of :money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

That compensation had been the practice in the past can set no valid precedent. Such a practice
has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims
against their OPSF contributions. Instead, it prohibits the government from paying any amount from
the Petroleum Price Standby Fund to oil companies which have outstanding obligations with the
government, without said obligation being offset first subject to the rules on compensation in the Civil
Code.

WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged
decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for
reimbursement of underrecovery arising from sales to the National Power Corporation, which is
hereby allowed.
With costs against petitioner.

SO ORDERED.

EN BANC

G.R. No. 88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of
Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs;
HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL
POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.;
Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil
Corporation, respondents.

Villamor & Villamor Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

GANCAYCO, J.:

This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents
Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of
Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from other sources.1

On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.

On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress
declared as a national policy the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and rural electrification which
should be pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.2 The corporate existence of NPC was extended to
carry out this policy, specifically to undertake the development of hydro electric generation of power
and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis.3 Being a non-profit corporation, Section 13 of
the law provided in detail the exemption of the NPC from all taxes, duties, fees, imposts and other
charges by the government and its instrumentalities.

On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of
Republic Act No. 6395 by specifying, among others, the exemption of NPC from such taxes, duties,
fees, imposts and other charges imposed "directly or indirectly," on all petroleum products used by
NPC in its operation. Presidential Decree No. 938 dated May 27, 1976 further amended the
aforesaid provision by integrating the tax exemption in general terms under one paragraph.

On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in
favor of government-owned or controlled corporations including their subsidiaries.4 However, said
law empowered the President and/or the then Minister of Finance, upon recommendation of the
FIRB to restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and
coverage of any applicable tax and duty.

Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax
and duty exemption privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986,
the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges
effective July 1, 1985.

However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty
incentives granted to government and private entities which had been restored under Presidential
Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and
prescribe the date of effectivity of such tax and/or duty exemptions.

On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption
privileges effective March 10, 1987. On October 5, 1987, the President, through respondent
Executive Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No. 17-87.

As alleged in the petition, the following are the background facts:

The following are the facts relevant to NPC's questioned claim for refunds of taxes and
duties originally paid by respondents Caltex, Petrophil and Shell for specific and ad
valorem taxes to the BIR; and for Customs duties and ad valorem taxes paid by PNOC, Shell
and Caltex to the Bureau of Customs on its crude oil importation.

Many of the factual statements are reproduced from the Senate Committee on Accountability
of Public Officers and Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989
and approved by the Senate on April 21, 1989 (copy attached hereto as Annex "A") and are
identified in quotation marks:

1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No.
1931 was promulgated abolishing the tax exemptions of all government-owned or-controlled
corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to the NPC. This non-payment of taxes therefore spanned a
period of eight (8) years. (par. 23, p. 7, Annex "A")
During this period, the Bureau of Internal Revenue was not collecting specific taxes on the
purchases of NPC of petroleum products from the oil companies on the erroneous belief that
the National Power Corporation (NPC) was exempt from indirect taxes as reflected in the
letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC dated
October 29, 1980 granting blanket authority to the NPC to purchase petroleum products from
the oil companies without payment of specific tax (copy of this letter is attached hereto as
petitioner's Annex "B").

2. The oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only after the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing
all exemptions granted in favor of government-owned or-controlled corporations and
empowering the FIRB to recommend to the President or to the Minister of Finance the
restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total
amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum
products to NPC covering the period from October 31, 1984 to April 27, 1985." (par. 23, p. 7,
Annex "A")

3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax
portion. Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax
exemptions, Caltex's billings to NPC always included both duties and taxes. (Caturla, tsn,
Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")

4. For the sales of petroleum products delivered to NPC during the period from October,
1984 to April, 1985, NPC was billed a total of P522,016,77.34 (sic) including both duties and
taxes, the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").

5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified
true copy of which is hereto attached as Annex "C", restored the tax exemption privileges of
NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first paragraph of said
resolution reads as follows:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the
National Power Corporation under C.A. No. 120, as amended, are restored up to
June 30, 1985.

Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the
BIR for a "refund of Specific Taxes paid on petroleum products . . . in the total amount of
P58,020,110.79. (par. 26, pp. 8-9, Annex "A")

6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's
Annex "D"), Acting BIR Commissioner Ruben Ancheta declared:

FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase
petroleum products from the oil companies free of specific and ad valorem taxes,
during the period in question.

The "period in question" is June 1 1, 1 984 to June 30, 1 985.

7. On June 6, 1985The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata,
Chairman of the FIRB (Annex "E"), requesting "the FIRB to resolve conflicting rulings on the
tax exemption privileges of the National Power Corporation (NPC)." These rulings involve
FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")
8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata
confirmed the ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p.
12, Annex "A")

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil
Development Co., Ltd., a Korean contractor of NPC for its infrastructure projects, certified
true copy of which is attached hereto as petitioner's Annex "E", BIR Acting Commissioner
Ruben Ancheta ruled:

In Reply please be informed that after a re-study of Section 13, R.A. 6395, as
amended by P.D. 938, this Office is of the opinion, and so holds, that the scope of
the tax exemption privilege enjoyed by NPC under said section covers only taxes for
which it is directly liable and not on taxes which are only shifted to it. (Phil. Acetylene
vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is directly
payable by the contractor, not by NPC, your request for exemption, based on the
stipulation in the aforesaid contract that NPC shall assume payment of your
contractor's tax liability, cannot be granted for lack of legal basis." (Annex "H")
(emphasis added)

Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for
which it is directly liable and does not cover taxes which are only shifted to it or for indirect
taxes. The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by
Ancheta himself favoring NPC's indirect tax exemption privilege.

10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex
(Annex "F"), the BIR Commissioner declared that PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on
petroleum products is a direct liability of the manufacturer or producer thereof". (par. 51, p.
15, Annex "A")

11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax
exemptions retroactively from July 1, 1985 to a indefinite period, certified true copy of which
is hereto attached as petitioner's Annex "H".

12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the
P58,020,110.79 (corresponding to Caltex) was approved and released by way of a Tax
Credit Memo (Annex "Q") dated July 7, 1986, certified true copy of which [is) attached hereto
as petitioner's Annex "F," which was assigned by NPC to Caltex. BIR Commissioner Tan
approved the Deed of Assignment on July 30, 1987, certified true copy of which is hereto
attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")

The Deed of Assignment stipulated among others that NPC is assigning the tax credit to
Caltex in partial settlement of its outstanding obligations to the latter while Caltex, in turn,
would apply the assigned tax credit against its specific tax payments for two (2) months. (per
memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex "G")

13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax
credit assigned to Caltex, the NPC reiterated its request for the release of the balance of its
pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the period
from June 11, 1984 to early part of 1986 amounting to P410.58 million. (The claim of the first
two (2) oil companies covers the period from June 11, 1984 to early part of 1986; while that
of Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18,
1986, under BIR Ruling 152-86 (certified true copy of which is attached hereto as petitioner's
Annex "I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered
only the period from June 11, 1984 up to June 30, 1985. It further declared that, despite
FIRB No. 1-86, NPC had already lost its tax and duty exemptions because it only enjoys
special privilege for taxes for which it is directly liable. This ruling, in effect, denied the P410
Million tax refund application of NPC (par. 28, p. 9, Annex "A")

14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not
resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant,
Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")

15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR
Commissioner Tan, Jr. (certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "J"), reversed his previous position and states this time that all
deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery.

16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93,
entitled "Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding
the Powers of the Fiscal Incentives Review Board and Other Purposes."

17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax
exemption privilege and included in the exemption "those pertaining to its domestic
purchases of petroleum and petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto attached and made a part
hereof as Annex "K".

18. On August 6, 1987, the Hon. Sedfrey A. Ordoez, Secretary of Justice, issued Opinion
No. 77, series of 1987, opining that "the power conferred upon Fiscal Incentives Review
Board by Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation of
legislative power and, therefore, [are] unconstitutional," a copy of which is hereto attached
and made a part hereof as Petitioner's Annex "L."

19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to

the Chairman of the FIRB a certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87 dated June
24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.

20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig,
who by letter dated May 2, 1988 asked him to rule "on whether or not, as the law now
stands, the National Power Corporation is still exempt from taxes, duties . . . on its local
purchases of . . . petroleum products . . ." declared that "NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum
products purchased locally and used for the generation of electricity," a certified true copy of
which is attached hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")

21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June
1 5, 1988 but without the usual official form of "By the Authority of the President," a certified
true copy of which is hereto attached and made a part hereof as Petitioner's Annex "O".

22. The actions of respondents Finance Secretary and the Executive Secretary are based on
the RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the respondent
NPC pertaining to its domestic purchases of petroleum products (petitioner's Annex
K supra).

23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988
reported that the Office of the President and the Department of Finance had ordered the BIR
to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the P410
Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling No. 152-
86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR
Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p.
1 0, Annex "A")

24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner
Tan requesting them to hold in abeyance the release of the Pl.58 billion and await the
outcome of the investigation in regard to Senate Resolution No. 227," copies attached as
Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").

Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of
the BIR dated August, 1988 requesting him to hold in abeyance the release of the tax
refunds to NPC until after the termination of the Blue Ribbon investigation.

25. In the Bureau of Customs, oil companies import crude oil and before removal thereof
from customs custody, the corresponding customs duties and ad valorem taxes are paid.
Bunker fuel oil is one of the petroleum products processed from the crude oil; and same is
sold to NPC. After the sale, NPC applies for tax credit covering the duties and ad valorem
exemption under its Charter. Such applications are processed by the Bureau of Customs and
the corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to
the oil firm that imported the crude oil. These certificates are eventually used by the
assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of
Customs. (par. 70, p. 19, Annex "A")

A lesser amount totalling P740 million, covering the period from 1985 to the present, is being
sought by respondent NPC for refund from the Bureau of Customs for duties paid by the oil
companies on the importation of crude oil from which the processed products sold locally by
them to NPC was derived. However, based on figures submitted to the Blue Ribbon
Committee of the Philippine Senate which conducted an investigation on this matter as
mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a
much bigger figure was actually refunded to NPC representing duties and ad valorem taxes
paid to the Bureau of Customs by the oil companies on the importation of crude oil from 1979
to 1985.

26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227,
entitled:

Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To

conduct a Formal and Extensive Inquiry into the Reported Massive Tax
Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc.,
Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the
Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes,
Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the
Department of Finance, Their Refusal to Pay Since 1976 Customs Duties Amounting
to Billions of Pesos on Imported Crude Oil Purportedly for the Use of the National
Power Corporation, the Non-Payment of Surtax on Windfall Profits from Increases in
 the Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2 Billion
Surtax Paid by Them in 1984 and For Other Purposes.

27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a
lengthy formal inquiry on the matter, calling all parties interested to the witness stand
including representatives from the different oil companies, and in due time submitted its
Committee Report No. 474 . . . The Blue Ribbon Committee recommended the following
courses of action.

1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power
Corporation (NPC) and its approval of Tax Credit memo covering said amount
(Annex "P" hereto), dated July 7, 1986, and cancel its approval of the Deed of
Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and collect
from Caltex its tax liabilities which were erroneously treated as paid or settled with
the use of the tax credit certificate that NPC assigned to said firm.:

1.1. NPC did not have any indirect tax exemption since May 27, 1976 when
PD 938 was issued. Therefore, the grant of a tax refund to NPC in the
amount of P58 million was illegal, and therefore, null and void. Such refund
was a nullity right from the beginning. Hence, it never transferred any right in
favor of NPC.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil
companies on the same ground that the NPC, since May 27, 1976 up to June 17,
1987 was never granted any indirect tax exemption. So, the P1.58 billion represent
taxes legally and properly paid by the oil firms.

3. Start collection actions of specific or excise and ad valorem taxes due on

petroleum products sold to NPC from May 27, 1976 (promulgation of PD 938) to
June 17, 1987 (issuance of EO 195).

B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of
petroleum products by NPC and allegedly granted under the NPC charter covering the years
1978-1988 . . .

28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance
to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of
claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his
ruling, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless
restrained by proper authorities, that department and/or its line-tax bureaus may now proceed with
the processing of the claims of the National Power Corporation for duty and tax free exemption
and/or tax credits/ refunds, if there be any, in accordance with the ruling of that Department dated
May 20,1988, as confirmed by this Office on June 15, 1988 . . .5

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary
injunction and/or restraining order, praying among others that:
1. Upon filing of this petition, a temporary restraining order forthwith be issued against
respondent FIRB Executive Secretary Macaraig, and Secretary of Finance Jayme restraining
them and other persons acting for, under, and in their behalf from enforcing their resolution,
orders and ruling, to wit:

A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

B. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q");
and

E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").

2. Said temporary restraining order should also include respondent Commissioners of

Customs Mison and Internal Revenue Ong restraining them from processing and releasing
any pending claim or application by respondent NPC for tax and duty refunds.

3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary
injunction against above-named respondents and all persons acting for and in their behalf.

4. A decision be rendered in favor of the petitioner and against the respondents:

A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May
27, 1976 up to the present;

B. Nullifying the setting aside the following:

1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

2. Memorandum-Order of the Office of the President dated October 5, 1987

(petitioner's Annex "M");

3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");

5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"

6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax
refund for P58,020,110.79 (petitioner's Annex "F");

7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30,
1987 (petitioner's Annex "G");

8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with
the Bureau of Internal Revenue and
 9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC
by way of tax credit certificates from 1979 up to the present.

C. Declaring as illegal and null and void the pending claims for tax and duty refunds by
respondent NPC with the Bureau of Customs and the Bureau of Internal Revenue;

D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal

Revenue from enforcing the abovequestioned resolution, orders and ruling of respondents
Executive Secretary, Secretary of Finance, and FIRB by processing and releasing
respondent NPC's tax and duty refunds;

E. Ordering the respondent Commissioner of Customs to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Customs covering the
period from 1985 to the present; to cancel and invalidate the illegal payment made by
respondents Caltex, Shell and PNOC by using the tax credit certificates assigned to them by
NPC and to recover from respondents Caltex, Shell and PNOC all the amounts appearing in
said tax credit certificates which were used to settle their duty and tax liabilities with the
Bureau of Customs.

F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void
the pending claims for refund of respondent NPC with the Bureau of Internal Revenue
covering the period from June 11, 1984 to June 17, 1987.

PETITIONER prays for such other relief and remedy as may be just and equitable in the
premises.6

The issues raised in the petition are the following:

To determine whether respondent NPC is legally entitled to the questioned tax and duty
refunds, this Honorable Court must resolve the following issues:

Main issue

Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption
with the enactment of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued
on January 11, 1974.

Corollary issues

1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's
tax exemption privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 restoring NPC's tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and

2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24,
1987 which restored NPC's tax exemption privilege effective March 10, 1987; and if said
Resolution was validly issued, the nature and extent of the tax exemption privilege restored
to NPC.7

In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required
respondents to comment thereon, within ten (10) days from notice. The respondents having
submitted their comment, on October 10, 1989 the Court required petitioner to file a consolidated
reply to the same. After said reply was filed by petitioner on November 15, 1989 the Court gave due
course to the petition, considering the comments of respondents as their answer to the petition, and
requiring the parties to file simultaneously their respective memoranda within twenty (20) days from
notice. The parties having submitted their respective memoranda, the petition was deemed
submitted for resolution.

First the preliminary issues.

Public respondents allege that petitioner does not have the standing to challenge the questioned
orders and resolution.

In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a
duly-elected Senator of the Philippines." Public respondent argues that petitioner must show he has
sustained direct injury as a result of the action and that it is not sufficient for him to have a mere
general interest common to all members of the public.8

The Court however agrees with the petitioner that as a taxpayer he may file the instant petition
following the ruling in Lozada when it involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said
assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR
and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents also allege that the
proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No.
125 instead of this petition. However Section 11 of said law provides

Sec. 11. Who may appeal; effect of appealAny person, association or corporation
adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the
Collector of Customs (Commissioner of Customs) or any provincial or City Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after
receipt of such decision or ruling.

From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of
Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.

Public respondents also contend that mandamus does not lie to compel the Commissioner of
Internal Revenue to impose a tax assessment not found by him to be proper. It would be tantamount
to a usurpation of executive functions.9

Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of
the Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with
arbitrariness and grave abuse as to go beyond statutory authority.10

Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an
unlawful exercise of jurisdiction11 or to prevent the oppressive exercise of legal authority.12 Precisely,
petitioner questions the lawfulness of the acts of public respondents in this case.

Now to the main issue.

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay
to the Bureau of Internal Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ."13 For example, the excise and ad valorem taxes that oil companies pay to the
Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to
its buyer, like the NPC, by adding them to the "cash" and/or "selling price."

The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential
Decree No. 938, the exemption of NPC from indirect taxation was revoked and repealed. While
petitioner concedes that NPC enjoyed broad exemption privileges from both direct and indirect taxes
on the petroleum products it used, under Section 13 of Republic Act No, 6395 and more so under
Presidential Decree No. 380, however, by the deletion of the phrases "directly or indirectly" and "on
all petroleum products used by the Corporation in the generation, transmission, utilization and sale
of electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No.
938.

Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No.
938 regarding the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax
exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal
Revenue.14 Petitioner emphasizes the principle in taxation that the exception contained in the tax
statutes must be strictly construed against the one claiming the exemption, and that the rule that
a tax statute granting exemption must be strictly construed against the one claiming the exemption is
similar to the rule that a statute granting taxing power is to be construed strictly, with doubts resolved
against its existence.15 Petitioner cites rulings of the BIR that the phrase exemption from "all taxes,
etc." from "all forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is
directly liable.16

On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential
Decree No. 1931, the relevant provision of which are to wit:

P.D. No. 1931 provides as follows:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes . . . heretofore granted in favor of government-
owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board . . . is hereby empowered to
restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis
supplied.)

The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:

Resolution. No. 10-85

BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.

2. Provided, That to restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the
NPC is hereby required to furnish the FIRB on a periodic basis the particulars of items received or to
be received through such arrangements, for purposes of tax and duty exemptions privileges.17

Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power
Corporation (NPC) under Commonwealth Act No. 120, as amended, are restored: Provided, That
importations of fuel oil (crude oil equivalent), and coal of the herein grantee shall be subject to the
basic and additional import duties; Provided, further, that the following shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust funds and other similar
arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred to
another pursuant to the provisions of Sec. 10(a) of the Real Property Tax Code, as amended.18

Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86.
Indeed, they were issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby
the FIRB should make the recommendation subject to the approval of "the President of the
Philippines and/or the Minister of Finance." While said Resolutions do not appear to have been
approved by the President, they were nevertheless approved by the Minister of Finance who is also
duly authorized to approve the same. In fact it was the Minister of Finance who signed and
promulgated said resolutions.19

The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85
and 1-86 which were promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and
Minister of Finance Cesar E.A Virata, as Chairman of FIRB respectively, should be separately
approved by said Minister of Finance as required by P.D. 1931 is, a superfluity. An examination of
the said resolutions which are reproduced in full in the dissenting opinion show that the said officials
signed said resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.
Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of
Albay,20wherein the Court observed that under P.D. No. 776 the power of the FIRB was only
recommendatory and requires the approval of the President to be valid. Thus, in said case the Court
held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the President were
not valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the
Office of the President on October 5, 1987.

However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which
amended P.D. No. 776, it is clearly provided for that such FIRB resolution, may be approved by the
"President of the Philippines and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos.
10-85 and 1-86 were duly approved by the Minister of Finance, hence they are valid and effective.
To this extent, this decision modifies or supersedes the Court's earlier decision in Albay afore-
referred to.

Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption
privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are restored, that is,
only its direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes under
the principle that tax exemptions are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority.

Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way
of a tax credit certificate21 which was assigned to respondent Caltex through a deed of assignment
approved by the BIR22 is patently illegal. He also contends that the pending claim of respondent NPC
in the amount of P410.58 million with respondent BIR for the sale and delivery to it of bunker fuel by
respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being illegal, should not be
released.

Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June
24, 1987. It was issued under authority of Executive Order No. 93 dated December 17, 1986 which
grants to the FIRB among others, the power to recommend the restoration of the tax and duty
exemptions/incentives withdrawn thereunder.

Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the
effect that the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive
Order No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional."
Petitioner observes that the FIRB did not merely recommend but categorically restored the tax and
duty exemption of the NPC so that the memorandum of the respondent Executive Secretary dated
October 5, 1987 approving the same is a surplusage.

Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine
in Philippine Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it
cannot create new indirect tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.

The petition is devoid of merit.

The NPC is a non-profit public corporation created for the general good and welfare23 wholly owned
by the government of the Republic of the Philippines.24 From the very beginning of its corporate
existence, the NPC enjoyed preferential tax treatment25 to enable the Corporation to pay the
indebtedness and obligation and in furtherance and effective implementation of the policy
enunciated in Section one of "Republic Act No. 6395"26which provides:
 Sec. 1. Declaration of PolicyCongress hereby declares that (1) the comprehensive
development, utilization and conservation of Philippine water resources for all beneficial
uses, including power generation, and (2) the total electrification of the Philippines through
the development of power from all sources to meet the need of rural electrification are
primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.

From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment
is obvious.

Under Republic Act No. 358, its exemption is provided as follows:

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities."

Under Republic Act No. 6395:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by Government and Governmental Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 380:

Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by the Government and Government Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is
hereby declared, exempt:
 (a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other governmental agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operation and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum produced used by the Corporation in the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 938:

Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities.The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
the indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation, including its subsidiaries
hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well
as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings. (Emphasis supplied.)

It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to
cover "all taxes, duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic
Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380, made
even more specific the details of the exemption of NPC to cover, among others, both direct and
indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended
the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all
forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative proceedings."

The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax
exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the
NPC "shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, . . ."27

The preamble of P.D. No. 938 states

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the
non-profit character of the NPC has not been fully utilized because of restrictive
interpretations of the taxing agencies of the government on said provisions. . . . (Emphasis
supplied.)
It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No.
938 shall be construed strictly against NPC. On the contrary, the law mandates that it should be
interpreted liberally so as to enhance the tax exempt status of NPC.

Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of
statutes granting tax exemptions to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case
of exemptions in favor of a government political subdivision or instrumentality.28

The basis for applying the rule of strict construction to statutory provisions granting tax
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax liability of such agencies.29

In the case of property owned by the state or a city or other public corporations, the express
exemption should not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property "exemption is the rule and taxation the
exception."30

The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A.
No. 6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was
deleted is not well-taken.

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are
presumed to be passed with deliberation and with knowledge of all existing ones on the subject, it is
logical to conclude that in passing a statute it is not intended to interfere with or abrogate a former
law relating to the same subject matter, unless the repugnancy between the two is not only
irreconcilable but also clear and convincing as a result of the language used, or unless the latter Act
fully embraces the subject matter of the earlier.31 The first effort of a court must always be to
reconcile or adjust the provisions of one statute with those of another so as to give sensible effect to
both provisions.32

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of
an isolated part or a particular provision alone.33 When construing a statute, the reason for its
enactment should be kept in mind and the statute should be construed with reference to its intended
scope and purpose34 and the evil sought to be remedied.35

The NPC is a government instrumentality with the enormous task of undertaking development of
hydroelectric generation of power and production of electricity from other sources, as well as the
transmission of electric power on a nationwide basis, to improve the quality of life of the people
pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.

It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of
NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D.
No. 380 if it is to attain its goals.
Further, the construction of P.D. No. 938 by the Office charged with its implementation should be
given controlling weight.36

Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of
June 26, 1985 confirming said ruling, the letters of the BIR of August 18, 1986, and December 22,
1986, the letter of the Secretary of Finance of February 19, 1987, the Memorandum of the Executive
Secretary of October 9, 1987, by authority of the President, confirming and approving FIRB
Resolution No. 17-87, the letter of the Secretary of Finance of May 20, 1988 to the Executive
Secretary rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it
was uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as
amended, included exemption from payment of all taxes relative to NPC's petroleum purchases
including indirect taxes.37 Thus, then Secretary of Finance Vicente Jayme in his letter of May 20,
1988 to the Executive Secretary Macaraig aptly stated the justification for this tax exemption of NPC

The issue turns on the effect to the exemption of NPC from taxes of the deletion of the
phrase 'taxes imposed indirectly on oil products and its exemption from 'all forms of taxes.' It
is suggested that the change in language evidenced an intention to exempt NPC only from
taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it; since taxes
on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC thereby
lost its exemption from those taxes. The principal authority relied on is the 1967 case
of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.

