Republic of the Philippines

SUPREME COURT
Manila
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
1
P83,183.85 as delinquency income taxes for the years 1958 and 1959. 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
2
petitioner. On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its
3
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. A search of the
protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR
4
agent Ramon Reyes, who deferred service of the warrant. On April 7, 1965, Atty. Guevara was finally informed that
the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy
5
earlier sought to be served. Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the
6
Commissioner of Internal Revenue with the Court of Tax Appeals.

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

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

11
As the Court of Tax Appeals correctly noted," 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
12 13
holding company income but later conformed to the decision of the respondent court rejecting this assertion. In
fact, as the said court found, the amount was earned through the joint efforts of the persons among whom it was
distributed It has been established that the Philippine Sugar Estate Development Company had earlier appointed Algue
as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the
14
Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely
15
through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale,
Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00
16
promotional fees were paid to the aforenamed individuals.

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

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
19
different amounts as each payee's need arose. 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
20
her, to make up the total of P75,000.00. Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission
21
paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. After 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
22
for personal services actually rendered; ...

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
23
controlling stockholders.

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

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every person who is able to must contribute his share in the running of the
government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the
seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes
that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

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

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

SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Griño-Aquino, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEÑA, 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.:

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

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

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

6
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund, 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.

7
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 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"
8
of some P12.877 billion; 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
9
Energy Regulatory Board — "are poised to accept, process and pay claims not authorized under P.D. 1956."

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
10
another government objective." Petitioner further points out that since "a 'special fund' consists of monies collected
through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special
11
purpose/objective for which it was created."

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

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

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

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

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to
the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the State. The Solicitor General
observes that the "argument rests on the assumption that the OPSF is a form of revenue measure drawing from a
13
special tax to be expended for a special purpose." 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
14
inValmonte v. Energy Regulatory Board, et al. —

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
15
prices of crude oil and imported petroleum products." 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
16
from the OPSF. In Gaston v. Republic Planters Bank, 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.
17
23(1).

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
18
and subsidizing domestic pump rates, § 8(c) of P.D. 1956 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
19
tax." 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

20
are sufficiently determinate or determinable — to which the delegate must conform.
 . . . 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
21
implied from the policy and purpose of the act considered as a whole.

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
22
functions."

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
23
Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2 (2) of P.D. 1956, amended — 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
24
was incurred 'as a result of the reduction of domestic prices of petroleum products,'" and since these items are
reimbursements for which the OPSF should not have responded, the amount of the P12.877 billion deficit "should be
25
reduced by P5,277.2 million." It is argued "that under the principle of ejusdem generis . . . the term 'other factors' (as
used in § 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in the reduction of domestic
26
prices of petroleum products."

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

27
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 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
28
specifically mentioned." 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 under recovery for yet unsold stocks of oil in inventory
acquired at a higher price.

Reimbursement for cost under recovery from the sales of oil to the National Power Corporation is equally permissible,
29
not as coming within the provisions of P.D. 1956, but in virtue of other laws and regulations as held in Caltex 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 under recovery 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.
 Republic of the Philippines
SUPREME COURT
Manila
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. Elevate 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 portion—about 5 per centum—of 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 functions—the 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 imposed—though called fees—are 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. Collected—Monies 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, thePhilippine
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.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR
CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY, defendants-appellants.

Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for defendants-appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio Torres and Solicitor Ceferino
Padua, for plaintiff-appellee.

REGALA, J.:

This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and
Talisay-Silay Milling Co., sister companies under one controlling ownership and management, from a decision of the
Court of First Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632.

Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation
created for the following purposes and objectives:

(a) To conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the
purpose of introducing into the sugar industry such practices or processes that will reduce the cost of
production, increase and improve the industrialization of the by-products of sugar cane, and achieve greater
efficiency in the industry;

(b) To improve existing methods of raising sugar cane and of sugar manufacturing;

(c) To insure a permanent, sufficient and balanced production of sugar and its by-products for local
consumption and exportation;

(d) To establish and maintain such balanced relation between production and consumption of sugar and its by-
products, and such marketing conditions therefor, as well insure stabilized prices at a level sufficient to cover
the cost of production plus a reasonable profit;

(e) To promote the effective merchandising of sugar and its by-products in the domestic and foreign markets so
that those engaged in the sugar industry will be placed on a basis of economic security; and

(f) To improve the living and economic conditions of laborers engaged in the sugar industry by the gradual and
effective correction of the inequalities existing in the industry. (Section 2, Rep. Act 632)

To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide:

Sec. 15. Capitalization. — To raise the necessary funds to carry out the provisions of this Act and the purposes
of the corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per
picul of sugar to be collected for a period of five (5) years beginning the crop year 1951-1952. The amount
shall be borne by the sugar cane planters and the sugar centrals in the proportion of their corresponding milling
share, and said levy shall constitute a lien on their sugar quedans and/or warehouse receipts.

Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside to constitute a special fund to
be known as the "Sugar Research and Stabilization Fund," which shall be available exclusively for the use of
the corporation. All the income and receipts derived from the special fund herein created shall accrue to, and
form part of the said fund to be available solely for the use of the corporation.

The specific and general powers of the Philsugin are set forth in Section 8 of the same law, to wit:

Sec. 3. Specific and General Powers. — For carrying out the purposes mentioned in the preceding section, the
PHILSUGIN shall have the following powers:

(a) To establish, keep, maintain and operate, or help establish, keep, maintain, and operate one central
experiment station and such number of regional experiment stations in any part of the Philippines as may be
necessary to undertake extensive research in sugar cane culture and manufacture, including studies as to the
feasibility of merchandising sugar cane farms, the control and eradication of pests, the selected and
propagation of high-yielding varieties of sugar cane suited to Philippine climatic conditions, and such other
pertinent studies as will be useful in adjusting the sugar industry to a position independent of existing trade
preference in the American market;

(b) To purchase such machinery, materials, equipment and supplies as may be necessary to prosecute
successfully such researches and experimental work;
 (c) To explore and expand the domestic and foreign markets for sugar and its by-products to assure mutual
benefits to consumers and producers, and to promote and maintain a sufficient general production of sugar
and its by-products by an efficient coordination of the component elements of the sugar industry of the country;

(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries, equipment,
materials, merchant vessels, rails, railroad lines, and any other means of transportation, warehouses,
buildings, and any other equipment and material to the production, manufacture, handling, transportation and
warehousing of sugar and its by-products;

(e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;

(f) To enter, make and execute contracts of any kind as may be necessary or incidental to the attainment of its
purposes with any person, firm, or public or private corporation, with the Government of the Philippines or of
the United States, or any state, territory, or persons therefor, or with any foreign government and, in general, to
do everything directly or indirectly necessary or incidental to, or in furtherance of, the purposes of the
corporation;

(g) To do all such other things, transact all such business and perform such functions directly or indirectly
necessary, incidental or conducive to the attainment of the purposes of the corporation; and

(h) Generally, to exercise all the powers of a Corporation under the Corporation Law insofar as they are not
inconsistent with the provisions of this Act.

The facts of this case bearing relevance to the issue under consideration, as recited by the lower court and accepted
by the appellants, are the following:

x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 1953-1954, 1954-1955 and
1955-1956, defendant Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of
P216,070.50; defendant Ma-ao Sugar Central Co., Inc., has paid P117,613.44 but left unpaid balance of
P235,800.20; defendant Talisay-Silay Milling Company has paid P251,812.43 but left unpaid balance of
P208,193.74; and defendant Central Azucarera del Danao made a payment of P49,897.78 but left unpaid
balance of P48,059.77. There is no question regarding the correctness of the amounts paid and the amounts
that remain unpaid.

From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951,
the Philippine Sugar Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a
total consideration of P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3 installments
from the process of the sugar tax to be collected, under Republic Act 632. The evidence further discloses that
the operation of the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was disastrous in the
sense that PHILSUGIN incurred tremendous losses as shown by an examination of the statements of income
and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former acting
general manager of PHILSUGIN and at present technical consultant of said entity, presented by the
defendants as witnesses, it has been shown that the operation of the Insular Sugar Refinery has consumed
70% of the thinking time and effort of the PHILSUGIN management. x x x .

Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not authorized by
Republic Act 632 and that the continued operation of the said refinery was inimical to their interests, the appellants
refused to continue with their contributions to the said fund. They maintained that their obligation to contribute or pay to
the said Fund subsists only to the limit and extent that they are benefited by such contributions since Republic Act 632
is not a revenue measure but an Act which establishes a "Special assessments." Adverting to the finding of the lower
court that proceeds of the said Fund had been used or applied to absorb the "tremendous losses" incurred by Philsugin
in its "disastrous operation" of the said refinery, the appellants herein argue that they should not only be released from
their obligation to pay the said assessment but be refunded, besides, of all that they might have previously paid
thereunder.

The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under
Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific
purpose for which the assessment was authorized, a special assessment being a levy upon property predicated on the
doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax
measure intended to raise revenues for the Government. Consequently, once it has been determined that no benefit
accrues or inures to the property owners paying the assessment, or that the proceeds from the said assessment are
being misapplied to the prejudice of those against whom it has been levied, then the authority to insist on the payment
of the said assessment ceases.