First of all, tracing the changes made through the years in the Revised Charter, the
strengthening of NPC's preferential tax treatment was clearly the intention. To the extent that
the explanatory "whereas clauses" may disclose the intent of the law-maker, the changes
effected by P.D. 938 can only be read as being expansive rather than restrictive, including its
version of Section 13.

Our Tax Code does not recognize that there are taxes directly imposed and those imposed
indirectly. The textbook distinction between a direct and an indirect tax may be based on the
possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the
very person intended to be the payor, although it may ultimately be shifted to another. An
example of a direct tax is the personal income tax. On the other hand, indirect taxes are
those which are demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another. An example of this type of tax is the sales tax
levied on sales of a commodity.

The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of
no moment. What is more relevant is that when an "indirect tax" is paid by those upon whom
the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of the
market price of the commodity.

This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case,
when he analyzed the nature of the percentage (sales) tax to determine whether it is a tax on
the producer or on the purchaser of the commodity. Under out Tax Code, the sales tax falls
upon the manufacturer or producer. The phrase "pass on" the tax was criticized as being
inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax.
Therefore, the tax is not "passed on" and does not for that reason become an "indirect tax"
on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976
may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine
Acetylene case.

When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the
so-called oil crunch had already drastically pushed up crude oil Prices from about $1.00 per
bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981. In 1974-
78, NPC was operating the Meralco thermal plants under a lease agreement. The power
generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by
reducing the burden on the swiftly rising world crude oil prices. This objective was achieved
by the use of NPC's "tax umbrella under its Revised Charterthe exemption from specific
taxes on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which
exemption Government in fact was utilizing to soften the burden of high crude prices.

There is one other consideration which I consider pivotal. The taxes paid by oil companies
on oil products sold to NPC, whether paid to them by NPC or no never entered into the rates
charged by NPC to its customers not even during those periods of uncertainty engendered
by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax component on the
fuel have been charged or recovered by NPC through its rates.

There is an import duty on the crude oil imported by the local refineries. After the refining
process, specific and ad valorem taxes are levied on the finished products including fuel oil
or residue upon their withdrawal from the refinery. These taxes are paid by the oil companies
as the manufacturer thereof.

In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax
component. NPC pays the oil companies' invoices including the duty component but net of
the tax component. NPC then applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the products purchased. The tax
credit is assigned to the oil companiesas payment, in effect, of the tax component shown
in the sales invoices. (NOTE: These procedures varied over timeThere were instances
when NPC paid the tax component that was shifted to it and then applied for tax credit.
There were also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all
exemptions of government corporations. In these latter instances, the resolutions of the
Fiscal Incentives Review Board (FIRB) come into play. These incidents will not be touched
upon for purposes of this discussion).

NPC rates of electricity are structured such that changes in its cost of fuel are automatically
(without need of fresh approvals) reflected in the subsequent months billing rates.

This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept
liability to the tax and duty component on the oil products, such amount will go into its fuel
cost and be passed on to its customers through corresponding increases in rates. Since
1974, when NPC operated the oil-fired generating stations leased from Meralco (which
plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's
electric rates.

That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed
upon me by yet another circumstance. It is conceded that NPC at the very least, is exempt
from taxes to which it is directly liable. NPC therefore could very well have imported its fuel
oil or crude residue for burning at its thermal plants. There would have been no question in
 such a case as to its exemption from all duties and taxes, even under the strictest
interpretation that can be put forward. However, at the time P.D. 938 was issued in 1976,
there were already operating in the Philippines three oil refineries. The establishment of
these refineries in the Philippines involved heavy investments, were economically desirable
and enabled the country to import crude oil and process / refine the same into the various
petroleum products at a savings to the industry and the public. The refining process
produced as its largest output, in volume, fuel oil or residue, whose conventional economic
use was for burning in electric or steam generating plants. Had there been no use locally for
the residue, the oil refineries would have become largely unviable.

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC
to by-pass the local oil refineries and import its fossil fuel requirements directly in order to
avail itself of its exemption from "direct taxes." The oil refineries had to keep operating both
for economic development and national security reasons. In fact, the restoration by the FIRB
of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil
importations, so as not to prejudice the continued operations of the local oil refineries.

To answer your query therefore, it is the opinion of this Department that NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on the
petroleum products purchased locally and used for the generation of electricity.

The Department in issuing this ruling does so pursuant to its power and function to supervise
and control the collection of government revenues by the application and implementation of
revenue laws. It is prepared to take the measures supplemental to this ruling necessary to
carry the same into full effect.

As presented rather extensively above, the NPC electric power rates did not carry the taxes
and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to
the government, no part thereof was recovered from the sale of electricity produced. As a
consequence, as of our most recent information, some P1.55 B in claims represent amounts
for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order
to the Bureaus concerned for the resumption of the processing of these claims."38

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance,
the said opinion ruling of the latter was confirmed and its implementation was directed.39

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the
Secretary of Finance as confirmed by the then Executive Secretary are well-taken. When the NPC
was exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938,
it means exactly what it says, i.e., all forms of taxes including those that were imposed directly or
indirectly on petroleum products used in its operation.

Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the
NPC extends only to taxes for which it is directly liable and not to taxes merely shifted to it. However,
these rulings are predicated on Philippine Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case.
It involved the sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958
when NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as
amended by Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.
In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so
plaintiff cannot claim exemptions simply because the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC
whereby Section 13 thereof was amended by emphasizing its non-profit character and expanding
the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345
spells out clearly the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D.
No. 380, the exemption of NPC from indirect taxes was emphasized when it was specified to include
those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining
the same in general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as
hereinabove discussed, logically includes exemption from indirect taxes on petroleum products used
in its operation.

This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on
the authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order
No. 93 was promulgated, by which FIRB Resolution 17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental
circumstances. As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No,
380 and P.D. No. 838 appear to have been brought about by the earlier inconsistent rulings of the
tax agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption
of the NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said
amendments superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of
NPC should be limited to direct taxes only.

In the light of the foregoing discussion the first corollary issue must consequently be resolved in the
affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration of
the indirect tax exemption of the NPC on petroleum products it used.

On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987
which restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the
same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption

privileges of the National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
10, 1987, subject to the following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:

1.1. Importation of fuel oil (crude equivalent) and coal;

 1.2. Commercially-funded importations (i.e., importations which include but are not
limited to those financed by the NPC's own internal funds, domestic borrowings from
any source whatsoever, borrowing from foreign-based private financial institutions,
etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment.40

Executive Order No. 93 provides as follows

Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted " to government and private entities are hereby withdrawn,
except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective international agreements to which the Government of

the Republic of the Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as

amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree

No. 66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial

Authority pursuant to Presidential Decree No. 538, as amended;

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instruction No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal Incentives
Review Board.
 Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/of duty exemption that may be restored.

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitments of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view
that the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No.
93 constitute undue delegation of legislative power and is therefore unconstitutional. However, he
was overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated
March 30, 1989. The Executive Secretary, by authority of the President, has the power to modify,
alter or reverse the construction of a statute given by a department secretary.41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The
standards of the delegated power are also clearly provided for.

The required "standard" need not be expressed. In Edu vs. Ericta42 and in De la Llana vs. Alba43 this
Court held: "The standard may be either express or implied. If the former, the non-delegated
objection is easily met. The standard though does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as a whole."

In People vs. Rosenthal44 the broad standard of "public interest" was deemed sufficient. In Calalang
vs. Williams,45, it was "public welfare" and in Cervantes vs. Auditor General,46 it was the purpose of
promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a
whole, "national security" was considered sufficient standard47 and so was "protection of fish fry or
fish eggs.48
The observation of petitioner that the approval of the President was not even required in said
Executive Order of the tax exemption privilege approved by the FIRB unlike in previous similar
issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order No. 93,
aforestated, such tax and duty exemptions extended by the FIRB must be approved by the
President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive
Secretary, by authority of the President, on October 15, 1987.49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated

The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of modern
life and many technical fields of governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of the legislature to cope directly with the
many problems demanding its attention. The growth of society has ramified its activities and
created peculiar and sophisticated problems that the legislature cannot be expected
reasonably to comprehend. Specialization even in legislation has become necessary. To
many of the problems attendant upon present day undertakings, the legislature may not have
the competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.50

Thus, in the case of Tablarin vs. Gutierrez,51 this Court enunciated the rationale in favor of delegation
of legislative functions

One thing however, is apparent in the development of the principle of separation of powers
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline,
Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the
Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern
government, giving rise to the adoption, within certain limits, of the principle of subordinate
legislation, not only in the United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmea, 68 Phil. 318, 1939). Accordingly, with the
growing complexities of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater power by the legislative, and toward the
approval of the practice by the Courts. (Emphasis supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the
tax exemption privileges of persons or entities would be restored. The task may be assigned to an
administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute.
Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise,
a liberal interpretation in favor of constitutionality of legislation should be adopted.52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB
And as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution
No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum products
used in its operation.

Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been
upheld in Albay.53
In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by
President Marcos in 1984 are invalid as they were presumably promulgated under the infamous
Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members
of the Batasan Pambansa." And, even conceding that the reservation of legislative power in the
President was valid, it is opined that it was not validly exercised as there is no showing that such
presidential encroachment was justified under the conditions then existing. Consequently, it is
concluded that Executive Order No. 93, which was intended to implement said decrees, is also
illegal. The authority of the President to sub-delegate to the FIRB powers delegated to him is also
questioned.

In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter
decree withdrew tax exemptions of government-owned or controlled corporations including their
subsidiaries but authorized the FIRB to restore the same. Nevertheless, in Albay, as above-
discussed, this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86
cannot be enforced as said resolutions were only recommendatory and were not duly approved by
the President of the Philippines as required by P.D. No. 776.55 The Court also sustained in Albay the
validity of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No.
17-87 which was issued pursuant thereto, as it was duly approved by the President as required by
said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is
provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
amended, repealed or revoked.

Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent
with the Constitution.
1wphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and
are unconstitutional, the result would be the same, as then the latest applicable law would be P.D.
No. 938 which amended the NPC charter by granting exemption to NPC from all forms of taxes. As
above discussed, this exemption of NPC covers direct and indirect taxes on petroleum products
used in its operation. This is as it should be, if We are to hold as invalid and inoperative the
withdrawal of such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93
and the delegation of the power to restore these exemptions to the FIRB.

The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this
Court ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation
of P.D. No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB Resolution
Nos. 1085 and 1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984
to December 1, 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import
duties the firm had earlier paid to the government which the NPC now proposed to pass on to the
consumers by another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo
increase per kilowatt hour that took effect just over a week ago.,56 Hence, another case has been
filed in this Court to stop this proposed increase without a hearing.

As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776
dated August 24, 1975 was already amended by P.D. No. 1931 ,57 wherein it is provided that such
FIRB resolutions may be approved not only by the President of the Philippines but also by the
Minister of Finance. Such resolutions were promulgated by the Minister of Finance in his own right
and also in his capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of
Finance or by the President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albay must be considered superseded to this extent by this decision. This is because
P.D. No. 938 which is the latest amendment to the NPC charter granting the NPC exemption from all
forms of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity
for the country but more importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct. There
1a\^/phi 1

are various arrangements in the payment of crude oil purchased by NPC from oil companies.
Generally, the custom duties paid by the oil companies are added to the selling price paid by NPC.
As to the specific and ad valorem taxes, they are added a part of the seller's price, but NPC pays the
price net of tax, on condition that NPC would seek a tax refund to the oil companies. No tax
component on fuel had been charged or recovered by NPC from the consumers through its power
rates.58 Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The
billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of
the consumers who are thereby spared the additional burden of increased power rates to cover
these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors
may claim the same privilege should be dispelled by the fact that (a) this decision particularly treats
of only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed
by the government on the petroleum products it used or uses for its operation; and (b) Section 13(d)
of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on all petroleum products
used in its operation only, which is the very exemption which this Court deems to be carried over by
the passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that
the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the
"Republic of the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax
on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC
of other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government.
The amount of revenue received or expected to be received by this tax exemption is, however, not
going to any of the oil companies. There would be no loss to the government. The said amount shall
accrue to the benefit of the NPC, a government corporation, so as to enable it to sustain its
tremendous task of providing electricity for the country and at the least cost to the consumers.
Denying this tax exemption would mean hampering if not paralyzing the operations of the NPC. The
resulting increased revenue in the government will also mean increased power rates to be
shouldered by the consumers if the NPC is to survive and continue to provide our power
requirements.59The greater interest of the people must be paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.
Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea and Regalado, JJ., concur.
Fernan C.J., No part.
Paras, J., I dissent, but the NPC should be refunded not by the consuming public but by the oil
companies for ultimately these oil companies get the benefit of the alleged tax exemption.
Padilla, J., took no part.

Separate Opinions

CRUZ, J., Dissenting:

I join Mr. Justice Abraham F. Sarmiento in his excellent dissent and would stress only the following
additional observations.

A tax exemption represents a loss of revenue to the State and must therefore not be lightly granted
or inferred. When claimed, it must be strictly construed against the taxpayer, who must prove that he
comes under the exemption rather than the rule that every one must contribute his just share in the
maintenance of the government.

In the case at bar, the ponencia would justify the tax exemption as having been validly granted under
P.D. Nos. 1931 and 1955 and Resolutions Nos. 10-85 and 1-86 of the Fiscal Incentives Review
Board. It is also asserted that FIRB Resolution No. 17-87, which restored MPC's tax exemption
effective March 10 1987, was lawfully adopted pursuant to a valid delegation of power made by
Executive Order No. 93.

When P.D. Nos. 1931 and 1955 were issued by President Marcos in 1984, the Batasang Pambansa
was already in existence and discharging its legislative powers. Presumably, these decrees were
promulgated under the infamous Amendment No. 6. Assuming that the reservation of legislative
power in the President was then valid, I submit that the power was nevertheless not validly
exercised. My reason is that the President could legislate under the said amendment only if the
Batasang Pambansa "failed or was unable to act adequately on any matter that in his judgment
required immediate action" to meet the "exigency." There is no showing that the presidential
encroachment on legislative prerogatives was justified under these conditions. Simply because the
rubber-stamp legislature then meekly submitted did not make the usurpation valid.

By these decrees, President Marcos, exercising legislative power, delegated it to himself as

executive and empowered himself and/or the Minister of Finance to restore the exemptions
previously withdrawn.

As the decrees themselves were invalid it should follow that Executive Order No. 93, which was
intended only to implement them, should also be illegal. But even assuming the legality of the said
decrees, I would still question the authority of the President to sub-delegate the powers delegated to
her thereunder.

Such sub-delegation was not permissible because potestas delegata non delegari potest Even if we
were to disregard the opinion of Secretary of Justice Sedfrey A. Ordoez that there were no
sufficient standards in Executive Order No. 93 (although he was reversed on this legal questions by
the Executive Secretary), the President's delegated authority could still not be extended to the FIRB
which was not a delegate of the legislature.
It is remarkable that the respondents could seriously argue that a mere administrative body like the
FIRB can exercise the legislative power to grant tax exemptions. I am not aware that any other such
agency, including the Bureau of Internal Revenue and the Bureau of Customs, has this authority. An
administrative body can apply tax exemptions under existing law but it cannot itself create such
exemptions. This is a prerogative of the Congress that cannot be usurped by or even delegated to a
mere administrative body.

In fact, the decrees clearly provided that it was the President and/or the Minister of Finance who
could restore the exemption, subject only to the recommendation of the FIRB. The FIRB was not
empowered to directly restore the exemption. And even if it be accepted that the FIRB merely
recommended the exemption, which was approved by the Finance Minister, there would still be the
curious anomaly of Minister Virata upholding his very own act as chairman of the FIRB.

This Court called it a "travesty of justice" when in Zambales Chromite vs. Court of Appeals, 94 SCRA
261, the Secretary of Agriculture and Natural Resources approved a decision earlier rendered by
him when he was the Director of Mines, and in Anzaldo vs. Clave, 119 SCRA 353, where the
respondent, as presidential executive assistant, affirmed on appeal to Malacaang his own decision
as chairman of the Civil Service Commission.

It is important to note that when P.D. Nos. 1931 and 1955 were issued by President Marcos, the rule
under the 1973 Constitution was that "no law granting a tax exemption shall be passed without the
concurrence of a majority of all the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]).
Laws are usually passed by only a majority of those present in the chamber, there being a quorum,
but not where it grants a tax exemption. This requires an absolute majority. Yet, despite this
stringent limitation on the national legislature itself, such stricture does not inhibit the President and
the FIRB in the exercise of their delegated power. It would seem that the delegate has more power
than the principal. Significantly, this limitation is maintained in the present Constitution under Article
VI, Section 28(4).

The ponencia holds that the rule of strict construction is not applicable where the grantee is an
agency of the government itself, like the MPC in the case before us. I notice, however, that the
ultimate beneficiaries of the expected tax credit will be the oil companies, which certainly are not part
of the Republic of the Philippines. As the tax refunds will not be enjoyed by the MPC itself, I see no
reason why we should be exceptionally lenient in applying the exception.

The tax credits involved in this petition are tremendousno less than Pl.58 billion. This amount
could go a long way in improving the national economy and the well-being of the Filipino people,
who deserve the continuing solicitude of the government, including this Court. I respectfully submit
that it is to them that we owe our foremost loyalty.

Gutierrez, Jr., J., concurs

SARMIENTO, J., dissenting:

I would like to point out specifically two things in connection with the majority's disposition as to: (1)
Finance Incentives Review Board FIRB Resolutions Nos. 10-85 and 186; and (2) the National Power
Corporation's tax exemption vis-a-vis our decision in the case of Philippine Acetylene Co., Inc. vs.
Commission of Internal Revenue,1 and in the light of the provisions of its charter, Republic Act No.
6395, and the various amendments entered into it.
 (1)

On pages 20-23 of the Decision, the majority suggests that FIRB Resolutions Nos. 10-85 and 1-86
had validly restored the National Power Corporation's tax exemption privileges, which Presidential
Decree No. 1931 had meanwhile suspended. I wish to stress that in the case of National Power
Corporation vs. Province of Albay,2 the Court held that the FIRB Resolutions Nos. 10-85 and 1-86
had the bare force of recommendations and did not operate as a restoration, in the absence of an
approval by the President (in then President Marcos' exercise of legislative powers), of tax
exemptions. The Court noted that there is nothing in Presidential Decree No. 776, the FIRB charter,
conferring on it the authority to grant or restore exemptions, other than to make recommendations on
what exemptions to grant or restore. I quote:

xxx xxx xxx

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was
merely to "recommend to the President of the Philippines and for reasons of compatibility
with the declared economic policy, the withdrawal, modification, revocation or suspension of
the enforceability of any of the abovecited statutory subsidies or tax exemption grants,
except those granted by the Constitution." It has no authority to impose taxes or revoke
existing ones, which, after all, under the Constitution, only the legislature may accomplish. . .
.3

xxx xxx xxx

As the Court held there, it was only on March 10, 1987 that the restoration became effective, not
because Resolutions Nos. 10-85 and 1-86 decreed a restoration, but because of Resolution No. 17-
87 which, on the other hand, carried the approval of the Office of the President .4 (FIRB Resolution
No. 17-87 made the National Power Corporation's exemption effective March 10, 1987.) Hence, the
National Power Corporation, so the Court held, was liable for payment of real property taxes to the
Province of Albay between. June 11, 1984, the date Presidential Decree No. 1931 (withdrawing its
tax exemptions) took effect, and March 10, 1987,

As far therefore as the majority in the present case rules that the National Power Corporation is also
entitled to a refund as a result of FIRB Resolutions Nos. 10-15 and 1-86, I respectfully submit that a
serious conflict has arisen.

While it is true that FIRB Resolutions Nos. 10-85 and 1-86 were signed by the Finance Minister
Cesar Virata,5 I submit nonetheless, as Albay in fact held, that the signature of the Mr. Virata is not
enough to restore an exemption. The reason is that Mr. Virata signed them (FIRB Resolutions Nos.
10-85 and 1-86) in his capacity as chairman of the Finance Incentives Review Board FIRB. I find this
clear from the very Resolutions in question:

FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 10-85

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National
Power Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.

2. Provided, That this restoration does not apply to the following:

 a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing

agreements, the NPC is hereby required to furnish the FIRB on a periodic basis the
particulars of items received or to be received through such arrangements, for purposes of
tax and duty exemption privileges.

(Sgd.) ALFREDO PIO DE RODA, JR.

Acting Minister of Finance
Acting Chairman, FIRB

FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 1-86

BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National
Power Corporation (NPC) under Commonwealth Act No. 120, as amended, are
restored; Provided, That importations of fuel oil (crude oil equivalent) and coal of the herein
grantee shall be subject to the basic and additional import duties; Provided, further, That the
following shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other
monetary benefits from deposit substitutes, trust fund and other similar
arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred
to another pursuant to the provisions of Sec. 40(a) of the Real Property Tax Code, as
amended.

(Sgd.) CESAR E.A. VIRATA

Minister of Finance
Chairman-FIRB

I respectfully submit that to say that Mr. Virata's signature is sufficient (please note that Resolution
No. 10-85 was not even signed by Mr. Virata, but rather by Mr. Alfredo Pio de Roda, Jr.) is in fact to
confer on the Board actual "restoration" or even exemption powers, because in all cases, FIRB
Resolutions are signed by Mr. Virata (or the acting chairman) in his capacity as Board Chairman. I
submit that we can not consider an FIRB Resolution as an act of Mr. Virata in his capacity as
Minister of Finance (and therefore, as a grant or restoration of tax exemption) although Mr. Virata
also happened to be concurrently, Minister of Finance, because to do so would be to blur the
distinction between the capacities in which he, Mr. Virata, actually acted. I submit that he, Mr. Virata,
need have issued separate approvals of the Resolutions in question, in his capacity as Finance
Minister.

Parenthetically, on the issue of the constitutional validity of Executive Order No. 93, insofar as it
"delegates" the power to restore exemptions to the FIRB, I hold that in the first place, Executive
Order No. 93 makes no delegation at all. As the majority points out, "[u]nder Section 1 (f) of
Executive Order No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be
approved by the President."6 Hence, the FIRB does not exercise any powerand as I had held, its
powers does not merely recommendatoryand it is the President who in fact exercises it. It is true
that Executive Order No. 93 has set out certain standards by which the FIRB as a reviewing body,
may act, but I do not believe that a genuine delegation question has arisen because precisely, the
acts of the Board are subject to approval by the President, in the exercise of her legislative powers
under the Freedom Constitution.7

(2)

According to the Decision, the National Power Corporation, under its charter, is also exempt from
indirect taxes, and that there is nothing irregular about what is apparently standard operating
procedure between the Corporation and the oil firms in which the latter sell to the Corporation of "net
of tax" and that thereafter, the Corporation assigns to them its tax credit.

I gather first, and with all due respect, that there has been a misunderstanding about so-called
indirect taxes and the theory of shifting taxes. In Philippine Acetylene Co., Inc., supra, the Court
intimated that there are no such things as indirect taxes for purposes of exemption, and that the
National Power Corporation's exemption from taxes can not be claimed, as well, by a manufacturer
(who sells his products to the Corporation) on the theory that the taxes he will shift will be shifted to a
tax-exempt entity. According to the Court, "the purchaser does not pay the tax . . . [h]e pays or may
pay the seller more for the goods because of the seller's obligation, but that is all and the amount
added because of the tax is paid to get the goods and for nothing else."8

It is true that a tax may be shifted, that is, to enable the payor to escape its effects by adding it to the
price, thereby transferring the burden to the purchaser of whom the incidence of the tax settles
(indirect tax). I submit, however, that it is only for purposes of escape from taxation.
As Acetylene has clarified, the tax which the manufacturer is liable to pay directly under a statute is
still a personal tax and in "passing and tax on" to the purchaser, he does not really make the latter
pay the tax, and what the latter pays actually is just the price. Thus, for purposes of exemption, and
so Acetylene tells us, the manufacturer can not claim one because the purchaser happens to be
exempted from taxes. Mutatis mutandis and so I respectfully submit, the purchaser can not be
allowed to accept the goods "net of tax" because it never paid for the tax in the first place, and was
never liable therefor in the second place.

According to the majority, Philippine Acetylene has been "abrogated," and the majority points to the
various amendments to the charter of the National Power Corporation as authority for its view.

First, there is nothing in those amendments that would remotely point to this conclusion.

Second, Acetylene's pronouncement is founded on the very science of taxationthat indirect taxes
are no taxes for purposes of exemption, and that consequently, one who did not pay taxes can not
claim an exemption although the price he paid for the goods included taxes. To enable him to claim
an exemption, as the majority would now enable him (Acetylene having been "abrogated"), is, I
submit, to defeat the very laws of science.
The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-
settled concepts of taxation, as the law of supply and demand is to the law of economics. A
President is said (unfairly) to have attempted it, but one can not repeal the law on supply and
demand.

I do not find the National Power Corporation's alleged exemption from indirect tax evident, as the
majority finds it evident, from the Corporation's charter, Republic Act No. 6395, as amended by
Presidential Decrees Nos. 380 and 938. It is true that since Commonwealth Act No. 120 (the
Corporation's original charter, which Republic Act No. 6395 repealed), the Corporation has enjoyed
a "preferential tax treatment," I seriously doubt, however, whether or not that preference embraces
"indirect taxes" as wellwhich, as I said, are no taxes for purposes of claims for exemptions by the
"indirect payor." And albeit Presidential Decree No. 938 refers to "all forms of taxes," I can not take
that to include, as a matter of logic, "indirect taxes," and as discussed above, that scenario is not
possible.

I quite agree that the legislative intent, based on a perusal of Republic Act No. 6395 and subsequent
amendatory statutes was to give the National Power Corporation a broad tax preference on account
of the vital functions it performs, indeed, "to enable the Corporation to pay the indebtedness and
obligation and in furtherance and effective implementation of the policy initiated" by its charter. I
submit, however, that that alone can not entitle the Corporation to claim an exemption for indirect
taxes. I also believe that its existing exemption from direct taxes is sufficient to serve the legislative
purpose.

The fact that the National Power Corporation has been tasked with an enormous undertaking "to
improve," as the majority puts it, "the quality of life of the people" pursuant to constitutional mandates
is no reason, I believe, to include indirect taxes within the coverage of its preferential tax treatment.
After all, it is exempt from direct taxes, and the fact that it will be made to shoulder indirect taxes
(which are no taxes) will not defeat its exemption or frustrate the intent of both legislature and
Constitution.

I do not think that the majority can point to the various executive constructions as authorities for its
own construction. First and foremost, with respect to then Commissioner Ruben Ancheta's ruling of
May 8, 1985 cited on pages 32-33 of the Decision, it is notable that in his BIR Ruling No. 183-85,
dated October 22, 1985, he in fact reversed himself, I quote:

In reply please be informed that after a re-study of Section 13, R.A. 6395 as amended by
P.D. No. 938, this Office is of the opinion, and so holds, that the scope of the tax exemption
privilege enjoyed by NPC under said section covers only taxes for which it is directly liable
and not on taxes which are merely shifted to it. (Phil. Acetylene Co. vs. Comm. of Internal
Revenue, 20 SCRA 1056,1967). Since contractor's tax is directly payable by the contractor,
not by NPC, your request for exemption, based on the stipulation in the aforesaid contract
that NPC shall assume payment of your contractor's tax liability, cannot be granted for lack
of legal basis. (emphasis added)9

In yet another ruling, then Commissioner Bienvenido Tan likewise declared, in connection with an
apparent claim for refund by the Philippine Airlines, that "PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on petroleum
products is a direct liability of the manufacturer or producer thereof . . ."10

Again, under BIR Ruling No. 152-86, the Bureau of Internal Revenue reiterated, as to the National
Power Corporation's claim for a refund I quote:
 . . . this Office has maintained the stand that your tax exemption privileges covers only taxes
for which you are directly liable.11

Per BIR Ruling No. 70-043, dated August 27, 1970, the Bureau likewise held that the term "all forms
of taxes" covers only direct taxes,12

In his letter addressed to former BIR Commissioner Tan, Atty. Reynoso Floreza, BIR Assistant
Commissioner for Legal, opposed Caltex Philippines' claim for a P58-million refund, and although
the Commissioner at that time hedged he was later persuaded by Special Assistant Abraham De la
Via and in fact, instructed Atty. De la Via to "prepare [the] corresponding notice to NPC and
Caltex"13 to inform them that their claim has been denied. (Although strangely, he changed his mind
later.)

Hence, I do not think that we can judiciously rely on executive construction because executive
construction has been at best, erratic, and at worst, conflicting.

I do not find that majority's historical construction a reliable yardstick in this case, for if the historical
development of the law were any indication, the legislative intent is, on the contrary, to exclude
indirect taxes from the coverage of the National Power Corporation's tax exemption. Thus, under
Commonwealth Act No. 120, the Corporation was made exempt from the payment of all taxes in
connection with the issuance of bonds. Under Republic Act No. 358, it was made exempt from the
payment of all taxes, duties, fees, imposts, and charges of the national and local governments.

Under Republic Act No. 6395, the National Power Corporation was further declared exempt:

(e) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation . . .

By virtue of Presidential Decree No. 380, it was made exempt:

(d) from all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the corporation in the
generation, transmission, utilization and sale of electric power.

By virtue however of Presidential Decree No. 938, reference to "indirect taxes" was omitted thus:

. . .To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section One of this Act, the Corporation,
including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes,
duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or administrative proceedings.

The deletion of "indirect taxes" in the Decree is, so I hold, significant, because if the intent of the law
were truly to exempt the National Power Corporation from so-called indirect taxes as well, the law
would have said so specifically, as it said so specifically in Presidential Decree No. 380.

I likewise do not think that the reference to the whereas clauses of Presidential Decree No. 938 is
warranted, in particular, the following whereas clause:
 WHEREAS, in the application of the tax exemption provisions of the Revised Charter, the
non-profit character of NPC has not been fully utilized because of the restrictive
interpretations of the taxing agencies of the government on said provisions;

I am not certain whether it can be basis for a "liberal" construction. I am more inclined to believe that
the term "restrictive interpretations" refers to BIR rulings confining the exemption to the Corporation
alone (but not its subsidiaries), and not, rather, to the scope of its exemption. Indeed, as Presidential
Decree No. 938 specifically declares, "the Corporation, including its subsidiaries, is hereby declared
exempt . . . "14

The majority expresses the apprehension that if the National Power Corporation were to be made to
assume "indirect taxes," the latter will be forced to pass them on to the consuming public.

First, and as Acetylene held, we do not even know if the payor will in fact "pass them on." "A
decision to absorb the burden of the tax is largely a matter of economics."15 Furthermore:

In the long run a sales tax is probably shifted to the consumer, but during the period when
supply is being adjusted to changes in demand it must be in part absorbed. In practice the
businessman will treat the levy as an added cost of operation and distribute it over his sales
as he would any other cost, increasing by more than the amount of the tax prices of goods
demand for which will be least affected and leaving other prices unchanged. 47 Harv. Ld.
Rev. 860, 869 (1934).16

It therefore appears to me that any talk of the public ultimately absorbing the tax is pure speculation.

Second, it has typically been the bogeyman that business, with due respect, has invoked to avoid
the payment of tax. And to be sure, the populist allure of that argument has appealed to many, yet it
has probably also obscured what is as fundamental as protecting consumerspreserving public
revenue, the very lifeblood of the nation. I am afraid that this is not healthy policy, and what occurs to
meand what indeed leaves me very uncomfortableis that by the stroke of the pen, we should
have in fact given away P13,750,214,639.00 (so it is said) of legitimate government money.

According moreover to Committee Report No. 474 of the Senate, "NPC itself says that it does not
use taxes to increase prices of electricity to consumers because the cost of electric generation and
sale already takes into account the tax component. "17

I can not accept finally, what to me is an unabashed effort by the oil firms to evade taxes, the
arrangement (as I gather from the Decision) between the National Power Corporation and the oil
companies in which the former assigns its tax credit to the latter. I also presume that this is the
natural consequence of the "understanding," as I discussed above, to purchase oil "net of tax"
between NAPOCOR and the oil firms, because logically, the latter will look for other sources from
which to recoup the taxes they had failed to shift and recover their losses as a result. According to
the Decision, no tax is left unpaid because they have been pre-paid before the oil is delivered to the
National Power Corporation. But whatever taxes are paid are in fact wiped out because the
subsequent credit transfer will enable the oil companies to recover the taxes pre- paid.

According to the majority, "[t]his is not a case of tax evasion of the oil companies but a tax relief for
the NPC."18The problem, precisely, is that while it is NPC which is entitled to "tax relief," the
arrangement between NPC and the oil companies has enabled instead the latter to enjoy relief
when relief is due to NPC alone. The point still remains that no tax money actually reaches our
coffers because as I said, that arrangement enables them to wipe it out. If the NPC were the direct
importer, I would then have no reason to object, after all, the NPC is exempt from direct taxation and
secondly, the money it is paying to finance its importations belongs to the government. The law,
however, gave the exemption to NPC, not the oil companies.

According to the Decision: "The amount of revenue received or expected to be received by this tax
exemption is, however, not going to any of the oil companies. . . "19 and that "[t]here would be no loss
to the government."20

With due respect to the majority, it is erroneous, if not misleading, to say that no money is going to
the oil companies and that the government is not losing anything. Definitely, the tax credit
assignment arrangement between the NPC and the oil firms enables the latter to recover revenue
they have paid. And definitely, that means loss for the government.

The majority is concerned with the high cost of electricity. The increasing cost of electricity is
however due to myriad factors, foremost of which, is the devaluation of the peso21 and as recent
events have suggested, "miscalculations" at the top levels of NPC. I can not however attribute it, as
the majority in all earnest attributes it, to the fact, far-fetched as it is, that the NPC has not been
allowed to enjoy exemption from indirect taxes.

Tax exemptions furthermore are a matter of personal privilege of the grantee. It has been held that
as such, they can not be assigned, unless the statute granting them permits an assignment.22

While "shifting the burden of tax" is a permissible method of avoiding a tax, evading it is a totally
different matter. And while I agree with the National Power Corporation should be given the widest
financial assistance possible, assistance should not be an excuse for plain tax evasion, if not tax
fraud, by Big Business, in particular, Big Oil.

(3) Postscripts

With all due respect, I do not think that the majority has appreciated enough the serious implications
of its decisionto the contrary, in particular, its shrinking coffers. I do not think that we are, after all,
talking here of "simple" billions, but in fact, billions upon billions in lost revenue looming large.

I am also afraid that the majority is not quite aware that it is setting a precedent not only for the oil
companies but in fact, for the National Power Corporation's suppliers, importers, and contractors.
Although I am not, as of this writing, aware of their exact number or the precise amount the National
Power Corporation has spent in payment of supplies and equipment, I can imagine that the
Corporation's assets consisting of those supplies and equipment, machines and machinery, are
worth no fewer than billions.

With this precedent, there is no stopping indeed the NAPOCOR's suppliers, from makers of storage
tanks, steel towers, cables and cable poles, to builders of dikes, to layers of pipelines, and pipes,
from claiming the same privilege.

There is no stopping the NPC's contractors, from suppliers of cement for plant fixtures and lumber
for edifices, to the very engineers and technicians who designed them, from demanding equal rights.

There will be no stopping the Corporation's transporters, from container van and rig owners to
suppliers of service vehicles of NPC executives, from demanding the privilege.
What is to stop, indeed, caterers of food served in board meetings or in NAPOCOR cafeterias from
asking for exemption, since food billed includes sales taxes shifted to a tax-exempt entity and,
following the theory of the majority, taxes that may be refunded?

What is, indeed, to stop all imagined claimants from demanding all imagined claims, since as we are
aware, the rule of taxationand consequently, tax exemptionis uniform and equitable?23

Of course, we have discussed NAPOCOR alone; we have not touched other tax-exempt entities,
say, the Marinduque Mining Corporation and Nonoc Mining Corporation. Per existing records and
per reliable information, Caltex Philippines, between 1979 and 1986, successfully recovered the total
sum of P49,835,791.00. In 1985, Caltex was said to have been refunded the amount of
P4,217,423.00 arising from the same tax arrangement with the Nonoc Mining Corporation.

Again, what is stoppingby virtue of this decision notonly the oil firms but also Marinduque's and
Nonoc's suppliers, importers, and ridiculously, caterers, from claiming a future refund?

The Decision, to be sure, attempts to allay these apprehensions and "dispel[s] [them] by the fact that
. . . the decision particularly treats of only the exemption of the NPC from all taxes, duties, fees,
imposts and all other charges imposed by the government on the petroleum products it need or uses
for its operation . . . "24 Firstly, under Presidential Decree No. 938, the supposed tax exemption of the
National Power Corporation covers "all forms of taxes.25 If therefore "all forms of taxes covers as well
indirect taxes because Presidential Decree No. 380 supposedly extended the Corporation's
exemption to indirect taxes (and the majority "deems Presidential Decree No. 380 to have been
carried over to Presidential Decree No. 938"), then the conclusion seems in escapablefollowing
the logic of the majoritythat the Corporation is exempt from all indirect taxes, on petroleum and
any and all other products and services.

The fact of the matter, second of all, is that the Decision is premised on the alleged exemption of the
National Power Corporation from all forms of taxes, meaning, direct and indirect taxes. It is a
premise that is allegedly supported by statutory history, and the legislature's alleged intent to grant
the Corporation awesome exemptions. If that were the case, the Corporation must logically be
exempt from all kinds of taxes payable. Logically, the majority can not limit the sweep of its
pronouncement by exempting the National Power Corporation from "indirect taxes on petroleum"
alone. What is sauce for the goose (taxes on petroleum) is also sauce for the gander (all other
taxes).

I still would have reason for my fears.

I can not, in all candor, accept the majority's efforts, and going back to the Corporation's charters, to
"carry over," in particular, Section 13(d) of Presidential Decree No. 380, to Presidential Decree No.
938. First of all, if Presidential Decree No. 938 meant to absorb Presidential Decree No. 380 it would
have said so specifically, or at the very least, left it alone. Obviously, Presidential Decree No. 938
meant otherwise, to begin with, because it is precisely an amendatory statute. Secondly, a "carry-
over" would have allowed this Court to make law, so only it can fit in its theories.

The country has gone to lengths fashioning an elaborate tax system and an efficient tax collection
machinery. Planners' efforts have seen various shifts in the taxing system, from specific, to ad
valorem, to value-added taxation, purportedly to minimize collection. For this year, the Bureau of
Internal Revenue has a collection target of P130 billion, and significantly, it has been unrelenting in
its tax and tax-consciousness drive. I am not prepared to cite numbers but I figure that the money it
will lose by virtue of this Decision is a meaningful chunk off its target, and a significant setback to the
government's programs.
I am afraid that by this Decision, the majority has ignored the forest (the welfare of the entire nation)
in favor of a tree (the welfare of a government corporation). The issue, in my opinion, is not the
viability of the National Power Corporationas if the fate of the nation depended alone on itbut the
very survival of the Republic. I am not of course to be mistaken as being less concerned with
NAPOCOR's fiscal chart. The picture, as I see it however, is that we are in fact assisting the oil
companies, out of that alleged concern, in evading taxes at the expense, needless to state, of our
coffers. I do not think that that is a question of legal hermeneutics, but rather, of plain love of country.

EN BANC

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President, HON. VICENTE JAYME, ETC., ET AL., respondents.

Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.

Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:

Just like lightning which does strike the same place twice in some instances, this matter of indirect
tax exemption of the private respondent National Power Corporation (NPC) is brought to this Court a
second time. Unfazed by the Decision We promulgated on May 31, 19911 petitioner Ernesto Maceda
asks this Court to reconsider said Decision. Lest We be criticized for denying due process to the
petitioner. We have decided to take a second look at the issues. In the process, a hearing was held
on July 9, 1992 where all parties presented their respective arguments. Etched in this Court's mind
are the paradoxical claims by both petitioner and private respondents that their respective positions
are for the benefit of the Filipino people.

A Chronological review of the relevant NPC laws, specially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order.

On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power
Corporation, a public corporation, mainly to develop hydraulic power from all water sources in the
Philippines.2 The sum of P250,000.00 was appropriated out of the funds in the Philippine Treasury
for the purpose of organizing the NPC and conducting its preliminary work.3 The main source of
funds for the NPC was the flotation of bonds in the capital markets4 and these bonds

. . . issued under the authority of this Act shall be exempt from the payment of all
taxes by the Commonwealth of the Philippines, or by any authority, branch, division
 or political subdivision thereof and subject to the provisions of the Act of Congress,
approved March 24, 1934, otherwise known as the Tydings McDuffle Law, which
facts shall be stated upon the face of said bonds. . . . .5

On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the
initial operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first
construction of any hydraulic power project was to be decided by the NPC Board.6 The provision on
tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the
bond's principal and interest in "gold coins" but adding that payment could be made in United States
dollars.7 The provision on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to
guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC
loans.8 He was also authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate
objectives9 and for the reconstruction and development of the economy of the country. 10 It was
expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities. 11

On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to
incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the
pertinent tax exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be

exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic
of the Philippines, its provinces, cities and municipalities. 13

On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD,
the President of the Philippines was authorized to negotiate, contract and guarantee loans with the
Export-Import Bank of of Washigton, D.C., U.S.A., or any other international financial
institution. 14 The tax provision for repayment of these loans, as stated in R.A. No. 357, was not
amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real
estate taxes. As enacted, the law states as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be

exempt from all taxes, except real property tax, and from all duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its provinces, cities, and
municipalities.15

On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by
the increased indebtedness 16 should bear the National Economic Council's stamp of approval. The
tax exemption provision related to the payment of this total indebtedness was not amended nor
deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was
authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The
tax provision related to the repayment of these loans was not amended nor deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31,
2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were
expressly repealed. 19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a
stock corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares
having a par value of P100.00 each, with said capital stock wholly subscribed to by the
Government. 20 No tax exemption was incorporated in said Act.

On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital
stock to P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax
provision was incorporated in said Act.

On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to
P300,000,000.00, the increase to be wholly subscribed by the Government. No tax provision was
incorporated in said Act. 22

On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120,
as amended. Declared as primary objectives of the nation were:

Declaration of Policy. Congress hereby declares that (1) the comprehensive

development, utilization and conservation of Philippine water resources for all
beneficial uses, including power generation, and (2) the total electrification of the
Philippines through the development of power from all sources to meet the needs of
industrial development and dispersal and the needs of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the financial
institutions. 23

Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority
to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).

As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:

The bonds issued under the authority of this subsection shall be exempt from the
payment of all taxes by the Republic of the Philippines, or by any authority, branch,
division or political subdivision thereof which facts shall be stated upon the face of
said bonds. . . . 24

As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as
follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedeness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including
 import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions. 25

A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares
the non-profit character and tax exemptions of NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment, as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service
fees in any court or administrative proceedings in which it may be a party, restrictions
and duties to the Republic of the Philippines, its provinces, cities, and municipalities
and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and projects;
and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and
sale of electric power. 26

On November 7, 1972, Presidential Decree No. 40 was issued declaring that the
electrification of the entire country was one of the primary concerns of the country.
And in connection with this, it was specifically stated that:

The setting up of transmission line grids and the construction of associated

generation facilities in Luzon, Mindanao and major islands of the country, including
the Visayas, shall be the responsibility of the National Power Corporation (NPC) as
the authorized implementing agency of the State. 27

xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as a single
integrated system all generating facilities supplying electric power to the entire area
embraced by any grid set up by the NPC. 28

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill
its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to
P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of
P3,000,000,000.00 at any one time, 30 and the NPC was authorized to borrow a total of
US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or indebtedness incurred
under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions previously and presently
imposed, and to be imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 32 (Emphasis supplied)

Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:

(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to
the Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities including the taxes, duties, fees, imposts
and other charges provided for under the Tariff and Customs Code of the Philippines,
Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended, and as further
amended by Presidential Decree No. 34 dated October 27, 1972, and Presidential
Decree No. 69, dated November 24, 1972, and costs and service fees in any court or
administrative proceedings in which it may be a party;

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric
power. 33 (Emphasis supplied)

On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of
electricity to its different customers. 34 No tax exemption provision was amended, deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated
annually to cover the unpaid subscription of the Government in the NPC authorized capital stock,
which amount would be taken from taxes accruing to the General Funds of the Government,
proceeds from loans, issuance of bonds, treasury bills or notes to be issued by the Secretary of
Finance for this particular purpose. 35

On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and transmission
facilities which includes nuclear power generation, the present capitalization of
National Power Corporation (NPC) and the ceilings for domestic and foreign
borrowings are deemed insufficient; 36

xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter, the non-
profit character of NPC has not been fully utilized because of restrictive interpretation
of the taxing agencies of the government on said provisions; 37
 xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the declared
objective of total electrification of the country, further amendments of certain sections
of Republic Act No. 6395, as amended by Presidential Decrees Nos. 380, 395 and
758, have become imperative; 38

Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling
was increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to read as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay to its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
of all forms of taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 42

II

On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931
and Executive Order No. 93 (S'86).

On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to
imports as follows:

WHEREAS, importations by certain government agencies, including government-

owned or controlled corporation, are exempt from the payment of customs duties and
compensating tax; and

WHEREAS, in order to reduce foreign exchange spending and to protect domestic

industries, it is necessary to restrict and regulate such tax-free importations.

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by

virtue of the powers vested in me by the Constitution, and do hereby decree and
order the following:

Sec. 1. All importations of any government agency, including government-owned or

controlled corporations which are exempt from the payment of customs duties and
internal revenue taxes, shall be subject to the prior approval of an Inter-Agency
Committee which shall insure compliance with the following conditions:

(a) That no such article of local manufacture are available in sufficient quantity and
comparable quality at reasonable prices;

(b) That the articles to be imported are directly and actually needed and will be used
exclusively by the grantee of the exemption for its operations and projects or in the
conduct of its functions; and
 (c) The shipping documents covering the importation are in the name of the grantee
to whom the goods shall be delivered directly by customs authorities.

xxx xxx xxx

Sec. 3. The Committee shall have the power to regulate and control the tax-free
importation of government agencies in accordance with the conditions set forth in
Section 1 hereof and the regulations to be promulgated to implement the provisions
of this Decree. Provided, however, That any government agency or government-
owned or controlled corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the Inter-Agency Committee may file
an appeal with the Office of the President within ten days from the date of notice
thereof. . . . .

xxx xxx xxx

Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all
general and special laws and decrees are hereby amended accordingly.

xxx xxx xxx

On July 30, 1977, P.D. 1177 was issued as it was

. . . declared the policy of the State to formulate and implement a National Budget
that is an instrument of national development, reflective of national objectives,
strategies and plans. The budget shall be supportive of and consistent with the socio-
economic development plan and shall be oriented towards the achievement of
explicit objectives and expected results, to ensure that funds are utilized and
operations are conducted effectively, economically and efficiently. The national
budget shall be formulated within a context of a regionalized government structure
and of the totality of revenues and other receipts, expenditures and borrowings of all
levels of government-owned or controlled corporations. The budget shall likewise be
prepared within the context of the national long-term plan and of a long-term budget
program. 43

In line with such policy, the law decreed that

All units of government, including government-owned or controlled corporations, shall pay income
taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that
organizations otherwise exempted by law from the payment of such taxes/duties may ask for a
subsidy from the General Fund in the exact amount of taxes/duties due: provided, further, that a
procedure shall be established by the Secretary of Finance and the Commissioner of the Budget,
whereby such subsidies shall automatically be considered as both revenue and expenditure of the
General Fund. 44

The law also declared that

[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are
inconsistent with the provisions of the Decree are hereby repealed and/or modified
accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself in after the
Aquino assassination, P.D. No. 1931 was issued to reiterate that:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant
of tax privileges to any government-owned or controlled corporation and all other
units of government; 46

and since there was a

. . . need for government-owned or controlled corporations and all other units of

government enjoying tax privileges to share in the requirements of development,
fiscal or otherwise, by paying the duties, taxes and other charges due from them. 47

it was decreed that:

Sec. 1. The provisions of special on general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, imposts and other charges
heretofore granted in favor of government-owned or controlled corporations including
their subsidiaries, are hereby withdrawn.

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under Presidential
Decree No. 776, is hereby empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above, any applicable tax and duty, taking into account,
among others, any or all of the following:

1) The effect on the relative price levels;

2) The relative contribution of the corporation to the revenue generation effort;

3) The nature of the activity in which the corporation is engaged in; or

4) In general the greater national interest to be served.

xxx xxx xxx

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws,
decrees, executive orders, administrative orders, rules, regulations or parts thereof
which are inconsistent with this Decree are hereby repealed, amended or modified
accordingly.