On the other hand, the lower court adjudged the appellants herein liable under the aforementioned law, Republic Act
632, upon the following considerations:

First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and operate machineries, equipment,
merchant vessels, etc., and any other equipment and material for the production, manufacture, handling, transportation
and warehousing of sugar and its by-products. It was, therefore, authorized to purchase and operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of directors composed of 5
members, 3 of whom shall be appointed upon recommendation of the National Federation of Sugar Cane Planters and
2 upon recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has not been shown that this
particular provision was not observed in this case. Therefore, the appellants herein may not rightly claim that there had
been a misapplication of the Philsugin funds when the same was used to procure the Insular Sugar Refinery because
the decision to purchase the said refinery was made by a board in which the applicants were fully and duly
represented, the appellants being members of the Philippine Sugar Association.

Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office, which must be presumed
to have passed upon the legality and prudence of the disbursements of the Fund. Additionally, other offices of the
Government review such transactions as reflected in the annual report obliged of the Philsugin to prepare. Among
those offices are the Office of the President of the Philippines, the Administrator of Economic Coordination and the
Presiding Officers of the two chambers of Congress. With all these safeguards against any imprudent or unauthorized
expenditure of Philsugin Funds, the acquisition of the Insular Sugar Refinery must be upheld in its legality and
propriety.

Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to continue with their
contribution to the Fund for that conduct is no different "from the case of an ordinary taxpayer who refuses to pay his
taxes on the ground that the money is being misappropriated by Government officials." This is taking the law into their
own hands.

Against the above ruling of the trial court, the appellants contend:

First. It is fallacious to argue that no mismanagement or abuse of corporate power could have been committed by
Philsugin solely because its charter incorporates so many devices or safeguards to preclude such abuse. This
reasoning of the lower court does not reconcile with that actually happened in this case.

Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not its powers when it
purchased the Insular Sugar Refinery. The issue, rather, is whether Philsugin had any power or authority at all to
acquire the said refinery. The appellants deny that Philsugin is possessed of any such authority because what it is
empowered to purchase is not a "sugar refinery but a central experiment station or perhaps at the most a sugar central
to be used for that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the appellants cite the case ofCollector vs.
Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled that —

We are of the opinion that a "sugar central," as that term is used in Section 189, applies to "a large mill that
makes sugar out of the cane brought from a wide surrounding territory," or a sugar mill which manufactures
sugar for a number of plantations. The term "sugar central" could not have been intended by Congress to refer
to all sugar mills or sugar factories as contended by respondent. If respondent's interpretation is to be followed,
even sugar mills run by animal power (trapiche) would be considered sugar central. We do not think Congress
ever intended to place owners of (trapiches) in the same category as operators of sugar centrals.

That sugar mills are not the same as sugar centrals may also be gleaned from Commonwealth Act No. 470
(Assessment Law). In prescribing the principle governing valuation and assessment of real property. Section 4
of said Act provides —

"Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall be assessed."

This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or "sugar refineries."

Second. The appellants' refusal to continue paying the assessment under Republic Act 632 may not rightly be equated
with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction between a
"special assessment" and an ordinary tax. The purpose of the former is to finance the improvement of particular
properties, with the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the
assessment. The purpose of an ordinary tax, on the other hand, is to provide the Government with revenues needed
for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be
sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to
comply with a special assessment.

Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection of a special
assessment upon property owners who receive no benefit from such assessment amounts to a denial of due process.
Thus, in the case of Norwood vs. Baer, 172 US 269, the ruling was laid down that —

As already indicated, the principle underlying special assessments to meet the cost of public improvements is
that the property upon which they are imposed is peculiarly benefited, and therefore, the panels do not, in fact,
pay anything in excess of what they received by reason of such improvement.

unless a corresponding benefit is realized by the property owner, the exaction of a special assessment would be
"manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably arbitrary or plain abuse" (Gast Realty Investment
Co. vs. Schneider Granite Co., 240 U.S. 57). In other words, the assessment is violative of the due process guarantee
of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241).

We find for the appellee.

The nature of a "special assessment" similar to the case at bar has already been discussed and explained by this Court
in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the
Sugar Adjustment Act, levies on owners or persons in control of lands devoted to the cultivation of sugar cane and
ceded to others for a consideration, on lease or otherwise —

a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land. (Sec. 3).1äwphï1.ñët

Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a special
fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by
law." It then proceeds to enumerate the said purposes, among which are "to place the sugar industry in a position to
maintain itself; ... to readjust the benefits derived from the sugar industry ... so that all might continue profitably to
engage therein; to limit the production of sugar to areas more economically suited to the production thereof; and to
afford laborers employed in the industry a living wage and to improve their living and working conditions.