On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration
or grant of tax exemption to other government and private entities without benefit of review by the
Fiscal Incentives Review Board, to wit:

WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and
October 14, 1984, respectively, withdrew the tax and duty exemption privileges,
including the preferential tax treatment, of government and private entities with
certain exceptions, in order that the requirements of national economic development,
in terms of fiscals and other resources, may be met more adequately;
 xxx xxx xxx

WHEREAS, in addition to those tax and duty exemption privileges were restored by
the Fiscal Incentives Review Board (FIRB), a number of affected entities,
government and private, had their tax and duty exemption privileges restored or
granted by Presidential action without benefit or review by the Fiscal Incentives
Review Board (FIRB);

xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better provided where

necessary by explicit subsidy and budgetary support rather than tax and duty
exemption privileges if only to improve the fiscal monitoring aspects of government
operations.

It was thus ordered that:

Sec. 1. The Provisions of any general or special law to the contrary notwithstanding,
all tax and duty incentives granted to government and private entities are hereby
withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective internation agreement to which the Government of the

Republic of the Philippines is a signatory;

c) those enjoyed by enterprises registered with:

(i) the Board of Investment pursuant to Presidential Decree No. 1789,

as amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential

Decree No. 66 as amended;

(iii) the Philippine Veterans Investment Development Corporation

Industrial Authority pursuant to Presidential Decree No. 538, was
amended.

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instructions No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

 (iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the

Fiscal Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No.
776, as amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date of period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitment of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review
Board shall take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged; and

d) in general, the greater national interest to be served.

xxx xxx xxx

Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent
with this Executive Order are hereby repealed or modified accordingly.

E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations,
to be issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and
published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51which 15th day was March 10, 1987.

III
Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in
their TAXATION I course, which fro convenient reference, is as follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:

a. Direct Tax the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.

Examples: Individual income tax, corporate income tax, transfer taxes (estate tax,
donor's tax), residence tax, immigration tax

b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the
consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.

Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT)
and the tariff and customs indirect taxes (import duties, special import tax and other
dues) 52

IV

To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to
the following:

(1) What kind of tax exemption privileges did NPC have?

(2) For what periods in time were these privileges being enjoyed?

(3) If there are taxes to be paid, who shall pay for these taxes?

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all
forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No.
380, does not expressly include "indirect taxes."

His point is not well-taken.

A chronological review of the NPC laws will show that it has been the lawmaker's intention that the
NPC was to be completely tax exempt from all forms of taxes direct and indirect.

NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations
upon its creation by virtue of C.A. No. 120.

When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained
were to be completely tax exempt.

After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it
was again specifically exempted from all types of taxes "to facilitate payment of its indebtedness."
Even when the ceilings for domestic and foreign borrowings were periodically increased, the tax
exemption privileges of the NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No.
987, as above stated. The exemption was, however, restored by R.A. No. 6395.

Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions
allowed NPC. Its section 13(d) is the starting point of this bone of contention among the parties. For
easy reference, it is reproduced as follows:

[T]he Corporation is hereby declared exempt:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power.

P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric power.
(Emphasis supplied)

Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph
as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
of ALL FORMS OF taxes, duties, fees, imposts as well as costs and service fees
including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied)

Petitioner reminds Us that:

[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and Legislative. 53

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would have been
very easy for him to retain the same or similar language used in P.D. No. 380 P.D.
No. 938 if his intention were to preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his
fault were. It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the
following items:

13(a) : court or administrative proceedings;

13(b) : income, franchise, realty taxes;

13(c) : import of foreign goods required for its operations and projects;

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,",
included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax
exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above in part I hereof. President Marcos must have considered
all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and
P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No. 6395, as amended by P.D.
No. 938.

One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one
time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt
from all forms of taxes if this goal is to be achieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to
pay the government share in its capital stock P.D. No. 758 was issued mandating that P200 Million
would be appropriated annually to cover the said unpaid subscription of the Government in NPC's
authorized capital stock. And significantly one of the sources of this annual appropriation of P200
million is TAX MONEY accruing to the General Fund of the Government. It does not stand to reason
then that former President Marcos would order P200 Million to be taken partially or totally from tax
money to be used to pay the Government subscription in the NPC, on one hand, and then order the
NPC to pay all its indirect taxes, on the other.

The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the
phrase "All FORMS OF" is supported by the fact that he did not do the same for the tax exemption
provision for the foreign loans to be incurred.

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions. 57

The same was amended by P.D. No. 380 as follows:

 The loans, credits and indebtedness contracted this subsection and the payment of
the principal, interest and other charges thereon, as well as the importation of
machinery, equipment, materials, supplies and services, by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all direct and indirect taxes, fees, imposts, other charges and
restrictions, including import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and political
subdivisions. 58(Emphasis supplied)

P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No.
6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8
(b) had to do only with loans and machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax
exemption stood as is with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to
"taxes, fees, imposts, other charges . . . to be imposed" in the future surely, an indication that the
lawmakers wanted the NPC to be exempt from ALL FORMS of taxes direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and
indirect taxes under P.D. No. 938.

VI

Five (5) years on into the now discredited New Society, the Government decided to rationalize
government receipts and expenditures by formulating and implementing a National Budget. 60 The
NPC, being a government owned and controlled corporation had to be shed off its tax exemption
status privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy from the
General Fund in the exact amount of taxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It
allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-free
importation privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed
created by virtue of said P.D. No. 882. It is presumed that the NPC, being the special creation of the
State, was allowed to continue its tax-free importations.

This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of
NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private
Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER
the motion for Reconsideration had been filed. During oral arguments heard on July 9, 1992, he
proceeded to discuss this tax exemption withdrawal as explained by then Secretary of Justice
Vicente Abad Santos in opinion No. 133 (S '77). 62A careful perusal of petitioner's senate Blue
Ribbon Committee Report No. 474, the basis of the petition at bar, fails to yield any mention of said
P.D. No. 1177's effect on NPC's tax exemption privileges. 63 Applying by analogy Pulido vs.
Pablo, 64 the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption
privileges was not seasonably invoked 65 by the petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption
privileges as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax
privileges of any government-owned or controlled corporation (GOCC). NPC included, was
reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The subsidy provided for in
Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D. No. 1931, was deemed repealed
as the Fiscal Incentives Revenue Board was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.

The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in
Section 23, P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had
to submit to the Office of the President its request for the P200 million mandated by P.D. No. 758 to
be appropriated annually by the Government to cover its unpaid subscription to the NPC authorized
capital stock and that under Section 22, of the same P.D. No. NPC had to likewise submit to the
Office of the President its internal operating budget for review due to capital inputs of the
government (P.D. No. 758) and to the national government's guarantee of the domestic and foreign
indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.

There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly
found themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that
the Secretary of Finance and the Commissioner of the Budget had to establish the necessary
procedure to accomplish the tax payment/tax subsidy scheme of the Government. In effect, NPC,
did not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay
different revenue collectors for the taxes it had to pay.

In his memorandum filed July 16, 1992, petitioner submits:

[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty
and tax exemptions, whether direct or indirect. And so there was nothing to be
withdrawn or to be restored under P.D. No. 1931, issued on June 11, 1984. This is
evident from sections 1 and 2 of said P.D. No. 1931, which reads:

"Section 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes,
fees, imports and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries are hereby withdrawn."

Sec. 2. The President of the Philippines and/or the Minister of

Finance, upon the recommendation of the Fiscal Incentives Review
Board created under P.D. No. 776, is hereby empowered to restore
partially or totally, the exemptions withdrawn by section 1 above. . . .

Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it
had already lost all its tax exemptions privilege with the issuance of P.D. No. 1177
seven (7) years earlier or on July 30, 1977, there were no tax exemptions to be
withdrawn by section 1 which could later be restored by the Minister of Finance upon
the recommendation of the FIRB under Section 2 of P.D. No. 1931. Consequently,
FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued since FIRB
acted beyond their statutory authority by creating and not merely restoring the tax
exempt status of NPC. The same is true for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and tax
exemptions but allowed the President upon recommendation of the FIRB to restore
those abolished.

The Court disagrees.

Applying by analogy the weight of authority that:

 When a revised and consolidated act re-enacts in the same or substantially the same
terms the provisions of the act or acts so revised and consolidated, the revision and
consolidation shall be taken to be a continuation of the former act or acts, although
the former act or acts may be expressly repealed by the revised and consolidated
act; and all rights
and liabilities under the former act or acts are preserved and may be enforced. 66

the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section
23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No.
1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had
been expressly repealed by Section 2 with its institution of the FIRB recommendation of partial/total
restoration of tax exemption privileges.

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax
exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy
for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its
tax exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-
85 67 and 1-86 68 as approved by the Minister of Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both
legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax
exemption status but merely restored it. 69

Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now
rather infamous Amendment No. 6 70 as there was no showing that President Marcos' encroachment
on legislative prerogatives was justified under the then prevailing condition that he could legislate
"only if the Batasang Pambansa 'failed or was unable to act inadequately on any matter that in his
judgment required immediate action' to meet the 'exigency'. 71

Actually under said Amendment No. 6, then President Marcos could issue decrees not only when
the Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason
that in his (Marcos') judgment required immediate action, but also when there existed a grave
emergency or a threat or thereof. It must be remembered that said Presidential Decree was issued
only around nine (9) months after the Philippines unilaterally declared a moratorium on its foreign
debt payments 72 as a result of the economic crisis triggered by loss of confidence in the government
brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt
payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion white elephant of a
Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been this grave
emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his
Amendment 6 power. 76

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be
passed without the concurrence of a majority of all the members of the Batasang Pambansa" 77 does
not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then
President Marcos under His Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6
authority.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President
Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The
same was granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's
tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93
(S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no
indication, however, from the records of the case whether or not similar approvals were given by
then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to
believe that a "travesty of justice" might have occurred when the Minister of Finance approved his
own recommendation as Chairman of the Fiscal Incentives Review Board as what happened
in Zambales Chromate vs. Court of Appeals 80 when the Secretary of Agriculture and Natural
Resources approved a decision earlier rendered by him when he was the Director of Mines, 81 and
in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on appeal to
Malacaang, his own decision as Chairman of the Civil Service Commission. 83

Upon deeper analysis, the question arises as to whether one can talk about "due process" being
violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance
when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives
Review Board. 84

In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and
scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed.

In the case of the tax exemption restoration of NPC, there is no other comparable entity not even
a single public or private corporation whose rights would be violated if NPC's tax exemption
privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of
public knowledge that the MERALCO generating plants were sold to the NPC in line with the State
policy that NPC was to be the State implementing arm for the electrification of the entire country.
Besides, MERALCO was limited to Manila and its environs. And as of 1984, there was no more
MERALCO as a producer of electricity which could have objected to the restoration of NPC's
tax exemption privileges.

It should be noted that NPC was not asking to be granted tax exemption privileges for the first time.
It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in
NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB
Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman
of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate
procedural due process.

While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on
October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93
(S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder.

A misconception must be cleared up.

When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and
Legislative powers. Thus, there was no power delegated to her, rather it was she who was
delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a
delegate of the legislature. Clearly, she was not sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be
carried out 85 and it fixed the standard to which the delegate had to conform in the performance of his
functions, 86 both qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87

Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from
June 11, 1984 up to the present.

VII

The next question that projects itself is who pays the tax?

The answer to the question could be gleamed from the manner by which the Commissaries of the
Armed Forces of the Philippines sell their goods.

By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants
but groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.

In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and
other taxes on the goods earmarked for AFP Commissaries as an added cost of operation and
distribute it over the total units of goods sold as it would any other cost. Thus, even the ordinary
supermarket buyer probably pays for the specific, ad valorem and other taxes which theses
suppliers do not charge the AFP Commissaries. 89

IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb
the taxes they add to the bunker fuel oil they sell to NPC.

It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders
an opinion, 90wherein he stated and We quote:

xxx xxx xxx

Republic Act No. 358 exempts the National Power Corporation from "all taxes,
duties, fees, imposts, charges, and restrictions of the Republic of the Philippines and
its provinces, cities, and municipalities." This exemption is broad enough to include
all taxes, whether direct or indirect, which the National Power Corporation may be
required to pay, such as the specific tax on petroleum products. That it is indirect or
is of no amount [should be of no moment], for it is the corporation that ultimately pays
it. The view which refuses to accord the exemption because the tax is first paid by
the seller disregards realities and gives more importance to form than to substance.
Equity and law always exalt substance over from.

xxx xxx xxx

Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as

knowledge that many impositions taxpayers have to pay are in the nature of indirect
taxes. To limit the exemption granted the National Power Corporation to direct taxes
notwithstanding the general and broad language of the statue will be to thwrat the
legislative intention in giving exemption from all forms of taxes and impositions
without distinguishing between those that are direct and those that are not.
(Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker
fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very
nature of indirect taxation, the economic burden of such taxation is expected to be passed on
through the channels of commerce to the user or consumer of the goods sold. Because, however,
the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted
from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect
taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the "normal"
purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies because to do
so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling
and storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the
buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to
the BIR.

It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes
HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of
which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said
E.O. no. 195 reads as follows:

EXECUTIVE ORDER NO. 195

AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL

REVENUE CODE, AS AMENDED BY REVISING THE EXCISE TAX RATES OF
CERTAIN PETROLEUM PRODUCTS.

xxx xxx xxx

Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as
amended, is hereby amended to read as follows:

Par. (b) For products subject to ad valorem tax only:

PRODUCT AD VALOREM TAX RATE

1. . . .

2. . . .

3. . . .

4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or
less the same generating power 0%

xxx xxx xxx

Sec. 3. This Executive Order shall take effect immediately.

Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen
hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going
to bear the economic burden of the ad valorem taxes. What this Court will now dispose of are
petitioner's complaints that some indirect tax money has been illegally refunded by the Bureau of
Internal Revenue to the NPC and that more claims for refunds by the NPC are being processed for
payment by the BIR.

A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the
NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad
valorem taxes during the period from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to
declare this Tax Credit Memo illegal as the PNC did not have indirect tax exemptions with the
enactment of P.D. No. 938. As We have already ruled otherwise, the only questions left are whether
NPC Is entitled to a tax refund for the tax component of the price of the bunker fuel oil purchased
from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the amount
to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the BIR issues its
letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies
pursuant to FIRB Resolution No. 10-85. 92 Since the tax exemption restoration was retroactive to
June 11, 1984 there was a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had
already paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the
period above indicated and had billed NPC correspondingly. 93 It should be noted that the NPC, in its
letter-claim dated September 11, 1985 to the Commissioner of the Bureau of Internal Revenue DID
NOT CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part
of the bunker fuel oil price it purchased from Caltex (Phils) Inc. 94

The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National
Internal Revenue Code of 1977, as amended which reads as follows:

Sec. 230. Recover of tax erroneously or illegally collected. No suit or proceeding

shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or of any sum alleged
to have been excessive or in any Manner wrongfully collected. until a claim for refund
or credit has been duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been paid under protest
or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment; Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly, to
have been erroneously paid.

xxx xxx xxx

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the Commissioner
correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.
Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the
BIR from June 11, 1984 to the early part of 1986. 96

A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when
the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of
the Deed of Assignment 97executed by and between NPC and Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal
Revenue amounting to P442,887,716.16. P58.020,110.79 of which is due to
Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.)

Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR
from refunding said amount because of Our ruling that NPC has both direct and indirect tax
exemption privileges. Neither can We order the BIR to refund said amount to NPC as there is no
pending petition for review on certiorari of a suit for its collection before Us. At any rate, at this point
in time, NPC can no longer file any suit to collect said amount EVEN IF lt has previously filed a claim
with the BIR because it is time-barred under Section 230 of the National Internal Revenue Code of
1977. as amended, which states:

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

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

WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby
DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby
AFFIRMED.

SO ORDERED.

FIRST DIVISION

G.R. No. L-31092 February 27, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.
YAP, J.:

The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay
the 3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross
receipts it realized from the construction of the World Health Organization office building in Manila.

The World Health Organization (WHO for short) is an international organization which has a regional
office in Manila. As an international organization, it enjoys privileges and immunities which are
defined more specifically in the Host Agreement entered into between the Republic of the Philippines
and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that
"the Organization, its assets, income and other properties shall be: (a) exempt from all direct and
indirect taxes. It is understood, however, that the Organization will not claim exemption from taxes
which are, in fact, no more than charges for public utility services; . . .

When the WHO decided to construct a building to house its own offices, as well as the other United
Nations offices stationed in Manila, it entered into a further agreement with the Govermment of the
Republic of the Philippines on November 26, 1957. This agreement contained the following provision
(Article III, paragraph 2):

The Organization may import into the country materials and fixtures required for the
construction free from all duties and taxes and agrees not to utilize any portion of the
international reserves of the Government.

Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22,
1951 which granted the Organization exemption from all direct and indirect taxes.

In inviting bids for the construction of the building, the WHO informed the bidders that the building to
be constructed belonged to an international organization with diplomatic status and thus exempt
from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into
account and should not include items for such taxes, licenses and other payments to Government
agencies."

The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for
short) on February 10, 1958 for the stipulated price of P370,000.00, but when the building was
completed the price reached a total of P452,544.00.

Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of
Internal Revenue stating that "as the 3% contractor's tax is an indirect tax on the assets and income
of the Organization, the gross receipts derived by contractors from their contracts with the WHO for
the construction of its new building, are exempt from tax in accordance with . . . the Host
Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue
reversed his opinion and stated that "as the 3% contractor's tax is not a direct nor an indirect tax on
the WHO, but a tax that is primarily due from the contractor, the same is not covered by . . . the Host
Agreement."

On January 2, 1960, the WHO issued a certification state 91 inter alia,:

When the request for bids for the construction of the World Health Organization office
building was called for, contractors were informed that there would be no taxes or
fees levied upon them for their work in connection with the construction of the
building as this will be considered an indirect tax to the Organization caused by the
increase of the contractor's bid in order to cover these taxes. This was upheld by the
 Bureau of Internal Revenue and it can be stated that the contractors submitted their
bids in good faith with the exemption in mind.

The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made
under the condition stated above, should be exempted from any taxes in connection
with the construction of the World Health Organization office building.

On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco
demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the
gross receipts it received from the WHO in the construction of the latter's building.

Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which
after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. The
Court of Tax Appeal's decision is now before us for review on certiorari.

In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption,
contending that the Host Agreement is null and void, not having been ratified by the Philippine
Senate as required by the Constitution. We find no merit in this contention. While treaties are
required to be ratified by the Senate under the Constitution, less formal types of international
agreements may be entered into by the Chief Executive and become binding without the
concurrence of the legislative body. 1 The Host Agreement comes within the latter category; it is a
valid and binding international agreement even without the concurrence of the Philippine Senate.

The privileges and immunities granted to the WHO under the Host Agreement have been recognized
by this Court as legally binding on Philippine authorities. 2

Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the
WHO is valid and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax"
within its purview. Petitioner's position is that the contractor's tax "is in the nature of an excise tax
which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the
engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner
of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect
taxation upon it."

We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the
respondent court:

In context, direct taxes are those that are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention that
he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957 US
429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course payable by the
contractor but in the last analysis it is the owner of the building that shoulders the
burden of the tax because the same is shifted by the contractor to the owner as a
matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the
WHO because, although it is payable by the petitioner, the latter can shift its burden
on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through
the contractor and it certainly cannot be said that 'this tax has no bearing upon the
World Health Organization.

Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner
of Internal Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted
to the WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this
case, since the Host Agreement specifically exempts the WHO from "indirect taxes." We agree.
The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid
by the manufacturer or producer; the fact that the manufacturer or producer might have added the
amount of the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The
Court held that the sales tax must be paid by the manufacturer or producer even if the sale is made
to tax-exempt entities like the National Power Corporation, an agency of the Philippine Government,
and to the Voice of America, an agency of the United States Government.

The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes
which, although not imposed upon or paid by the Organization directly, form part of the price paid or
to be paid by it. This is made clear in Section 12 of the Host Agreement which provides:

While the Organization will not, as a general rule, in the case of minor purchases,
claim exemption from excise duties, and from taxes on the sale of movable and
immovable property which form part of the price to be paid, nevertheless, when the
Organization is making important purchases for official use of property on which such
duties and taxes have been charged or are chargeable the Government of the
Republic of the Philippines shall make appropriate administrative arrangements for
the remission or return of the amount of duty or tax. (Emphasis supplied).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates the
clear intention of the Agreement to exempt the WHO from "indirect" taxation.

The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the construction of the WHO office building. The 3%
contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On
the Organization, as the payment thereof or its inclusion in the bid price would have meant an
increase in the construction cost of the building.

Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the
appealed decision is hereby affirmed.

SO ORDERED.

SECOND DIVISION

G.R. No. 173594 February 6, 2008

SILKAIR (SINGAPORE) PTE, LTD., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

CARPIO MORALES, J.:

Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the laws of Singapore
which has a Philippine representative office, is an online international air carrier operating the
Singapore-Cebu-Davao-Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-
Singapore routes.

On December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR) a written application
for the refund of P4,567,450.79 excise taxes it claimed to have paid on its purchases of jet fuel from
Petron Corporation from January to June 2000.1

As the BIR had not yet acted on the application as of December 26, 2001, Silkair filed a Petition for
Review2before the CTA following Commissioner of Internal Revenue v. Victorias Milling Co., Inc., et
al.3

Opposing the petition, respondent Commissioner on Internal Revenue (CIR) alleged in his Answer
that, among other things,

Petitioner failed to prove that the sale of the petroleum products was directly made from a
domestic oil company to the international carrier. The excise tax on petroleum products is the
direct liability of the manufacturer/producer, and when added to the cost of the goods sold
to the buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain
the article.4 (Emphasis and underscoring supplied)

By Decision of May 27, 2005, the Second Division of the CTA denied Silkairs petition on the ground
that as the excise tax was imposed on Petron Corporation as the manufacturer of petroleum
products, any claim for refund should be filed by the latter; and where the burden of tax is shifted to
the purchaser, the amount passed on to it is no longer a tax but becomes an added cost of the
goods purchased. Thus the CTA discoursed:

The liability for excise tax on petroleum products that are being removed from its refinery is
imposed on the manufacturer/producer (Section 130 of the NIRC of 1997). x x x

xxxx

While it is true that in the case of excise tax imposed on petroleum products, the seller
thereof may shift the tax burden to the buyer, the latter is the proper party to claim for the
refund in the case of exemption from excise tax. Since the excise tax was imposed upon
Petron Corporation as the manufacturer of petroleum products, pursuant to Section
130(A)(2), and that the corresponding excise taxes were indeed, paid by it, . . . any claim for
refund of the subject excise taxes should be filed by Petron Corporation as the
taxpayer contemplated under the law. Petitioner cannot be considered as the taxpayer
because it merely shouldered the burden of the excise tax and not the excise tax itself.

Therefore, the right to claim for the refund of excise taxes paid on petroleum products lies
with Petron Corporation who paid and remitted the excise tax to the BIR. Respondent, on the
other hand, may only claim from Petron Corporation the reimbursement of the tax burden
shifted to the former by the latter. The excise tax partaking the nature of an indirect tax, is
clearly the liability of the manufacturer or seller who has the option whether or not to shift the
burden of the tax to the purchaser. Where the burden of the tax is shifted to the
[purchaser], the amount passed on to it is no longer a tax but becomes an added cost
on the goods purchased which constitutes a part of the purchase price. The incidence of
taxation or the person statutorily liable to pay the tax falls on Petron Corporation though the
 impact of taxation or the burden of taxation falls on another person, which in this case is
petitioner Silkair.5 (Italics in the original; emphasis and underscoring supplied)

Silkair filed a Motion for Reconsideration6 during the pendency of which or on September 12, 2005
the Bengzon Law Firm entered its appearance as counsel,7 without Silkairs then-counsel of record
(Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez or "JGLaw") having withdrawn as
such.

By Resolution8 of September 22, 2005, the CTA Second Division denied Silkairs motion for
reconsideration. A copy of the Resolution was furnished Silkairs counsel JGLaw which received it
on October 3, 2005.9

On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice of Withdrawal of
Appearance.10 On even date, Silkair, through the Bengzon Law Firm, filed a
Manifestation/Motion11 stating:

Petitioner was formerly represented xxx by JIMENEZ GONZALES LIWANAG BELLO

VALDEZ CALUYA & FERNANDEZ (JGLaw).

1. On 24 August 2005, petitioner served notice to JGLaw of its decision to cease all
legal representation handled by the latter on behalf of the petitioner. Petitioner also
requested JGLaw to make arrangements for the transfer of all files relating to its legal
representation on behalf of petitioner to the undersigned counsel. x x x

2. The undersigned counsel was engaged to act as counsel for the petitioner in the
above-entitled case; and thus, filed its entry of appearance on 12 September 2005. x
xx

3. The undersigned counsel, through petitioner, has received information that the
Honorable Court promulgated a Resolution on petitioners Motion for
Reconsideration. To date, the undersigned counsel has yet to receive an official copy
of the above-mentioned Resolution. In light of the foregoing, undersigned counsel
hereby respectfully requests for an official copy of the Honorable Courts Resolution
on petitioners Motion for Reconsideration x x x.12 (Underscoring supplied)

On October 14, 2005, the Bengzon Law Firm received its requested copy of the September 22,
200513 CTA Second Division Resolution. Thirty-seven days later or on October 28, 2005, Silkair,
through said counsel, filed a Motion for Extension of Time to File Petition for Review14 before the
CTA En Banc which gave it until November 14, 2005 to file a petition for review.

On November 11, 2005, Silkair filed another Motion for Extension of Time.15 On even date, the
Bengzon Law Firm informed the CTA of its withdrawal of appearance as counsel for Silkair with the
information, that Silkair would continue to be represented by Atty. Teodoro A. Pastrana, who used to
be with the firm but who had become a partner of the Pastrana and Fallar Law Offices.16

The CTA En Banc granted Silkairs second Motion for Extension of Time, giving Silkair until
November 24, 2005 to file its petition for review. On November 17, 2005, Silkair filed its Petition for
Review17 before the CTA En Banc.

By Resolution of May 19,2006, the CTA En Banc dismissed18 Silkairs petition for review for having
been filed out of time in this wise:
 A petitioner is given a period of fifteen (15) days from notice of award, judgment, final order
or resolution, or denial of motion for new trial or reconsideration to appeal to the proper
forum, in this case, the CTA En Banc. This is clear from both Section 11 and Section 9 of
Republic Act No. 9282 x x x.

xxxx

The petitioner, through its counsel of record Jimenez, Gonzalez, L[iwanag], Bello, Valdez,
Caluya & Fernandez Law Offices, received the Resolution dated September 22, 2005 on
October 3, 2005. At that time, the petitioner had two counsels of record, namely, Jimenez,
Gonzales, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices and The Bengzon Law
Firm which filed its Entry of Appearance on September 12, 2005. However, as of said date,
Atty. Mary Jane B. Austria-Delgado of Jimenez, Gonzales, L[iwanag], Bello, Valdez, Caluya
& Fernandez Law Offices was still the counsel of record considering that the Notice of
Withdrawal of Appearance signed by Atty. Mary Jane B. Austria-Delgado was filed only on
October 13, 2005 or ten (10) days after receipt of the September 22, 2005 Resolution of the
Courts Second Division. This notwithstanding, Section 2 of Rule 13 of the Rules of
Court provides that if any party has appeared by counsel, service upon him shall be made
upon his counsel or one of them, unless service upon the party himself is ordered by the
Court. Where a party is represented by more than one counsel of record, "notice to any one
of the several counsel on record is equivalent to notice to all the counsel (Damasco vs.
Arrieta, et. al., 7 SCRA 224)." Considering that petitioner, through its counsel of record, had
received the September 22, 2005 Resolution as early as October 3, 2005, it had only until
October 18, 2005 within which to file its Petition for Review. Petitioner only managed to file
the Petition for Review with the Court En Banc on November 17, 2005 or [after] thirty (30)
days had lapsed from the final date of October 18, 2005 to appeal.

The argument that it requested Motions for Extension of Time on October 28, 2005 or ten
(10) days from the appeal period and the second Motion for Extension of Time to file its
Petition for Review on November 11, 2005 and its allowance by the CTA En
Banc notwithstanding, the questioned Decision is no longer appealable for failure to timely
file the necessary Petition for Review.19 (Emphasis in the original)

In a Separate Concurring Opinion,20 CTA Associate Justice Juanito C. Castaeda, Jr. posited that
Silkair is not the proper party to claim the tax refund.

Silkair filed a Motion for Reconsideration21 which the CTA En Banc denied.22 Hence, the present
Petition for Review23 which raises the following issues:

I. WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE HONORABLE
COURT OF TAX APPEALS EN BANC WAS TIMELY FILED.

II. APPEAL BEING AN ESSENTIAL PART OF OUR JUDICIAL SYSTEM, WHETHER OR

NOT PETITIONER SHOULD BE DEPRIVED OF ITS RIGHT TO APPEAL ON THE BASIS
OF TECHNICALITY.

III. ASSUMING THE HONORABLE SUPREME COURT WOULD HOLD THAT THE FILING
OF THE PETITITON FOR REVIEW WITH THE HONORABLE COURT OF TAX APPEALS
EN BANC WAS TIMELY, WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY
TO CLAIM FOR REFUND OR TAX CREDIT.24 (Underscoring supplied)
Silkair posits that "the instant case does not involve a situation where the petitioner was represented
by two (2) counsels on record, such that notice to the former counsel would be held binding on the
petitioner, as in the case of Damasco v. Arrieta, etc., et al.25 x x x heavily relied upon by the
respondent";26 and that "the case of Dolores De Mesa Abad v. Court of Appeals27 has more
appropriate application to the present case."28

In Dolores De Mesa Abad, the trial court issued an order of November 19, 1974 granting the therein
private respondents Motion for Annulment of documents and titles. The order was received by the
therein petitioners counsel of record, Atty. Escolastico R. Viola, on November 22, 1974 prior to
which or on July 17, 1974, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had
filed an "Appearance and Manifestation." Atty. Millora received a copy of the trial courts order on
December 9, 1974. On January 4, 1975, the therein petitioners, through Atty. Ernesto D. Tobias also
of the Millora, Tobias and Calimlim Law Office, filed their Notice of Appeal and Cash Appeal Bond as
well as a Motion for Extension of the period to file a Record on Appeal. They filed the Record on
Appeal on January 24, 1975. The trial court dismissed the appeal for having been filed out of time,
which was upheld by the Court of Appeals on the ground that the period within which to appeal
should be counted from November 22, 1974, the date Atty. Viola received a copy of the November
19, 1974 order. The appellate court held that Atty. Viola was still the counsel of record, he not having
yet withdrawn his appearance as counsel for the therein petitioners. On petition for certiorari,29 this
Court held

x x x [R]espondent Court reckoned the period of appeal from the time petitioners original
counsel, Atty. Escolastico R. Viola, received the Order granting the Motion for Annulment of
documents and titles on November 22, 1974. But as petitioners stress, Atty. Vicente Millora
of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation"
on July 16, 1974. Where there may have been no specific withdrawal by Atty. Escolastico R.
Viola, for which he should be admonished, by the appearance of a new counsel, it can be
said that Atty. Viola had ceased as counsel for petitioners. In fact, Orders subsequent to the
aforesaid date were already sent by the trial Court to the Millora, Tobias and Calimlim Law
Office and not to Atty. Viola.

Under the circumstances, December 9, 1974 is the controlling date of receipt by petitioners
counsel and from which the period of appeal from the Order of November 19, 1974 should
be reckoned. That being the case, petitioners x x x appeal filed on January 4, 1975 was
timely filed.30 (Underscoring supplied)

The facts of Dolores De Mesa Abad are not on all fours with those of the present case. In any event,
more recent jurisprudence holds that in case of failure to comply with the procedure established by
Section 26, Rule 13831 of the Rules of Court re the withdrawal of a lawyer as a counsel in a case, the
attorney of record is regarded as the counsel who should be served with copies of the judgments,
orders and pleadings.32 Thus, where no notice of withdrawal or substitution of counsel has been
shown, notice to counsel of record is, for all purposes, notice to the client.33 The court cannot be
expected to itself ascertain whether the counsel of record has been changed.34

In the case at bar, JGLaw filed its Notice of Withdrawal of Appearance on October 13, 200535 after
the Bengzon Law Firm had entered its appearance. While Silkair claims it dismissed JGLaw as its
counsel as early as August 24, 2005, the same was communicated to the CTA only on October 13,
2005.36 Thus, JGLaw was still Silkairs counsel of record as of October 3, 2005 when a copy of the
September 22, 2005 resolution of the CTA Second Division was served on it. The service upon
JGLaw on October 3, 2005 of the September 22, 2005 resolution of CTA Second Division was,
therefore, for all legal intents and purposes, service to Silkair, and the CTA correctly reckoned the
period of appeal from such date.
TECHNICALITY ASIDE, on the merits, the petition just the same fails.

Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC of 1997 which reads

Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of
Agencies. Petroleum products sold to the following are exempt from excise tax:

xxxx

(b) Exempt entities or agencies covered by tax treaties, conventions, and other international
agreements for their use and consumption: Provided, however, That the country of said
foreign international carrier or exempt entities or agencies exempts from similar taxes
petroleum products sold to Philippine carriers, entities or agencies; x x x

x x x x,

and Article 4(2) of the Air Transport Agreement between the Government of the Republic of the
Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP
and Singapore) which reads

Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken
on board aircraft in the territory of one Contracting party by, or on behalf of, a designated
airline of the other Contracting Party and intended solely for use in the operation of the
agreed services shall, with the exception of charges corresponding to the service performed,
be exempt from the same customs duties, inspection fees and other duties or taxes imposed
in the territories of the first Contracting Party , even when these supplies are to be used on
the parts of the journey performed over the territory of the Contracting Party in which they
are introduced into or taken on board. The materials referred to above may be required to be
kept under customs supervision and control.

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person
on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to
another.37 Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the
return shall be filed and the excise tax paid by the manufacturer or producer before removal of
domestic products from place of production." Thus, Petron Corporation, not Silkair, is the statutory
taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to
Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.38

Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport
Agreement between RP and Singapore grants exemption "from the same customs duties, inspection
fees and other duties or taxes imposed in the territory of the first Contracting Party."39 It
invokes Maceda v. Macaraig, Jr.40 which upheld the claim for tax credit or refund by the National
Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect
taxes.

Silkairss argument does not persuade. In Commissioner of Internal Revenue v. Philippine Long
Distance Telephone Company,41 this Court clarified the ruling in Maceda v. Macaraig, Jr., viz:
 It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from "all
taxes" granted to the National Power Corporation (NPC) under its charter includes both
direct and indirect taxes. But far from providing PLDT comfort, Maceda in fact supports the
case of herein petitioner, the correct lesson of Maceda being that an exemption from "all
taxes" excludes indirect taxes, unless the exempting statute, like NPCs charter, is so
couched as to include indirect tax from the exemption. Wrote the Court:

x x x However, the amendment under Republic Act No. 6395 enumerated the details
covered by the exemption. Subsequently, P.D. 380, made even more specific the
details of the exemption of NPC to cover, among others, both direct and indirect
taxes on all petroleum products used in its operation. Presidential Decree No. 938
[NPCs amended charter] amended the tax exemption by simplifying the same law in
general terms. It succinctly exempts NPC from "all forms of taxes, duties[,] fees"

The use of the phrase "all forms" of taxes demonstrates the intention of the law to
give NPC all the tax exemptions it has been enjoying before

xxxx

It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax
exemption of NPC from all forms of taxes including indirect taxes as provided under
R.A. No. 6395 and P.D. 380 if it is to attain its goals. (Italics in the original; emphasis
supplied)42

The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air
Transport Agreement between RP and Singapore cannot, without a clear showing of legislative
intent, be construed as including indirect taxes. Statutes granting tax exemptions must be
construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, 43 and
if an exemption is found to exist, it must not be enlarged by construction.44

WHEREFORE, the petition is DENIED.

Costs against petitioner.

SO ORDERED.

SECOND DIVISION

G.R. No. 104151 March 10, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION
and COURT OF TAX APPEALS, respondents.
G.R No. 105563 March 10, 1995

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.

REGALADO, J.:

Before us for joint adjudication are two petitions for review on certiorari separately filed by
the Commissioner of Internal Revenue in G.R. No. 104151, and by Atlas Consolidated Mining
and Development Corporation in G.R. No. 105563, which respectively seek the aside of the
judgments of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated on February
12, 1992 1 and in CA-G.R. SP No. 26087 promulgated on May 22, 1992. 2

Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC)
is a domestic corporation which owns and operates a mining concession at Toledo City,
Cebu, the products of which are exported to Japan and other foreign countries. On April 9,
1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the
basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the
service of an assessment notice and demand for payment of the amount of P12,391,070.51
representing deficiency ad valorem percentage and fixed taxes, including increments, for the
taxable year 1975 against ACMDC. 3

Likewise, on the basis. of the BIR examiner's report in another investigation separately
conducted, the Commissioner had another assessment notice, with a demand for payment of
the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business
taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. 4

ACMDC protested both assessments but the. same were denied, hence it filed two separate
petitions for review in the Court of Tax Appeals (also, tax court) where they were docketed as
C.T.A. Cases Nos. 3467 and 3825. These two cases, being substantially identical in most
respects except for the taxable periods and the amounts involved, were eventually
consolidated.

On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding, inter
alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for 1975
and 1976 in the respective amounts of P11,276,540.79 and P12,882,760.80 thereby effectively
sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral, the
refining and smelting charges should be deducted, in addition to freight and insurance
charges, from the London Metal Exchange (LME) price of manufactured copper.

However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of
interest, consisting of 25% surcharge for late payment of the ad valorem tax and late filing of
notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged
deficiency manufacturer's sales tax and contractor's tax.

The particulars of the reduced amount of said tax obligation is enumerated in detail in the
dispositive portion of the questioned judgment of the tax court, thus:
 WHEREFORE, petitioner should and is hereby ORDERED to pay the total
amount of the following:

a) P297,900.39 as 25% surcharge on silver extracted during the

period November 1, 1974 to December 31, 1975.

b) P161,027.53 as 25% surcharge on silver extracted for the

taxable year 1976.

c) P315,027.30 as 25% surcharge on gold extracted during the

period November 1, 1974 to December 31, 1975.

d) P260,180.55 as 25% surcharge on gold during the taxable year

1976.

e) P53,585.30 as 25% surcharge on pyrite extracted during the

period November 1, 1974 to December 31, 1975.

f) P53,283.69 as 25% surcharge on pyrite extracted during the

taxable year 1976.

g) P316,117.53 as deficiency manufacturer's sales tax and

surcharge during the taxable year 1975; plus 14% interest from
January 21, 1976 until fully paid as provided under Section 183
of P.D. No. 69.

h) P23,631.44 as deficiency contractor's tax and surcharge on

the lease of personal property during the taxable year 1975; plus
14% interest from January 21, 1976 until fully paid as provided
under Section 183 of P.D. 69.

i) P91,883.75 as deficiency contractor's tax and surcharge on the

lease of personal property during the taxable year 1976, plus
14% interest from April 21, 1976 until fully paid as provided
under. Section 183 of P.D. No. 69.

With costs against petitioner. 5

As a consequence, both parties elevated their respective contentions to respondent Court of

Appeals in two separate petitions for review. The petition filed by the Commissioner, which
was docketed as CA-G.R. SP No. 25945, questioned the portion of the judgment of the tax
court deleting the ad valorem tax on copper and silver, while the appeal filed by ACMDC and
docketed as CA-G.R. SP No. 26087 assailed that part of the decision ordering it to pay
P1,572,637.48 representing alleged deficiency assessment.

On February 12, 1992, judgment was rendered by respondent Court of Appeals in CA-G.R. SP
No. 25945, dismissing the petition and affirming the tax court's decision on the manner of
computing the ad valorem tax. 6 Hence, the Commissioner of Internal Revenue
filed a petition before- us in G.R. No. 104151, raising the sole issue of
whether or not, in computing the ad valorem tax on copper, charges for
smelting and refining should also be deducted, in addition to freight and
insurance costs, from the price of copper concentrates.
On May 22, 1992, judgment was likewise rendered by the same respondent court in CA-G.R.
SP No. 26087, modifying the judgment of the tax court and further reducing the tax liability of
ACMDC by deleting therefrom the following items:

(1) the award under paragraph (a) of P297,900.39 as 25% surcharge on silver
extracted during the period November 1, 1974 to December 31, 1975;

(2) the award under paragraph (c) thereof of P315,027.30 as 25% surcharge on
gold extracted during the period November 1, 1974 to December 31, 1975; and

(3) the award under paragraph (e) thereof of P53,585.30 as 24% (sic, 25%)
surcharge on pyrite extracted during the period November 1, 1974 to December
31, 1975. 7

Still not satisfied with the said judgment which had reduced its tax liability to P906,124.49, as
a final recourse ACMDC came to this Court on a petition for review on certiorari in G.R. No.
105563, claiming that it is not liable at all for any deficiency. tax assessments for 1975 and
1976. In our resolution of September 1, 1993, G.R. No. 104151 was ordered consolidated with
G.R. No. 105563. 8

I. G.R No. 104151

The Commissioner of Internal Revenue claims that the Court of Appeals and the tax court
erred in allowing the deduction of refining and smelting charges from the price of copper
concentrates. It is the contention of the Commissioner that the actual market value of the
mineral products should be the gross sales realized from copper concentrates, deducting
therefrom mining, milling, refining, transporting, handling, marketing or any other expenses.
He submits that the phrase "or any other expenses" includes smelting and refining charges
and that the law allows deductions for actual cost of ocean freight and insurance only in
instances where the minerals or mineral products are sold or consigned abroad by the
lessees or owner of the mine under C.I.F. terms, hence it is error to allow smelting and
refining charges as deductions.

We are not persuaded by his postulation and find the arguments adduced in support thereof
untenable.

The pertinent provisions of the National Internal Revenue Code (tax code, for facility) at the
time material to this controversy, read as follows:

Sec. 243. Ad valorem taxes on output of mineral lands not covered by lease.
There is hereby imposed on the actual market value of the annual gross output
of the minerals mineral products extracted or produced from all mineral lands
not covered by lease, an ad valorem tax in the amount of two per centum of the
value of the output except gold which shall pay one and one-half per centum.

Before the minerals or mineral products are removed from the mines, the
Commissioner of Internal Revenue or his representatives shall first be notified
 of such removal on a form prescribed for the purpose. (As amended by Rep.
Act No. 6110.)

Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral
products." Disposition of royalties and ad valorem taxes. The term "gross
output" shall be interpreted as the actual market value of minerals or mineral
products, or of bullion from each mine or mineral lands operated as a separate
entity without any deduction from mining, milling, refining, transporting,
handling, marketing, or any other expenses: Provided, however, That if the
minerals or mineral products are sold or consigned. abroad by the lessee or
owner of the mine under C.I.F. terms, the actual cost of ocean freight and
insurance shall be deducted. The output of any group of contiguous mining
claim shall not be subdivided. The word "minerals" shall mean all inorganic
substances found in nature whether in solid, liquid, gaseous, or any
intermediate state. The term "mineral products" shall mean things produced by
the lessee, concessionaire or owner of mineral lands, at least eighty per cent
of which things must be minerals extracted by such lessee, concessionaire, or
owner of mineral lands. Ten per centum of the royalties and ad valorem taxes
herein provided shall accrue to the municipality and ten per centum to the
province where the-mines are situated, and eighty per centum to the National
Treasury. (As amended by Rep. Acts Nos. 834, 1299, and by Rep. Act No. 1510,
approved June 16, 1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the
actual market value of the annual gross output of the minerals or mineral products extracted
or produced from all mineral lands not covered by lease. In computing the tax, the term
"gross output" shall be the actual market value of minerals or mineral products, or of bullion
from each mine or mineral lands operated as a separate entity, without any deduction for
mining, milling, refining, transporting, handling, marketing or any other expenses. If the
minerals or mineral products are sold or consigned abroad by the lessee or owner of the
mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted.

In other words, the assessment shall be based, not upon the cost of production or extraction
of said minerals or mineral products, but on the price which the same before or without
undergoing a process of manufacture would command in the ordinary course of
business. 9

In the instant case, the allowance by the tax court of smelting and refining charges as
deductions is not contrary to the above-mentioned provisions of the tax code which
ostensibly prohibit any form of deduction except freight and insurance charges. A review of
the records will show that it was the London Metal Exchange price on wire bar which was
used as tax base by ACMDC for purposes of the 2% ad valorem tax on copper concentrates
since there was no available market price quotation in the commodity exchange or markets of
the world for copper concentrates nor was there any market quotation locally
obtainable. 10 Hence, the charges for smelting and refining were assessed
not on the basis of the price of the copper extracted at the mine site
which is prohibited by law, but on the basis of the actual market value of
the manufactured copper which in this case is the price quoted for
copper wire bar by the London Metal Exchange.
The issue of whether the ad valorem tax should be based upon the value of the finished
product, or the value upon extraction of the raw materials or minerals used in the
manufacture of said finished products, has been passed upon by us in several cases wherein
we held that the ad valorem tax is to be computed on the basis of the market value of the
mineral in its condition at the time of such removal and before it undergoes a chemical
change through manufacturing process, as distinguished from a purely physical process
which does not necessarily involve the change or transformation of the raw material into a
composite distinct product. 11

Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of Internal
Revenue, 12 this Court ruled:

. . . ad valorem tax is a tax not on the minerals, but upon the privilege of
severing or extracting the same from the earth, the government's right to exact
the said impost springing from the Regalian theory of State ownership of its
natural resources.

. . . While cement is composed of 80% minerals, it is not merely an admixture

or blending of raw materials, as lime, silica, shale and others. It is the result of
a definite the crushing of minerals, grinding, mixing, calcining, cooling, adding
of retarder or raw gypsum. In short, before cement reaches its saleable form,
the minerals had already undergone a chemical change through manufacturing
process, This could not have been the state of mineral products' that the law
contemplates for purposes of imposing the ad valorem tax. . . . this tax is
imposed on the privilege of extracting or severing the minerals from the mines.
To our minds, therefore the inclusion of the term mineral products is intended
to comprehend cases where the mined or quarried elements may not be usable
in its original state without application of simple treatments . . . which process
does not necessarily involve the change or transformation of the raw materials
into a composite, distinct product. . . . While the selling price of cement may
reflect the actual market value of cement, said selling price cannot be taken as
the market value also of the minerals composing the cement. And it was not
the cement that was mined, only the minerals composing the finished product.

This view was subsequently affirmed in the resolution of the Court denying the motion for
reconsideration of its aforesaid decision, 13 reiterated that the pertinent part of
which reiterated that
. . . the ad valorem tax in question should be based on the actual market value
of the quarried minerals used in producing cement, . . . the law intended to
impose the ad valorem tax upon the market value of the component mineral
products in their original state before processing into cement. . . . the law does
not impose a tax on cement qua cement, but on mineral products at least 80%
of which must be minerals extracted by the lessee, concessionaire or owner of
mineral lands.

The Court did not, and could not, rule that cement is a manufactured product
subject to sales tax, for the reason that such liability had never been litigated
by the parties. What it did declare is that, while cement is a mineral product, it
is no longer in the state or condition contemplated by the law; hence the
market value of the cement could not be the basis for computing the ad
 valorem tax, since the ad valorem tax is a severance tax i.e., a charge upon the
privilege of severing or extracting minerals from the earth, (Dec. p. 4) and is
due and payable upon removal of the mineral product from its bed or mine
(Tax Code s. 245).

Therefore, the imposable ad valorem tax should be based on the selling price of the quarried
minerals, which is its actual market value, and not on the price of the manufactured product.
If the market value chosen for the reckoning is the value of the manufactured. or finished
product, as in the case at bar, then all expenses of processing or manufacturing should be
deducted in order to approximate as closely as is humanly possible the actual market value
of the raw mineral at the mine site.

It was copper ore that was extracted by ACMDC from its mine site which, through a simple
physical process of removing impurities therefrom, was converted into copper concentrate In
turn, this copper concentrate underwent the process of smelting and refining, and the
finished product is called copper cathode or copper wire bar.

The copper wire bar is the manufactured copper. It is not the mineral extracted from the mine
site nor can it be considered a mineral product since it has undergone a manufacturing
process, to wit:

I. The physical process involved in the production of copper concentrate are

the following (p. 19, BIR records; Exh. H, p. 43, Folder I of Exhibits.)

A Mining Process

(1) Blasting The ore body is broken up by

blasting.

(2) Loading The ore averaging about 1/2

percent
copper is loaded into ore trucks by electric
shovels.

(3) Hauling The trucks of ore are hauled to the

mill.

B Milling Process

(1) Crushing The ore is crushed to pieces the

size of peanuts.

(2) Grinding The crushed ore is ground to

powder form.

(3) Concentrating The mineral bearing particles

in the powdered ore are concentrated.

The ores or rocks, transported by conveyors, are crushed repeatedly by steel

balls into size of peanuts, when they are ground and pulverized. The powder is
fed into concentrators where it is mixed with water and other reagents. This is
known in the industry as a flotation phase. The copper-bearing materials float
while the non-copper materials in the rock sink. The material that floats is
scooped and dried and piled. This is known as copper concentrate. The
material at the bottom is waste, and is known in the industry as tailings. In
Toledo City, tailings are disposed of through metal pipes from the flotation
mills to the open sea. Copper concentrate of petitioner contains 28-31%
copper. The concentrate is loaded in ocean vessels and shipped to Mitsubishi
Metal Corporation mills in Japan, where the smelting, refining and fabricating
processes are done. (Memorandum of petitioner, p. 71, CTA records.)

II. The chemical or manufacturing process in the production of wire bar is as

follows: (Exh. 'H', p. 43, Folder I of exhibits.)

A. Smelting

(1) Drying The copper concentrates (averaging about 30

percent copper) are dried.

1. Flash Furnace The dried concentrate is smelted autogenously and a

matte containing 65 percent is produced.
2. Converter The matte is converted to blister copper with a purity of
about 99 per cent.

B. Refining

(1) Casting Wheel Blister copper is treated in an anode

furnace where. copper requiring further treatment is sent to the
casting wheel to produce cathode copper.

(2) Electrolytic Refining Anode copper is further refined by

electrolytic refining to produce cathode copper.

C. Fabricating

(1) Rolling Fire refined or electroly-tic copper-and/or brass (a

mixture Of copper and zinc) is made into tubes, sheets, rods and
wire.

(2) Extruding Sheet tubes, rods and wire are further fabricated
into the copper articles in everyday use.

The records show that cathodes, with purity of 99.985% are cast or fabricated
into various shapes, depending on their industrial destination. Cathodes are
metal sheets of copper 1 meter x 1 meter x 16-16 millimeter thick and 160
kilograms in weight, although this thickness is not uniform for all the sheets.
Cathodes sheets are not suitable for direct fabrication, hence, are further
fabricated into the desired shape, like wire bar, billets and cakes. (p. 1,
deposition, London,) Wire bars are rectangular pieces, 100 millimeter x 100
millimeter x 1.37 meters long and weigh some 125 kilos. They are suited for
copper wires and copper rods. Billets are fabricated into tubes and heavy
electric sections. Cakes are in the form of thick sheets and strips. (pp. 13, 18-
 21, deposition, Japan, Exhs. "C" & "G", Japan, pp. 1-2, deposition, London, see
pp. 70-72, CTA records.) 14

Significantly, the finding that copper wire bar is a product of a manufacturing process finds
support in the definition of a "manufacturer" in Section 194 (x) of the aforesaid tax code
which provides:

"Manufacturer" includes every person who by physical or chemical process

alters the exterior texture or form or inner substance of any raw material or
manufactured or partially manufactured product in such a manner as to
prepare it for a special use or uses to which it could not have been put in its
original condition, or who by any such process alters the quality of any such
raw material or manufactured or partially manufactured product so as to
reduce it to marketable shape or prepare it for any of the uses of industry, or
who by any such process combines any such raw material or manufactured or
partially manufactured products with other materials: or products of the same
or different kinds and in such manner that the finished product of such
process or manufacture can be put to a special use or uses to which such raw
material or manufactured or partially manufactured products, or combines the
same to produce such finished products for the purpose of their sale or
distribution to others and not for his own use or consumption.

Moreover, it is also worth noting at this point that the decision of the tax court was based on
its previous ruling in the case of Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue, 15 dated January 23, 1981, which we quote
with approval:
. . . The controlling law is clear and specific; it should therefore be applied as
Since the mineral or mineral product removed from its bed or mine at Toledo
City by petitioner is copper concentrate as admitted by respondent himself,
not copper wire bar, the actual market value of such copper concentrate in its
condition at the time of such removal without any deduction from mining,
milling, refining, transporting, handling, marketing, or any other expenses
should be the basis of the 2% ad valorem tax.

The conclusion reached is rendered clearer when it is taken into consideration

that the ad valorem tax is a severance tax, a charge upon the privilege of
severing or extracting minerals from the earth, and is due and payable upon
removal of the mineral product from its bed or mine, the tax being computed
on the basis of the market value of the mineral in its condition at the time of
such removal and before its being substantially changed by chemical or
manufacturing (as distinguished from purely physical) processing. (Cebu
Portland Cement Co. vs. Commissioner of Internal Revenue, supra.) Copper
wire bars, as discussed above,, have already undergone chemical or
manufacturing processing in Japan, they are not extracted or produced from
the earth by petitioner in its mine site at Toledo City. Since the ad valorem tax
is computed on the basis of the actual market value of the mineral in its
condition at the time of its removal from the earth, which in this case is copper
concentrate, there is no basis therefore for an assertion that such tax should
be measured on the basis of the London Metal Exchange price quotation of the
manufactured wire bars without any deduction of smelting and refining
charges.
 In resume:

1. The mineral or mineral product of petitioner the extraction or

severance from the soil. of which the ad valorem tax is directed
is copper concentrate.

2. The ad valorem tax is computed on the basis of the actual

market value of the copper concentrate in its condition at the
time of removal from the earth and before substantially changed
by chemical or manufacturing process without any deduction
milling, refining, from mining, transporting, handling, marketing,
or any other expenses. However, since the copper concentrate
is sold abroad by petitioner under C.I.F. terms, the actual cost of
ocean freight and insurance is deductible.

3. There being no market price quotation of copper concentrate

locally or in the commodity exchanges or markets of the world,
the London Metal Exchange price quotation of copper wire bar,
which is used by petitioner and Mitsubishi Metal Corporation as
reference to determine the selling price of copper concentrate,
may likewise be employed in this case as reference point in
ascertaining the actual market value of copper concentrate
for ad valorem tax purposes. By deducting from the London
Metal Exchange price quotation of copper wire bar all charges
and costs incurred after the copper concentrate has been
shipped from Toledo City to the time the same has been
manufactured into wire bar, namely, smelting, electrolytic
refining and fabricating, the remainder represents to a
reasonable degree the actual market value of the copper
concentrate in its condition at the time of extraction or removal
from its bed in Toledo City for the purposes of the ad
valorem tax.

The Commissioner of Internal Revenue argues that the ruling in the case above stated is not
binding, considering that the incumbent Commissioner of Internal Revenue is not bound by
decisions or rulings of his predecessor when he finds that a different construction of the law
should be adopted, invoking therefor the doctrine enunciated in Hilado vs. Collector of
internal Revenue, et a1, 16 This trenches on specious reasoning. What was
involved in the Hilado case was a previous ruling of a former
Commissioner of Internal Revenue. In the case at bar, the Commissioner
based his findings on a previous decision rendered by the Court of Tax
Appeals itself.
The Court of Tax Appeals is not a mere superior administrative agency or tribunal but is a
part of the judicial system of the Philippines. 17 It was created by Congress
pursuant to Republic Act No. 1125, effective June 16, 1954, as a
centralized court specializing in tax cases. It is a regular court vested
with exclusive appellate jurisdiction over cases arising under the
National Internal Revenue Code, the Tariff and Customs Code, and the
Assessment Law. 18
Although only the decisions of the Supreme Court establish jurisprudence or doctrines in
this jurisdiction, nonetheless the decisions of subordinate courts have a persuasive effect
and may serve as judicial guides. It is even possible that such a conclusion or
pronouncement can be raised to the status of a doctrine if, after it has been subjected to test
in the crucible of analysis and revision the Supreme Court should find that it has merits and
qualities sufficient for its consecration as a rule of jurisprudence. 19

Furthermore, as a matter of practice and principle, the Supreme Court will not set aside the
conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very
nature of its function, dedicated exclusively to the study and consideration of tax problems
and has necessarily developed an expertise on the subject, unless there has been an abuse
or improvident exercise of authority on its part. 20

II. G.R. No. 105563

The petition herein raises the following issues for resolution:

A. Whether or not petitioner is liable for payment, of the 25%

surcharge for alleged late filing of notice of removal/late
payment of the ad valorem tax on silver, gold and pyrite
extracted during the taxable year 1976.

B. Whether or not petitioner is liable for payment of the

manufacturer' s sales tax and surcharge during the taxable year
1975, plus interest, on grinding steel balls borrowed by its
competitor; and

C. 'Whether or not petitioner is liable for payment of the

contractor's tax and surcharge on the alleged lease of personal
property during the taxable years 1975 and 1976 plus interest. 21

A. Surcharge on Silver, Gold and Pyrite

ACMDC argues that the Court of Appeals erred in holding it liable to pay 25% surcharge on
silver, gold and pyrite extracted by it during tax year 1976.

Sec. 245 of the then tax code states:

Sec. 245. Time and manner of payment of royalties or ad valorem taxes. The
royalties or ad valorem taxes as the case may be, shall be due and payable
upon the removal of the mineral products from the locality where mined.
However, the output of the mine may be removed from such locality without
the pre-payment of such royalties or ad valorem taxes if the lessee, owner, or
operator shall file a bond in the form and amount and with such sureties as the
Commissioner of Internal Revenue may require,. conditioned upon the
payment of such royalties or ad valorem taxes, in which case it shall be the
duty of every lessee, owner, or operator of a mine to make a true and complete
return in duplicate under oath setting forth the quantity and the actual market
 value of the output of his mine removed during each calendar quarter and pay
the royalties or ad valorem taxes due thereon within twenty days after the
close of said quarter.

In case the royalties or ad valorem taxes are not paid within the period
prescribed above, there shall be added thereto a surcharge of twenty-five per
centum. Where a false or fraudulent return is made, there shall be added to the
royalties or ad valorem taxes a surcharge of fifty per centum of their amount.
The surcharge So, added: shall be collected in the same manner and as part of
the royalties or ad valorem taxes, as the case may be.

Under the aforesaid provision, the payment of the ad valorem tax shall be made upon
removal of the mineral products from the mine site or if payment cannot be made, by filing a
bond in the form and amount to be approved by the Commissioner conditioned upon the
payment of the said tax.

In the instant case, the records show that the payment of the ad valorem tax on gold, silver
and pyrite was belatedly made. ACMDC, however, maintains that it should not be required to
pay the 25% surcharge because the correct quantity of gold and silver could be determined
only after the copper concentrates had gone through the process of smelting and refining in
Japan while the amount of pyrite cannot be determined until after the flotation process
separating the copper mineral from the waste material was finished.

Prefatorily, it must not be lost sight of that bad faith is ; not essential for the imposition of the
25% surcharge for late payment of the ad valorem tax. Hence,

MISSING PAGE 19

Q. Now, what do you do with the result of your analysis?

A. These are tabulated and then averaged out to represent one

shipment.

Q. Will you tell this Honorable Court whether in that laboratory

testing you physically separate the gold, you physically separate
the silver and you physically separate the copper content of that
40 to 50 kilos?

A. No, no, we analyze this in one sample. This sample is

analyzed for gold, silver, and copper, but there is no recovery
made.

Q. You mean there is no physical separation?

A. No, no physical separation.

Q. So these three minerals copper, gold and silver are in

that same powder that you have tested?

A Yes, it is in the same powder.

 Q. Now how do you reflect the results of the testing?

A. You mean in analysis?

Q. In the analysis, yes.

A. Copper is reported in percent.

Q. Percentage?

A. Yes.

Q. How about gold?

A. Gold and silver part is represented as grams per dmt or parts

per million.

Q. Based on the results of your data gathered in the laboratory?

A. Yes.

Q. Now where do you submit the results of the laboratory

testing?

A When a shipment is made we prepare a certificate of analysis

signed by me and then which (sic) is sent to Manila.

Q. Now, as far as you know in connection with your duty do you

know what Manila what do you say, Manila, ACMDC?

A. Makati.

Q. Makati. What does Makati ACMDC do with your assay report?

A. As far as I know it is used as the basis for the payment of ad

valorem tax. 24

The above-quoted testimony accordingly supports these findings of the tax court in its
decision in this case:

We see it (sic) that even if the silver and gold cannot as yet be physically
separated from the copper concentrate until the process of smelting and
refining was completed, the estimated commercial quantity of the silver and
gold could have been determined in much the same way that petitioner is able
to estimate the commercial quantity of copper during the assay. If, as stated by
petitioner, it is able to estimate the grade of the copper ore, and it has
determined the grade not only of the copper but also those of the gold and
silver during the assay (Petitioner's Memorandum, p. 207, Record), ergo, the
estimated commercial quantity of the silver and gold subject to ad valorem tax
could have also been determined and provisionally paid as for copper. 25
The other allegation of ACMDC is that there was no removal of pyrite from the mine site
because the pyrite was delivered to its sister company, Atlas Fertilizer Corporation, whose
plant is located inside the mineral concession of ACMDC in Sangi, Toledo City. ACMDC,
however, is already barred by estoppel in pais from putting that matter in issue.

An ad valorem tax on pyrite for the same tax year was already declared and paid by ACMDC.
In fact, that payment was used as the basis for computing the 25% surcharge. It was only
when ACMDC was assessed for the 25% surcharge that said issue was raised by it. Also, the
evidence shows that deliveries of pyrite were not exclusively made to its sister company,
Atlas Fertilizer Corporation. There were shipments of pyrite to other companies located
outside of its mine site, in addition to those delivered to its aforesaid sister company. 26

B. Manufacturer's Tax and Contractor's Tax

The manufacturer's tax is imposed under Section 186 of the tax code then in force which
provides:

Sec. 186. Percentage tax on sales of other articles. There shall be levied,
assessed and collected once only on every original sale, barter, exchange, or
similar transaction either for nominal or valuable consideration, intended to
transfer ownership of, or title to, the articles not enumerated in sections one
hundred and eighty-four-A, one hundred and eighty five, one hundred and
eighty-five-A, one hundred eighty-five-B, and one hundred eighty-six-B, a tax
equivalent to seven per centum of the gross selling price or gross value in
money of the articles so sold, bartered, exchanged, or transferred, such tax to
be paid by the manufacturer or producer: Provided, That where the articles
subject to tax under this Section are manufactured out of materials likewise
subject to tax under this section and section one hundred eighty-nine, the total
cost of such materials, as duly established, shall be deductible from the gross
selling price or gross value in money of such manufactured articles. (As
amended by Rep. Act No. 6110 and by Pres. Decree No. 69.)

On the other hand, the contractor's tax is provided for under Section 191 of the same code,
paragraph 17 of which declares that lessors of personal property shall be subject to a
contractor's tax of 3% of the gross receipts.

Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business
and Occupation." These "privilege taxes on business" are taxes imposed upon the privilege
of engaging in business. They are essentially excise taxes. 27 To be held liable for the
payment of a privilege tax, the person or entity must be engaged in
business, as shown by the fact that the drafters of the tax code had
purposely grouped said provisions under the general heading adverted
to above.
"To engage" is to embark on a business or to employ oneself therein. The word "engaged"
connotes more than a single act or a single transaction; it involves some continuity of action.
"To engage in business" is uniformly construed as signifying an employment or occupation
which occupies one's time, attention, and labor for the purpose of a livelihood or profit. The
expressions "engage in business," "carrying on business" or "doing business" do not have
different meanings, but separately or connectedly convey the idea of progression, continuity,
or sustained activity. "Engaged in business" means occupied or employed in business;
carrying on business" does not mean the performance of a single disconnected act, but
means conducting, prosecuting, and continuing business by performing progressively all the
acts normally incident thereto; while "doing business" conveys the idea of business being
done, not from time to time, but all the time. 28

The foregoing notwithstanding, it has likewise been ruled that one act may be sufficient to
constitute carrying on a business according to the intent with which the act is done. A single
sale of liquor by one who intends to continue selling is sufficient to render him liable for
"engaging in or carrying on" the business of a liquor dealer. 29

There may be a business without any sequence of acts, for if an isolated transaction, which if
repeated would be a transaction in a business, is proved to have been undertaken with the
intent that it should be the first of several transactions, that is, with the intent of carrying on a
business, then it is a first transaction in an existing business. 30

Thus, where the end sought is to make a profit, the act constitutes "doing- business." This is
not without basis. The term "business," as used in the law imposing a license tax on
business, trades, and so forth, ordinarily means business in the trade or commercial sense
only, carried on with a view to profit or livelihood; 31 It is thus restricted to activities
or affairs where profit is the purpose, or livelihood is the motive. Since
the term "business" is being used without any qualification in our
aforesaid tax code, it should therefore be therefore be construed in its
plain and ordinary meaning, restricted to activities for profit or
livelihood. 32
In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It
asserts that it is not engaged in the business of selling grinding steel balls, but it only
produces grinding steel balls solely for its own use or consumption, However, it admits
having lent its grinding steel balls to other entities but only in very isolated cases.

After a careful review of the records and on the basis of the legal concept of "engaging in
business" hereinbefore discussed, we are inclined to agree with ACMDC that it should not
and cannot be held liable for the payment of the manufacturer's tax.

First, under the tax code then in force, the 7% manufacturer's sales tax is imposed on the
manufacturer for every original sale, barter, exchange and other similar transaction intended
to transfer ownership of articles. As hereinbefore quoted, and we repeat the same for facility
of reference, the term "manufacturer" is defined in the tax code as including "every person
who by physical or chemical process alters the exterior texture or form or inner substance of
any raw material or manufactured or partially manufactured product in such manner as to
prepare it for a special use or uses to which it could not have been put in its original
condition, or who by any such process alters the quality of any such raw material or
manufactured or partially manufactured product so as to reduce it to marketable shape or
prepare it for any of the uses of industry, or who by any such process combines any such
raw material or manufactured or partially manufactured products with other materials or
products of the same or of different kinds and in such manner that the finished product of
such process or manufacture can be put to a special use or uses to which such raw materials
or manufactured or partially manufactured products in their original condition could not have
been put, and who in addition alters such raw material or manufactured or partially
manufactured products, or combines the same to produce such finished products for the
purpose of their sale or distribution to others and not for his own use or consumption. 33

Thus, a manufacturer, in order to be subjected to the necessity of paying the percentage tax
imposed by Section 186 of the tax code, must be 'engaged' in the sale, barter or exchange of;
personal property. Under a statute which imposes a tax on persons engaged in the sale,
barter or exchange of merchandise, a person must be occupied or employed in the sale,
barter or exchange of personal property. A person can hardly be considered as occupied or
employed in the sale, barter or exchange of personal property when he has made one
purchase and sale only. 34

Second, it cannot be legally asserted, for purposes of this particular assessment only, that
ACMDC was engaged in the business of selling grinding steel balls on the basis of the
isolated transaction entered into by it in 1975. There is no showing that said transaction was
undertaken by ACMDC with a view to gaining profit. therefrom and with the intent of carrying
on a business therein. On the contrary, what is clear for us is that the sale was more of an
accommodation to the other mining companies, and that ACMDC was subsequently replaced
by other suppliers shortly thereafter.

This finding is strengthened by the investigation report, dated March 11, 1980, of the B.I.R.
Investigation Team itself which found that

ACMDC has a foundry shop located at Sangi, Toledo City, and manufactures
grinding steel balls for use in its ball mills in pulverizing the minerals before
they go to the concentrators, For the grinding steel balls manufactured by
ACMDC and used in its operation, we found it not subject to any business tax.
But there were times in 1975 when other mining companies were short of
grinding steel balls and ACMDC supplied them with these materials
manufactured in its foundry shop. According to the informant, these were
merely accommodations and they were replaced by the other suppliers. 35

At most, whatever profit ACMDC may have realized from that single transaction was just
incidental to its primordial purpose of accommodating other mining companies. Well-settled
is the rule that anything done as a mere incident to, or as a necessary consequence of, the
principal business is not ordinarily taxed as an independent business in itself. 36 Where a
person or corporation is engaged in a distinct business and, as a feature
thereof, in an activity merely incidental which serves no other person or
business, the incidental and restricted activity is not considered as
intended to be separately taxed. 37
In fine, on this particular aspect, we are consequently of the considered opinion and so hold
that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of
the tax code.

The same conclusion; however, cannot be made with respect to the contractor's tax being
imposed on ACMDC. It cannot validly claim that the leasing out of its personal properties was
merely an isolated transaction. Its book of accounts shows that several distinct payments
were made for the use of its personal properties such as its plane, motor boat and dump
truck. 38 The series of transactions engaged in by ACMDC for the lease of
its aforesaid properties could also be deduced from the fact that for the
tax years 1975 and 1976 there were profits earned and reported therefor.
It received a rental income of P630,171.56 for tax year 39 and
P2,450,218.62 for tax year 1976. 40
Considering that there was a series of transactions involved, plus the fact that there was an
apparent and protracted intention to profit from such activities, it can be safely concluded
that ACMDC was habitually engaged in the leasing out of its plane, motor boat and dump
truck, and is perforce subject to the contractor's tax.

The allegation of ACMDC that it did not realize any profit from the leasing out of its said
personal properties, since its income therefrom covered only the costs of operation such as
salaries and fuel, is not supported by any documentary or substantial evidence. We are not,
therefore, convinced by such disavowal.

Assessments are prima facie presumed correct and made in good faith. Contrary to the
theory of ACMDC, it is the taxpayer and not the Bureau of Internal Revenue who has the duty
of proving otherwise. It is an elementary rule that in the absence of proof of any irregularities
in the performance of official duties, an assessment will not be disturbed. All presumptions
are in favor of tax assessments. 41 Verily, failure to present proof of error in
assessments will justify judicial affirmance of said assessment. 42
Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes are to
receive a reasonable construction with a view to carrying out their purposes and
intent. 43 They should not be construed as to permit the taxpayer to easily
evade the payment of the tax. 44 On this note, and under the confluence
of the weighty. considerations and authorities earlier discussed, the
challenged assessment against ACMDC for contractor's tax must be
upheld.
WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No.
25945, subject of the present petition in G.R. No. 104151 is hereby AFFIRMED; and its
assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas
Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this
Court, from the payment of manufacturer's sales tax, surcharge and interest during the
taxable year 1975.

SO ORDERED.

EN BANC

G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

CASTRO, J.:

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo
declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License
Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City
to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance.

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license
tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house,
partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer,
P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other
streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by
the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio
Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the
power to tax owners of tenement houses is one among those clearly and expressly granted to the
City of Iloilo by its Charter."

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or
power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted
Ordinance 11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN

THE BUSINESS OF OPERATING TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of
Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:

Section 1. A municipal license tax is hereby imposed on tenement houses in accordance

with the schedule of payment herein provided.

Section 2. Tenement house as contemplated in this ordinance shall mean any building or
dwelling for renting space divided into separate apartments or accessorias.

Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to P30.00 per door p.a.
 business in the following streets: J.M. Basa, Iznart, Aldeguer,
Guanco and Ledesma from Plazoleto Gay to Valeria. St.

IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market

as soon as said place is declared commercial P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended.

Section 5. Any person found violating this ordinance shall be punished with a fine note
exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6)
months or both at the discretion of the Court.

Section 6 This ordinance shall take effect upon approval.

ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five
tenement houses, aggregately containing 43 apartments, while the other appellees and the same
Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door
leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as
a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva
owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon
City, which cities, according to him, do not impose tenement or apartment taxes.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva
and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees
Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the
sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended
complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance
11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the
City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation
and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City
be ordered to refund the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the
grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the
same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses
who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates
the rule of uniformity of taxation.

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal
clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:

SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal license taxes
or fees upon persons engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring them to secure licences at
rates fixed by the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect fees and
charges for services rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to
levy for public purposes, just and uniform taxes, licenses or fees; Provided, That
municipalities and municipal districts shall, in no case, impose any percentage tax on sales
or other taxes in any form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue Code; Provided,
however, That no city, municipality or municipal district may levy or impose any of the
following:

(a) Residence tax;

(b) Documentary stamp tax;

(c) Taxes on the business of persons engaged in the printing and publication of any
newspaper, magazine, review or bulletin appearing at regular intervals and having fixed
prices for for subscription and sale, and which is not published primarily for the purpose of
publishing advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric
light, heat and power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof;

(i) Customs duties registration, wharfage dues on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and duties;

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies.
 A tax ordinance shall go into effect on the fifteenth day after its passage, unless the
ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall
have authority to suspend the effectivity of any ordinance within one hundred and twenty
days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust,
excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority
the effectivity of such ordinance shall be suspended.

In such event, the municipal board or city council in the case of cities and the municipal
council or municipal district council in the case of municipalities or municipal districts may
appeal the decision of the Secretary of Finance to the court during the pendency of which
case the tax levied shall be considered as paid under protest.

It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments
broad taxing authority which extends to almost "everything, excepting those which are mentioned
therein," provided that the tax so levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to a controlling statute.2 Thus, when a tax,
levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general rule, pursuant to the rules
of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.

Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in
section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature
of the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax,"3 and not a
"tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or
a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a
"municipal license tax on persons engaged in the business of operating tenement houses," while
section 1 thereof states that a "municipal license tax is hereby imposed on tenement houses." It is
the phraseology of section 1 on which the appellees base their contention that the tax involved is a
real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in
excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com.
Act 158."5.

It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax.
Obviously, the appellees confuse the tax with the real estate tax within the meaning of the
Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in
the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or
other improvements thereon, not specially exempted,8 and is payable regardless of whether the
property is used or not, although the value may vary in accordance with such factor.9 The tax is
usually single or indivisible, although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements belong to separate
owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires,
therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it
constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and
not by imprisonment of the owner.

The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a
tax on the land on which the tenement houses are erected, although both land and tenement houses
may belong to the same owner. The tax is not a fixed proportion of the assessed value of the
tenement houses, and does not require the intervention of assessors or appraisers. It is not payable
at a designated time or date, and is not enforceable against the tenement houses either by sale or
distraint. Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject-matter, consequence and effect.
Accordingly, what is within the spirit is within the ordinance although it is not within the letter thereof,
while that which is in the letter, although not within the spirit, is not within the ordinance."15 It is within
neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed,
otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is
plain from the context of the ordinance that the intention is to impose a license tax on the operation
of tenement houses, which is a form of business or calling. The ordinance, in both its title and body,
particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which,
by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a
business, occupation, or calling, or to exercise a privilege."16.

"The character of a tax is not to be fixed by any isolated words that may beemployed in the
statute creating it, but such words must be taken in the connection in which they are used
and the true character is to be deduced from the nature and essence of the subject."17 The
subject-matter of the ordinance is tenement houses whose nature and essence are
expressly set forth in section 2 which defines a tenement house as "any building or
dwelling for renting space divided into separate apartments or accessorias." The Supreme
Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959,
adopted the definition of a tenement house18 as "any house or building, or portion thereof,
which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence
of three families or more living independently of each other and doing their cooking in the
premises or by more than two families upon any floor, so living and cooking, but having a
common right in the halls, stairways, yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for rent or lease by their very nature and
essence, therefore constitute a distinct form of business or calling, similar to the hotel or
motel business, or the operation of lodging houses or boarding houses. This is precisely one
of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva,
et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of
Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for,
and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding
houses, livery garages, public warehouses, pawnshops, theaters, cinematographs,"
tenement houses, which constitute a different business enterprise,19 are not mentioned in the
aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court
explicitly said:.

"And it not appearing that the power to tax owners of tenement houses is one among those
clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power
cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a
tenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a tenement tax or an
apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local
Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons
engaged in the business of operating tenement houses finds authority in section 2 of the Local
Autonomy Act which provides that chartered cities have the authority to impose municipal license
taxes or fees upon persons engaged in any occupation or business, or exercising privileges within
their respective territories, and "otherwise to levy for public purposes, just and uniform taxes,
licenses, or fees." .

2. The trial court condemned the ordinance as constituting "not only double taxation but treble at
that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A)
(3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance."
Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and
occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of
which persons engaged in "leasing or renting property, whether on their account as principals or as
owners of rental property or properties," are considered "real estate dealers" and are taxed
according to the amount of their annual income.20.

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the
national government as well as by the local government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same occupation, calling or activity by both the
State and a political subdivision thereof.21.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-
settled rule that a license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax. The State may collect an ad valorem
tax on property used in a calling, and at the same time impose a license tax on that calling, the
imposition of the latter kind of tax being in no sensea double tax.22.

"In order to constitute double taxation in the objectionable or prohibited sense the same
property must be taxed twice when it should be taxed but once; both taxes must be imposed
on the same property or subject-matter, for the same purpose, by the same State,
Government, or taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax."23 It has been
shown that a real estate tax and the tenement tax imposed by the ordinance, although
imposed by the sametaxing authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is
something not favored, but is permissible, provided some other constitutional requirement is not
thereby violated, such as the requirement that taxes must be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not
only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months
or both, if the owner or owners of the tenement buildings divided into apartments do not pay the
tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the
owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely
sum of money." The lower court apparently had in mind, when it made the above ruling, the
provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll
tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by
contract, express or implied, and therefore is not within the meaning of constitutional or statutory
provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which
punishes the non-payment thereof by fine or imprisonment is not, in conflict with that
prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all
persons, or upon all persons of a certain class, resident within a specified territory, without regard to
their property or the occupations in which they may be engaged.28 Therefore, the tax in question is
not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo
City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not
exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and
imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court
overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an
occupation tax on persons exercising various professions in the City of Manilabecause it imposed a
penalty of fine and imprisonment for its violation.30.

4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.

"... because while the owners of the other buildings only pay real estate tax and income
taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It
should be noted that in the assessment of real estate tax all parts of the building or buildings
are included so that the corresponding real estate tax could be properly imposed. If aside
from the real estate tax the owner or owners of the tenement buildings should pay apartment
taxes as required in the ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack of
uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out
to pay taxes on their tenement houses, while citizens of other cities, where their councils do not
enact a similar tax ordinance, are permitted to escape such imposition." .

It is our view that both assertions are undeserving of extended attention. This Court has already
ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are
uniform and equal when imposed upon all property of the same class or character within the taxing
authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do
not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the
same purpose should be imposed in different territorial subdivisions at the same time.32So long as
the burden of the tax falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-
appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is
not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are
intended to operate uniformly and equally.34.

5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a
mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-
12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in
the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices
to say that there is no identity of subject-matter in that case andthis case because the subject-matter
in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and
the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in
the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise
no identity of cause of action in the two cases because the main issue in L-12695 was whether the
City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of
1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not
available for consideration in the decision in L-12695 which was promulgated on March 23, 1959.
Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now
tax any taxable subject-matter or object not included in the enumeration of matters removed from the
taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that
could be legally levied by local governments were only those specifically authorized by law, and their
power to tax was construed in strictissimi juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the
complaint is hereby dismissed. No pronouncement as to costs..
 EN BANC

G.R. No. 154126 October 11, 2005

Allied Banking Corporation as Trustee for the Trust Fund of College Assurance Plan
Philippines, Inc. (CAP), Petitioner
vs.
The Quezon City Government, the Quezon City Treasurer, the Quezon City Assessor and the
City Mayor of Quezon City, Respondents.

DECISION

CARPIO MORALES, J.:

From the Resolution1 of April 10, 2002 issued by Branch 225 of the Regional Trial Court (RTC) of
Quezon City dismissing the petition for prohibition and declaratory relief2 of Allied Banking
Corporation (petitioner), the present appeal by certiorari was lodged.

On December 19, 1995, the Quezon City government enacted City Ordinance No. 357, Series of
1995 (the ordinance),3 Section 3 of which reads:

Section 3. The City Assessor shall undertake a general revision of real property assessments using
as basis the newly approved schedule specified in Sections 1 and 2 hereof. He shall apply the new
assessment level of 15% for residential and 40% for commercial and industrial classification,
respectively as prescribed in Section 8 (a) of the 1993 Quezon City Revenue Code to determine the
assessed value of the land. Provided; however, that parcels of land sold, ceded, transferred and
conveyed for remuneratory consideration after the effectivity of this revision shall be subject
to real estate tax based on the actual amount reflected in the deed of conveyance or the
current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of
sale, cession, transfer and conveyance, whichever is higher, as evidenced by the certificate
of payment of the capital gains tax issued therefor.4 (Emphasis and underscoring supplied)

On July 1, 1998, petitioner, as trustee for College Assurance Plan of the Philippines, Inc., purchased
from Liwanag C. Natividad et al. a 1,000 square meter parcel of land located along Aurora
Boulevard, Quezon City in the amount of 38,000,000.00.5

Prior to the sale, Natividad et al. had been paying the total amount of 85,050.006 as annual real
property tax based on the propertys fair market value of 4,500,000.00 and assessed value of
1,800,000.00 under Tax Declaration No. D-102-03778.7

After its acquisition of the property, petitioner was, in accordance with Section 3 of the ordinance,
required to pay 102,600.00 as quarterly real estate tax (or 410,400.00 annually) under Tax
Declaration No. D-102-03780 which pegged the market value of the property at 38,000,000.00
the consideration appearing in the Deed of Absolute Sale, and its assessed value at
15,200,000.00.8
Petitioner paid the quarterly real estate tax for the property from the 1st quarter of 1999 up to the 3rd
quarter of 2000. Its tax payments for the 2nd, 3rd, and 4th quarter of 1999, and 1st and 2nd quarter
of 2000 were, however, made under protest.9

In its written protest10 with the City Treasurer, petitioner assailed Section 3 of the ordinance as null
and void, it contending that it is violative of the equal protection and uniformity of taxation clauses of
the Constitution.11Petitioner, moreover, contended that the proviso is unjust, excessive, oppressive,
unreasonable, confiscatory and contrary to Section 130 of the Local Government Code which
provides:

section 130. Fundamental Principles. The following fundamental principles shall govern the
exercise of the taxing and revenue-raising powers of local government units:

(a) Taxation shall be uniform in each local government unit;

(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayers ability to pay;

(2) be levied and collected only for public purposes;

(3) not be unjust, excessive, oppressive, or confiscatory;

(4) not be contrary to law, public policy, national economic policy, or in restraint of trade;

xxx

Petitioner, through its counsel, later sent a March 24, 2000 demand letter to the Quezon City
Treasurers Office seeking a refund of the real estate taxes it erroneously collected from it.12 The
letter was referred for appropriate action13 to the City Assessor who, by letter dated May 7, 2000,
denied the demand for refund on the ground that the ordinance is presumed valid and legal unless
otherwise declared by a court of competent jurisdiction.14

Petitioner thereupon filed on August 11, 2000 a petition for prohibition and declaratory relief before
the Quezon City RTC for the declaration of nullity of Section 3 of the ordinance; the enjoining of
respondents Quezon City Treasurer, Quezon City Assessor, and City Mayor of Quezon City from
further implementing the ordinance; for the Quezon City Treasurer to be ordered to refund the
amount of 633,150.00 representing the real property tax erroneously collected and paid under
protest; and for respondents to pay attorneys fees in the amount of 1,000,000.00 and costs of the
suit.15

In support of its thesis, petitioner contended that the re-assessment under the third sentence of
Section 3 of the ordinance for purposes of real estate taxation of a propertys fair market value
where it is sold, ceded, transferred or conveyed for remuneratory consideration is null and void as it
is an invalid classification of real properties which are transferred, ceded or conveyed and those
which are not, the latter remaining to be valued and assessed in accordance with the general
revisions of assessments of real properties under the first sentence of Section 3.16

Petitioner additionally contended that the proviso of Section 3 of the ordinance which allows re-
assessment every time the property is transferred, ceded or conveyed violates Sections 21917 and
22018 of the Local Government Code which provide that the assessment of real property shall not be
increased oftener than once every three (3) years except in case of new improvements substantially
increasing the value of said property or of any change in its actual use.19

Before respondents could file any responsive pleading or on March 6, 2001, respondent Quezon
City Government enacted Ordinance No. SP-1032, S-200120 which repealed the assailed proviso in
Section 3 of the 1995 Ordinance. The repealing ordinance which took effect upon its approval on
March 28, 2001 reads in part:

"WHEREAS, the implementation of the second (2nd) sentence of Section 3 of the Ordinance creates
a situation whereby owners of newly acquired land for remuneratory consideration beginning
January 1, 1996 and forward will have to pay higher taxes than its adjoining/adjacent lot or lots in the
adjoining blocks, or nearby lots within its immediate vicinity which have remained undisturbed, not
having been sold, ceded, transferred, and/or conveyed;

WHEREAS, the owners of the newly acquired property are complaining/protesting the
validity/legality of the second (2nd) sentence of Section 3 of the ordinance for being either arbitrary,
unjust, excessive, oppressive, and/or contrary to law;

WHEREAS, Section 5 Article X of the Philippine Constitution provides that: Each local government
unit shall have the power to create its own sources of revenue and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local
government (Underscoring supplied);

WHEREAS, the guidelines and limitations imposed on the local government units in the exercise of
their taxing powers have been expressly stipulated by Congress when it enacted Section 130 of
Republic Act No. 7160, otherwise known as the Local Government Code of 1991 xxx;

WHEREAS, these fundamental principles of taxation find support and affirmation in the following
applicable cases decided by the Court of Tax Appeals (sic), on similar cases which held that:

1. An increase in the valuation of land due to sale and transfer of such property was
arbitrary. Uniformity in taxation means that all kinds of property of the same class shall be taxed at
the same rate. (Churchhill vs. Concepcion, 34 Phi. 969; Eastern Theatrical Co. vs. Alfonso, 83 Phil.
852) xxx.

2. The law requires the real property shall be assessed at its true and full value, or cash value, or fair
market value. But in determining or fixing the fair market value of property for tax purposes it is
essential that the rules of uniformity be observed. More important tha[n] the obligation to seek the
fair market value of property is the obligation of the assessor to see to it that the "rule of taxation
shall be uniform," for this a (sic) rule which is guaranteed by the Constitution. A taxpayer should not
be made to pay more taxes on his property while owners of surrounding properties, under the same
circumstance pay less.

WHEREAS, it is clear from the foregoing premises that the second (2nd) sentence of the Ordinance,
fixing the realty tax based on the actual amount reflected in the deed of conveyance or the current
approved zonal valuation x x x is violative of, and repugnant to, the uniformity rule of taxation;

WHEREAS, in view of the above considerations there appear to be merit and validity to the
complaints/protests of tax payers, a re-examination and repeal of the entire second sentence of
Section 3 of the Ordinance is in order."
Petitioner subsequently moved to declare respondents in default21 for failure to file a responsive
pleading within the period, as extended. Before the motion could be heard,22 however, respondents
moved to dismiss the petition,23 averring that the passage of the repealing ordinance had rendered
the petition moot and academic.

Petitioner opposed the motion, it alleging that while its action for the declaration of nullity of the
proviso was rendered moot and academic by its repeal, its claim for refund and attorneys fees had
not been mooted, and the trial court still had to determine if Section 3 of the ordinance "is null and
void ab initio and perforce, may not be enforced during the intervening period from the time of its
enactment until the time of its repeal."24

Respondents maintained, however, that the assailed proviso remained in full force and effect until
the date of its repeal, based on the rule that a statute is construed prospectively unless the
legislative intent was to give it retrospective application.25 And they called attention to the provision in
Section 2 of the repealing ordinance that "[it] shall take effect upon its approval," hence, clearly
showing that the local legislative body was to grant it prospective application.26

As to the claim for refund, respondents averred that it was premature for the trial court to take
cognizance thereof as petitioner had an administrative remedy.27

By Resolution of April 10, 2002, the trial court granted respondents motion to dismiss in this wise:

There is no need for this Court to resolve whether the subject Ordinance is null and void as the
same was already declared to be violative of, and repugnant to the "uniformity rule" on taxation by
the Quezon City Council itself thru its pronouncements in Quezon City Ordinance No. 1032, Series
of 2001. x x x

xxx

As to petitioners claim for refund, since an administrative remedy is available for refund of taxes
illegally and erroneously collected and petitioner has not yet availed of it, the Court shall not take
cognizance of this issue considering the rule on "Exhaustion of Administrative
Remedy."28 (Underscoring supplied)

Its Motion for Reconsideration29 having been denied,30 petitioner comes before this Court on appeal
by certiorari under Rule 45 on the following issues:

Whether or not the trial court erred in dismissing the instant case for failure of the petitioner to
exhaust administrative remedies.

Whether or not Section 3, Quezon City Ordinance No. 357, Series of 1995, which was abrogated for
being UNCONSTITUTIONAL can be the basis of collecting real estate taxes prior to its repeal.31

Although as a rule, administrative remedies must first be exhausted before resort to judicial action
can prosper, there is a well-settled exception in cases where the controversy does not involve
questions of fact but only of law.32
Nevertheless, while cases raising purely legal questions are excepted from the rule requiring
exhaustion of administrative remedies before a party may resort to the courts, petitioner, in the case
at bar, does not raise just pure questions of law. Its cause of action requires the determination of the
amount of real property tax paid under protest and the amount of attorneys fees. These issues
are essentially questions of fact which preclude this Court from reviewing the same.33

Since the procedure for obtaining a refund of real property taxes is provided under Sections
252,34 226,35 229,3623037 and 23138 of the Local Government Code, petitioners action for prohibition
in the RTC was premature as it had a plain, speedy and adequate remedy of appeal in the ordinary
course of law.39 As such, the trial court correctly dismissed its action on the ground that it failed to
exhaust the administrative remedies stated above.40

Raising questions of fact is moreover inappropriate in an appeal by certiorari under Rule 45 of the
Rules of Court where only questions of law may be reviewed.41 It is axiomatic that the Supreme
Court is not a trier of facts42 and the factual findings of the court a quo are conclusive upon it, except:
(1) where the conclusion is a finding grounded entirely on speculation, surmise and conjectures; (2)
where the inference made is manifestly mistaken; (3) where there is grave abuse of discretion; and
(4) where the judgment is based on a misapprehension of facts, and the findings of fact of the trial
court are premised on the absence of evidence and are contradicted by evidence on record.43

From a considered scrutiny of the records of the case, this Court finds that petitioner has shown no
cause for this Court to apply any of the foregoing exceptions.

Petitioner has not put squarely in issue the constitutionality of the proviso in Section 3 of the
ordinance. It merely alleges that the said proviso can not be the basis for collecting real estate taxes
at any given time, the Sangguniang Panlungsod of Quezon City not having intended to impose such
taxes in the first place. As such the repealing ordinance should be given retroactive effect.

As a rule, the courts will not resolve the constitutionality of a law, if the controversy can be settled on
other grounds.44

Where questions of constitutional significance are raised, the Court can exercise its power of judicial
review only if the following requisites are complied: First, there must be before the Court an actual
case calling for the exercise of judicial review. Second, the question before the Court must be ripe
for adjudication. Third, the person challenging the validity of the act must have standing to
challenge. Fourth, the question of constitutionality must have been raised at the earliest opportunity,
and lastly, the issue of constitutionality must be the very lis mota of the case.45

Considering that there are factual issues still waiting to be threshed out at the level of the
administrative agency, there is no actual case calling for the exercise of judicial review. In addition,
the requisite that the constitutionality of the assailed proviso in question be the very lis mota of the
case is absent. Thus, this Court refrains from passing on the constitutionality of the proviso in
Section 3 of the 1995 Ordinance.

The factual issues which petitioner interjected in its petition aside, the only crucial legal query in this
case is the validity of the proviso fixing the appraised value of property at the stated consideration at
which the property was last sold.

This Court holds that the proviso in question is invalid as it adopts a method of assessment or
appraisal of real property contrary to the Local Government Code, its Implementing Rules and
Regulations and the Local Assessment Regulations No. 1-9246 issued by the Department of
Finance.47
Under these immediately stated authorities, real properties shall be appraised at the current and fair
market value prevailing in the locality where the property is situated48 and classified for assessment
purposes on the basis of its actual use.49

"Fair market value" is the price at which a property may be sold by a seller who is not compelled to
sell and bought by a buyer who is not compelled to buy,50 taking into consideration all uses to which
the property is adapted and might in reason be applied. The criterion established by the statute
contemplates a hypothetical sale. Hence, the buyers need not be actual and existing purchasers.51

As this Court stressed in Reyes v. Almanzor,52 assessors, in fixing the value of real property, have to
consider all the circumstances and elements of value, and must exercise prudent discretion in
reaching conclusions.53 In this regard, Local Assessment Regulations No. 1-9254 establishes the
guidelines to assist assessors in classifying, appraising and assessing real property.

Local Assessment Regulations No. 1-92 suggests three approaches in estimating the fair market
value, namely: (1) the sales analysis or market data approach; (2) the income capitalization
approach; and (3) the replacement or reproduction cost approach.55

Under the sales analysis approach, the price paid in actual market transactions is considered by
taking into account valid sales data accumulated from among the various sources stated in Sections
202, 203, 208, 209, 210, 211 and 213 of the Code.56

In the income capitalization approach, the value of an income-producing property is no more than
the return derived from it. An analysis of the income produced is necessary in order to estimate the
sum which might be invested in the purchase of the property.

The reproduction cost approach, on the other hand, is a factual approach used exclusively in
appraising man-made improvements such as buildings and other structures, based on such data as
materials and labor costs to reproduce a new replica of the improvement.

The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the
estimated fair market value to be included in the ordinance containing the schedule of fair market
values.

Given these different approaches to guide the assessor, it can readily be seen that the Code did not
intend to have a rigid rule for the valuation of property, which is affected by a multitude of
circumstances which no rule could foresee or provide for. Thus, what a thing has cost is no singular
and infallible criterion of its market value.57

Accordingly, this Court holds that the proviso directing that the real property tax be based on the
actual amount reflected in the deed of conveyance or the prevailing BIR zonal value is invalid not
only because it mandates an exclusive rule in determining the fair market value but more so
because it departs from the established procedures stated in the Local Assessment Regulations No.
1-92 and unduly interferes with the duties statutorily placed upon the local assessor58 by completely
dispensing with his analysis and discretion which the Code and the regulations require to be
exercised. An ordinance that contravenes any statute is ultra vires and void.59

Further, it is noted that there is nothing in the Charter of Quezon City60 and the Quezon City
Revenue Code of 199361 that authorize public respondents to appraise property at the consideration
stated in the deed of conveyance.
Using the consideration appearing in the deed of conveyance to assess or appraise real properties
is not only illegal since "the appraisal, assessment, levy and collection of real property tax shall not
be let to any private person,"62 but it will completely destroy the fundamental principle in real property
taxation that real property shall be classified, valued and assessed on the basis of its actual
use regardless of where located, whoever owns it, and whoever uses it.63 Necessarily, allowing the
parties to a private sale to dictate the fair market value of the property will dispense with the
distinctions of actual use stated in the Code and in the regulations.

The invalidity of the assessment or appraisal system adopted by the proviso is not cured even if the
proviso mandates the comparison of the stated consideration as against the prevailing BIR zonal
value, whichever is higher, because an integral part of that system still permits valuing real property
in disregard of its "actual use."

In the same vein, there is also nothing in the Code or the regulations showing the congressional
intent to require an immediate adjustment of taxes on the basis of the latest market developments
as, in fact, real property assessments may be revised and/or increased only once every three (3)
years.64 Consequently, the real property tax burden should not be interpreted to include those
beyond what the Code or the regulations expressly and clearly state.

Still another consequence of the proviso is to provide a chilling effect on real property owners or
administrators to enter freely into contracts reflecting the increasing value of real properties in
accordance with prevailing market conditions. While the Local Government Code provides that the
assessment of real property shall not be increased oftener than once every three (3) years,65 the
questioned part of the proviso subjects the real property to a tax based on the actual amount
appearing on the deed of conveyance or the current approved zonal valuation of the Bureau of
Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is
higher. As such, any subsequent sale during the three-year period will result in a real property tax
higher than the tax assessed at the last prior conveyance within the same period. To save on taxes,
real property owners or administrators are forced to hold on to the property until after the said three-
year period has lapsed. Should they nonetheless decide to sell within the said three-year period,
they are compelled to dispose the property at a price not exceeding that obtained from the last prior
conveyance in order to avoid a higher tax assessment. In these two scenarios, real property owners
are effectively prevented from obtaining the best price possible for their properties and unduly
hampers the equitable distribution of wealth.

While the state may legitimately decide to structure its tax system to discourage rapid turnover in
ownership of real properties, such state interest must be expressly stated in the executing statute or
it can at least be gleaned from its provisions.

In the case at bar, there is nothing in the Local Government Code, the implementing rules and
regulations, the local assessment regulations, the Quezon City Charter, the Quezon City Revenue
Code of 1993 and the "Whereas" clauses of the 1995 Ordinance from which this Court can draw, at
the very least, an intimation of this state interest. As such, the proviso must be stricken down for
being contrary to public policy and for restraining trade.66

In fine, public respondent Quezon City Government exceeded its statutory authority when it enacted
the proviso in question. The provision is thus null and void ab initio for being ultra vires and for
contravening the provisions of the Local Government Code, its implementing regulations and the
Local Assessment Regulations No. 1-92. As such, it acquired no legal effect and conferred no rights
from its inception.
A word on the applicability of the doctrine in this decision. It applies only in the determination of real
estate tax payable by owners or administrators of real property.

In light of the foregoing disquisitions, addressing the issue of retroactivity of the repealing ordinance
is rendered unnecessary.

WHEREFORE, the petition is hereby GRANTED. The assailed portion of the provisions of Section 3
of Quezon City Ordinance No. 357, Series of 1995 is hereby declared invalid.

Petitioners claim for refund, however, must be lodged with the Local Board of Assessment Appeals,
if it is not barred by the statute of limitations.

SO ORDERED.

THIRD DIVISION

G.R. No. 173863 September 15, 2010

CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.), Petitioner,

vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT
CORPORATION, Respondents.

DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision1 dated November 30, 2005 of the Court of
Appeals (CA) in CA-G.R. SP No. 87117, which affirmed the Resolution2 dated August 2, 2004 and
the Order3 dated September 30, 2004 of the Office of the President in O.P. Case No. 04-D-170.

The facts follow.

On June 28, 2002, the Board of Directors of respondent Clark Development Corporation (CDC)
issued and approved Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark
Special Economic Zone (CSEZ)4 which provided, among others, for the following fees and charges:

1. Accreditation Fee

xxxx

2. Annual Inspection Fee

xxxx

3. Royalty Fees
 Suppliers delivering fuel from outside sources shall be assessed the following royalty fees:

- Php0.50 per liter those delivering Coastal petroleum fuel to CSEZ locators not sanctioned
by CDC

- Php1.00 per liter those bringing-in petroleum fuel (except Jet A-1) from outside sources

xxxx

4. Gate Pass Fee

x x x x5

The above policy guidelines were implemented effective July 27, 2002. On October 1, 2002, CDC
sent a letter6 to herein petitioner Chevron Philippines, Inc. (formerly Caltex Philippines, Inc.), a
domestic corporation which has been supplying fuel to Nanox Philippines, a locator inside the CSEZ
since 2001, informing the petitioner that a royalty fee of 0.50 per liter shall be assessed on its
deliveries to Nanox Philippines effective August 1, 2002. Thereafter, on October 21, 2002 a
Statement of Account7 was sent by CDC billing the petitioner for royalty fees in the amount of
115,000.00 for its fuel sales from Coastal depot to Nanox Philippines from August 1-31 to
September 3-21, 2002.

Claiming that nothing in the law authorizes CDC to impose royalty fees or any fees based on a per
unit measurement of any commodity sold within the special economic zone, petitioner sent a
letter8 dated October 30, 2002 to the President and Chief Executive Officer of CDC, Mr. Emmanuel
Y. Angeles, to protest the assessment for royalty fees. Petitioner nevertheless paid the said fees
under protest on November 4, 2002.

On August 18, 2003, CDC again wrote a letter9 to petitioner regarding the latters unsettled royalty
fees covering the period of December 2002 to July 2003. Petitioner responded through a
letter10 dated September 8, 2003 reiterating its continuing objection over the assessed royalty fees
and requested a refund of the amount paid under protest on November 4, 2002. The letter also
asked CDC to revoke the imposition of such royalty fees. The request was denied by CDC in a
letter11 dated September 29, 2003.

Petitioner elevated its protest before respondent Bases Conversion Development Authority (BCDA)
arguing that the royalty fees imposed had no reasonable relation to the probable expenses of
regulation and that the imposition on a per unit measurement of fuel sales was for a revenue
generating purpose, thus, akin to a "tax". The protest was however denied by BCDA in a
letter12 dated March 3, 2004.

Petitioner appealed to the Office of the President which dismissed13 the appeal for lack of merit on
August 2, 2004 and denied14 petitioners motion for reconsideration thereof on September 30, 2004.

Aggrieved, petitioner elevated the case to the CA which likewise dismissed15 the appeal for lack of
merit on November 30, 2005 and denied16 the motion for reconsideration on July 26, 2006.

The CA held that in imposing the challenged royalty fees, respondent CDC was exercising its right to
regulate the flow of fuel into CSEZ, which is bolstered by the fact that it possesses exclusive right to
distribute fuel within CSEZ pursuant to its Joint Venture Agreement (JVA)17 with Subic Bay
Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996.
The appellate court also found that royalty fees were assessed on fuel delivered, not on the sale, by
petitioner and that the basis of such imposition was petitioners delivery receipts to Nanox
Philippines. The fact that revenue is incidentally also obtained does not make the imposition a tax as
long as the primary purpose of such imposition is regulation.18

Petitioner filed a motion for reconsideration but the CA denied the same in its Resolution19 dated July
26, 2006.

Hence, this petition raising the following grounds:

I. THE ISSUE RAISED BEFORE THE COURT A QUO IS A QUESTION OF SUBSTANCE NOT
HERETOFORE DETERMINED BY THE HONORABLE SUPREME COURT.

II. THE RULING OF THE COURT OF APPEALS THAT THE CDC HAS THE POWER TO IMPOSE
THE QUESTIONED "ROYALTY FEES" IS CONTRARY TO LAW.

III. THE COURT OF APPEALS WAS MANIFESTLY MISTAKEN AND COMMITTED GRAVE ABUSE
OF DISCRETION AND A CLEAR MISUNDERSTANDING OF FACTS WHEN IT RULED
CONTRARY TO THE EVIDENCE THAT: (i) THE QUESTIONED "ROYALTY FEE" IS PRIMARILY
FOR REGULATION; AND (ii) ANY REVENUE EARNED THEREFROM IS MERELY INCIDENTAL
TO THE PURPOSE OF REGULATION.

IV. THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHT AND CONSIDERATION TO THE
EVIDENCE PRESENTED BY CPI SUCH AS THE LETTERS COMING FROM RESPONDENT CDC
ITSELF PROVING THAT THE QUESTIONED ROYALTY FEES ARE IMPOSED ON THE BASIS OF
FUEL SALES (NOT DELIVERY OF FUEL) AND NOT FOR REGULATION BUT PURELY FOR
INCOME GENERATION, I.E. AS PRICE OR CONSIDERATION FOR THE RIGHT TO MARKET
AND DISTRIBUTE FUEL INSIDE THE CSEZ.20

Petitioner argues that CDC does not have any power to impose royalty fees on sale of fuel inside the
CSEZ on the basis of purely income generating functions and its exclusive right to market and
distribute goods inside the CSEZ. Such imposition of royalty fees for revenue generating purposes
would amount to a tax, which the respondents have no power to impose. Petitioner stresses that the
royalty fee imposed by CDC is not regulatory in nature but a revenue generating measure to
increase its profits and to further enhance its exclusive right to market and distribute fuel in CSEZ.21

Petitioner would also like this Court to note that the fees imposed, assuming arguendo they are
regulatory in nature, are unreasonable and are grossly in excess of regulation costs. It adds that the
amount of the fees should be presumed to be unreasonable and that the burden of proving that the
fees are not unreasonable lies with the respondents.22

On the part of the respondents, they argue that the purpose of the royalty fees is to regulate the flow
of fuel to and from the CSEZ. Such being its main purpose, and revenue (if any) just an incidental
product, the imposition cannot be considered a tax. It is their position that the regulation is a valid
exercise of police power since it is aimed at promoting the general welfare of the public. They claim
that being the administrator of the CSEZ, CDC is responsible for the safe distribution of fuel products
inside the CSEZ.23

The petition has no merit.

In distinguishing tax and regulation as a form of police power, the determining factor is the purpose
of the implemented measure. If the purpose is primarily to raise revenue, then it will be deemed a tax
even though the measure results in some form of regulation. On the other hand, if the purpose is
primarily to regulate, then it is deemed a regulation and an exercise of the police power of the state,
even though incidentally, revenue is generated. Thus, in Gerochi v. Department of Energy,24 the
Court stated:

The conservative and pivotal distinction between these two (2) powers rests in the purpose for which
the charge is made. If generation of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is
incidentally raised does not make the imposition a tax.

In the case at bar, we hold that the subject royalty fee was imposed primarily for regulatory
purposes, and not for the generation of income or profits as petitioner claims. The Policy Guidelines
on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone 25 provides:

DECLARATION OF POLICY

It is hereby declared the policy of CDC to develop and maintain the Clark Special Economic Zone
(CSEZ) as a highly secured zone free from threats of any kind, which could possibly endanger the
lives and properties of locators, would-be investors, visitors, and employees.

It is also declared the policy of CDC to operate and manage the CSEZ as a separate customs
territory ensuring free flow or movement of goods and capital within, into and exported out of the
CSEZ.26 (Emphasis supplied.)

From the foregoing, it can be gleaned that the Policy Guidelines was issued, first and foremost, to
ensure the safety, security, and good condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to ensure "free flow or movement" of
petroleum fuel to and from the CSEZ. The fact that respondents have the exclusive right to distribute
and market petroleum products within CSEZ pursuant to its JVA with SBMA and CSBTI does not
diminish the regulatory purpose of the royalty fee for fuel products supplied by petitioner to its client
at the CSEZ.

As pointed out by the respondents in their Comment, from the time the JVA took effect up to the time
CDC implemented its Policy Guidelines on the Movement of Petroleum Fuel to and from the CSEZ,
suppliers/distributors were allowed to bring in petroleum products inside CSEZ without any charge at
all. But this arrangement clearly negates CDCs mandate under the JVA as exclusive distributor of
CSBTIs fuel products within CSEZ and respondents ownership of the Subic-Clark Pipeline.27 On
this score, respondents were justified in charging royalty fees on fuel delivered by outside suppliers.

However, it was erroneous for petitioner to argue that such exclusive right of respondent CDC to
market and distribute fuel inside CSEZ is the sole basis of the royalty fees imposed under the Policy
Guidelines. Being the administrator of CSEZ, the responsibility of ensuring the safe, efficient and
orderly distribution of fuel products within the Zone falls on CDC. Addressing specific concerns
demanded by the nature of goods or products involved is encompassed in the range of services
which respondent CDC is expected to provide under the law, in pursuance of its general power of
supervision and control over the movement of all supplies and equipment into the CSEZ.

Section 2 of Executive Order No. 8028 provides:

SEC. 2. Powers and Functions of the Clark Development Corporation. The BCDA, as the
incorporator and holding company of its Clark subsidiary, shall determine the powers and functions
of the CDC. Pursuant to Section 15 of RA 7227, the CDC shall have the specific powers of the
Export Processing Zone Authority as provided for in Section 4 of Presidential Decree No. 66 (1972)
as amended.

Among those specific powers granted to CDC under Section 4 of Presidential Decree No. 66 are:

(a) To operate, administer and manage the export processing zone established in the Port of
Mariveles, Bataan, and such other export processing zones as may be established under this
Decree; to construct, acquire, own, lease, operate and maintain infrastructure facilities, factory
building, warehouses, dams, reservoir, water distribution, electric light and power system,
telecommunications and transportation, or such other facilities and services necessary or useful in
the conduct of commerce or in the attainment of the purposes and objectives of this Decree;

xxxx

(g) To fix, assess and collect storage charges and fees, including rentals for the lease, use or
occupancy of lands, buildings, structure, warehouses, facilities and other properties owned and
administered by the Authority; and to fix and collect the fees and charges for the issuance of
permits, licenses and the rendering of services not enumerated herein, the provisions of law to
the contrary notwithstanding;

(h) For the due and effective exercise of the powers conferred by law and to the extend (sic) [extent]
requisite therefor, to exercise exclusive jurisdiction and sole police authority over all areas owned or
administered by the Authority. For this purpose, the Authority shall have supervision and control
over the bringing in or taking out of the Zone, including the movement therein, of all cargoes,
wares, articles, machineries, equipment, supplies or merchandise of every type and description;

x x x x (Emphasis supplied.)

In relation to the regulatory purpose of the imposed fees, this Court in Progressive Development
Corporation v. Quezon City,29 stated that "x x x the imposition questioned must relate to an
occupation or activity that so engages the public interest in health, morals, safety and development
as to require regulation for the protection and promotion of such public interest; the imposition must
also bear a reasonable relation to the probable expenses of regulation, taking into account not only
the costs of direct regulation but also its incidental consequences as well."

In the case at bar, there can be no doubt that the oil industry is greatly imbued with public interest as
it vitally affects the general welfare.30 In addition, fuel is a highly combustible product which, if left
unchecked, poses a serious threat to life and property. Also, the reasonable relation between the
royalty fees imposed on a "per liter" basis and the regulation sought to be attained is that the higher
the volume of fuel entering CSEZ, the greater the extent and frequency of supervision and
inspection required to ensure safety, security, and order within the Zone.

Respondents submit that increased administrative costs were triggered by security risks that have
recently emerged, such as terrorist strikes in airlines and military/government facilities. Explaining
the regulatory feature of the charges imposed under the Policy Guidelines, then BCDA President
Rufo Colayco in his letter dated March 3, 2004 addressed to petitioners Chief Corporate Counsel,
stressed:
The need for regulation is more evident in the light of the 9/11 tragedy considering that what is being
moved from one location to another are highly combustible fuel products that could cause loss of
lives and damage to properties, hence, a set of guidelines was promulgated on 28 June 2002. It
must be emphasized also that greater security measure must be observed in the CSEZ because of
the presence of the airport which is a vital public infrastructure.
1avv phi 1

We are therefore constrained to sustain the imposition of the royalty fees on deliveries of CPIs fuel
products to Nanox Philippines.31

As to the issue of reasonableness of the amount of the fees, we hold that no evidence was adduced
by the petitioner to show that the fees imposed are unreasonable.

Administrative issuances have the force and effect of law.32 They benefit from the same presumption
of validity and constitutionality enjoyed by statutes. These two precepts place a heavy burden upon
any party assailing governmental regulations.33 Petitioners plain allegations are simply not enough
to overcome the presumption of validity and reasonableness of the subject imposition.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of the Court of Appeals
dated November 30, 2005 in CA-G.R. SP No. 87117 is hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

SECOND DIVISION

G.R. No. 178087 May 5, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
KUDOS METAL CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

The prescriptive period on when to assess taxes benefits both the government and the
taxpayer.1 Exceptions extending the period to assess must, therefore, be strictly construed.

This Petition for Review on Certiorari seeks to set aside the Decision2 dated March 30, 2007 of the
Court of Tax Appeals (CTA) affirming the cancellation of the assessment notices for having been
issued beyond the prescriptive period and the Resolution3 dated May 18, 2007 denying the motion
for reconsideration.
Factual Antecedents

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for
the taxable year 1998.

Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR)
served upon respondent three Notices of Presentation of Records. Respondent failed to comply with
these notices, hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt
of which was acknowledged by respondents President, Mr. Chan Ching Bio, in a letter dated
October 20, 2000.

A review and audit of respondents records then ensued.

On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a Waiver of the
Defense of Prescription,4 which was notarized on January 22, 2002, received by the BIR
Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002,
and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar
(Salazar).

This was followed by a second Waiver of Defense of Prescription5 executed by Pasco on February
18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28,
2003 and accepted by Assistant Commissioner Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998
against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices
for taxable year 1998, dated September 26, 2003 which was received by respondent on November
12, 2003.

Respondent challenged the assessments by filing its "Protest on Various Tax Assessments" on
December 3, 2003 and its "Legal Arguments and Documents in Support of Protests against Various
Assessments" on February 2, 2004.

On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting the immediate
payment of the following tax liabilities:

Kind of Tax Amount

Income Tax 9,693,897.85

VAT 13,962,460.90

EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24

Penalties 8,000.00

Total 25,624,048.76

Ruling of the Court of Tax Appeals, Second Division

Believing that the governments right to assess taxes had prescribed, respondent filed on August 27,
2004 a Petition for Review7 with the CTA. Petitioner in turn filed his Answer.8

On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of the Issue on
Prescription."9

On October 4, 2005, the CTA Second Division issued a Resolution10 canceling the assessment
notices issued against respondent for having been issued beyond the prescriptive period. It found
the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-90. Thus:

First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax
case involves more than 1,000,000.00. In this regard, only the Commissioner is authorized to enter
into agreement with the petitioner in extending the period of assessment;

Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary
to determine whether the acceptance was made within the prescriptive period;

Third, the fact of receipt by the taxpayer of his file copy was not indicated on the original copy. The
requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the
existence of the document but also of the acceptance by the BIR and the perfection of the
agreement. 1avv phi1

The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period
was not tolled or extended and continued to run. x x x11

Petitioner moved for reconsideration but the CTA Second Division denied the motion in a
Resolution12 dated April 18, 2006.

Ruling of the Court of Tax Appeals, En Banc

On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it ruled
that the Assistant Commissioner was authorized to sign the waiver pursuant to Revenue Delegation
Authority Order (RDAO) No. 05-01, it found that the first waiver was still invalid based on the second
and third grounds stated by the CTA Second Division. Pertinent portions of the Decision read as
follows:

While the Court En Banc agrees with the second and third grounds for invalidating the first waiver, it
finds that the Assistant Commissioner of the Enforcement Service is authorized to sign the waiver
pursuant to RDAO No. 05-01, which provides in part as follows:

A. For National Office cases

Designated Revenue Official

1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases

2. ACIR, Large Taxpayers Service For large taxpayers cases other than those cases falling under
Subsection B hereof
3. ACIR, Legal Service For cases pending verification and awaiting resolution of certain legal issues
prior to prescription and for issuance/compliance of Subpoena Duces Tecum

4. ACIR, Assessment Service (AS) For cases which are pending in or subject to review or approval
by the ACIR, AS

Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized to sign
waivers in tax fraud cases. A perusal of the records reveals that the investigation of the subject
deficiency taxes in this case was conducted by the National Investigation Division of the BIR, which
was formerly named the Tax Fraud Division. Thus, the subject assessment is a tax fraud case.

Nevertheless, the first waiver is still invalid based on the second and third grounds stated by the
Court in Division. Hence, it did not extend the prescriptive period to assess.

Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for violating
Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon in a waiver of the
statute can still be extended by subsequent written agreement, provided that it is executed prior to
the expiration of the first period agreed upon. As previously discussed, the exceptions to the law on
prescription must be strictly construed.

In the case at bar, the period agreed upon in the subject first waiver expired on December 31, 2002.
The second waiver in the instant case which was supposed to extend the period to assess to
December 31, 2003 was executed on February 18, 2003 and was notarized on February 19, 2003.
Clearly, the second waiver was executed after the expiration of the first period agreed upon.
Consequently, the same could not have tolled the 3-year prescriptive period to assess.13

Petitioner sought reconsideration but the same was unavailing.

Issue

Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENTS
RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT PRESCRIBED.14

Petitioners Arguments

Petitioner argues that the governments right to assess taxes is not barred by prescription as the two
waivers executed by respondent, through its accountant, effectively tolled or extended the period
within which the assessment can be made. In disputing the conclusion of the CTA that the waivers
are invalid, petitioner claims that respondent is estopped from adopting a position contrary to what it
has previously taken. Petitioner insists that by acquiescing to the audit during the period specified in
the waivers, respondent led the government to believe that the "delay" in the process would not be
utilized against it. Thus, respondent may no longer repudiate the validity of the waivers and raise the
issue of prescription.

Respondents Arguments

Respondent maintains that prescription had set in due to the invalidity of the waivers executed by
Pasco, who executed the same without any written authority from it, in clear violation of RDAO No.
5-01. As to the doctrine of estoppel by acquiescence relied upon by petitioner, respondent counters
that the principle of equity comes into play only when the law is doubtful, which is not present in the
instant case.

Our Ruling

The petition is bereft of merit.

Section 20315 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to
assess internal revenue taxes within three years from the last day prescribed by law for the filing of
the tax return or the actual date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 22216 of the NIRC.

The waivers executed by respondents accountant did not extend the period within which the
assessment can be made

Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive
period, but claims that the period was extended by the two waivers executed by respondents
accountant.

We do not agree.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the
expiration of the three-year period. RMO 20-9017 issued on April 4, 1990 and RDAO 05-0118 issued
on August 2, 2001 lay down the procedure for the proper execution of the waiver, to wit:

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not
after ______ 19 ___", which indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its responsible officials. In
case the authority is delegated by the taxpayer to a representative, such delegation should
be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the
BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should
be indicated. However, before signing the waiver, the CIR or the revenue official authorized
by him must make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
 indicated in the original copy to show that the taxpayer was notified of the acceptance of the
BIR and the perfection of the agreement.19

A perusal of the waivers executed by respondents accountant reveals the following infirmities:

1. The waivers were executed without the notarized written authority of Pasco to sign the
waiver in behalf of respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated in the original copies
of the waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not extended.
Consequently, the assessments were issued by the BIR beyond the three-year period and are void.

Estoppel does not apply in this case

We find no merit in petitioners claim that respondent is now estopped from claiming prescription
since by executing the waivers, it was the one which asked for additional time to submit the required
documents.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the doctrine of estoppel
prevented the taxpayer from raising the defense of prescription against the efforts of the government
to collect the assessed tax. However, it must be stressed that in the said case, estoppel was applied
as an exception to the statute of limitations on collection of taxes and not on the assessment of
taxes, as the BIR was able to make an assessment within the prescribed period. More important,
there was a finding that the taxpayer made several requests or positive acts to convince the
government to postpone the collection of taxes, viz:

It appears that the first assessment made against respondent based on its second final return filed
on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment
respondent requested for at least one year within which to pay the amount assessed although it
reserved its right to question the correctness of the assessment before actual payment. Petitioner
granted an extension of only three months. When it failed to pay the tax within the period extended,
petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as
assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration
of the assessment. When this request was denied, respondent again requested for a reconsideration
on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference
Staff. The appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955, and
as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This
is the ruling which is now being questioned after a protracted negotiation on the ground that the
collection of the tax has already prescribed.

It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or
by proceeding in court within the 5-year period from the filing of the second amended final return due
to the several requests of respondent for extension to which petitioner yielded to give it every
opportunity to prove its claim regarding the correctness of the assessment. Because of such
requests, several reinvestigations were made and a hearing was even held by the Conference Staff
organized in the collection office to consider claims of such nature which, as the record shows,
lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most
unfair for respondent to now take advantage of such desistance to elude his deficiency income tax
liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for reexamination or
reinvestigation may not have the effect of suspending the running of the period of limitation for in
such case there is need of a written agreement to extend the period between the Collector and the
taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense
of prescription even if he has not previously waived it in writing as when by his repeated requests or
positive acts the Government has been, for good reasons, persuaded to postpone collection to make
him feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Government. And when such situation comes to pass there are authorities that hold, based on
weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the
interest of the Government.

This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are
several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has
said: "The applicable principle is fundamental and unquestioned. He who prevents a thing from
being done may not avail himself of the nonperformance which he has himself occasioned, for the
law says to him in effect "this is your own act, and therefore you are not damnified." "(R. H. Stearns
Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, "The tax could have been collected, but the
government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and
should not be permitted to raise the defense of the Statute of Limitations." [Newport Co. vs. U.S.,
(DC-WIS), 34 F. Supp. 588].21

Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is
no showing that respondent made any request to persuade the BIR to postpone the issuance of the
assessments.

The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations
on the assessment of taxes considering that there is a detailed procedure for the proper execution of
the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is
predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law
and right.22 As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or
one that is against public policy.23 It should be resorted to solely as a means of preventing injustice
and should not be permitted to defeat the administration of the law, or to accomplish a wrong or
secure an undue advantage, or to extend beyond them requirements of the transactions in which
they originate.24 Simply put, the doctrine of estoppel must be sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify
whether a notarized written authority was given by the respondent to its accountant, and to indicate
the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects
in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To
stress, a waiver of the statute of limitations, being a derogation of the taxpayers right to security
against prolonged and unscrupulous investigations, must be carefully and strictly construed.25

As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot
be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments
beyond the three-year period because with or without the required documents, the CIR has the
power to make assessments based on the best evidence obtainable.26
WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007 and Resolution
dated May 18, 2007 of the Court of Tax Appeals are hereby AFFIRMED.

SO ORDERED.