The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was
unconstitutional because it was being "levied for the aid and support of the sugar industry exclusively," and therefore,
not for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said:

The basic defect in the plaintiff's position in his assumption that the tax provided for in Commonwealth Act No.
567 is a pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the tax
is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation,
sugar occupying a leading position among its export products; that it gives employment to thousands of
laborers in fields and factories; that it is a great source of the state's wealth, is one, of the important sources to
foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy
of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general
welfare. Hence, it was competent for the Legislature to find that the general welfare demanded that the sugar
industry should be stabilized in turn; and in the wide field of its police power, the law-making body could
provide that the distribution of benefits therefrom be readjusted among its components, to enable it to resist the
added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835;
Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121)

As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in Florida —

"The protection of a large industry constituting one of the great source of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is
affected to such an extent by public interests as to be within the police power of the sovereign." (128
So. 857).

Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject
only to the test of reasonableness; and it is not contended that the means provided in Section 6 of the law
(above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation may be made the implement of the state's police power. (Great Atl.
& Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477;
M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as
the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the
imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It
is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist.

Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work for the sugar
industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such
practices or processes that will reduce the cost of production, ..., and achieve greater efficiency in the industry." This
provision, first of all, more than justifies the acquisition of the refinery in question. The case dispute that the operation of
a sugar refinery is a phase of sugar production and that from such operation may be learned methods of reducing the
cost of sugar manufactured no less than it may afford the opportunity to discover the more effective means of achieving
progress in the industry. Philsugin's experience alone of running a refinery is a gain to the entire industry. That the
operation resulted in a financial loss is by no means an index that the industry did not profit therefrom, as other farms of
a different nature may have been realized. Thus, from its financially unsuccessful venture, the Philsugin could very well
have advanced in its appreciation of the problems of management faced by sugar centrals. It could have understood
more clearly the difficulties of marketing sugar products. It could have known with better intimacy the precise area of
the industry in need of the more help from the government. The view of the appellants herein, therefore, that they were
not benefited by the unsuccessful operation of the refinery in question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry out save through the
actual operation of a refinery. Quite obviously, the most practical or realistic approach to the problem of what "practices
or processes" might most effectively cut the cost of production is to experiment on production itself. And yet, how can
such an experiment be carried out without the tools, which is all that a refinery is?

In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

Makalintal, J., took no part.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner, vs VIDEOGRAM
REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry
(hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on
April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No. 1994
amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or
imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and Distributors
Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter collectively referred to
as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's opposition, upon the
allegations that intervention was necessary for the complete protection of their rights and that their "survival and very
existence is threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file
their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced
the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance
by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually
in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of
the movie industry, particularly the more than 1,200 movie houses and theaters throughout the
country, and occasioned industry-wide displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to
create an environment conducive to growth and development of all business industries, including the
movie industry which has an accumulated investment of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the
dire financial condition of the movie industry upon which more than 75,000 families and 500,000
workers depend for their livelihood, but also provide an additional source of revenue for the
Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a
clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of
the Constitution for the State to support the rearing of the youth for civic efficiency and the
development of moral character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these
blatant malpractices which have flaunted our censorship and copyright laws;
 8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of
the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred
upon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title
thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a
statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to
accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter
2
expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. An act
having a single general subject, indicated in the title, may contain any number of provisions, no matter how diverse
they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in
3
furtherance of such subject by providing for the method and means of carrying out the general object." The rule also
is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede
4 5
the power of legislation. It should be given practical rather than technical construction.

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without merit.
That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law
to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental
rate, as the case may be, for every sale, lease or disposition of a videogram containing a reproduction
of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected
shall accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the
tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general
object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board as
expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for
6
regulation it is simply one of the regulatory and control mechanisms scattered throughout the DECREE. The express
purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore
uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives
of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram
Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers
all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of
7
the DECREE.

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
8
regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in
force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions
9
whatever, except such as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature
acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that
earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby
depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the
movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on
all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the
state's police power. 13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the President
... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa or
the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment
requires immediate action, he may, in order to meet the exigency, issue the necessary decrees, orders, or letters of
instructions, which shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures to be adopted with dispatch. Whatever
the reasons "in the judgment" of the then President, considering that the issue of the validity of the exercise of
legislative power under the said Amendment still pends resolution in several other cases, we reserve resolution of the
question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant
in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and units of
the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to
perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a conferment of
authority or discretion as to its execution, enforcement, and implementation. "The true distinction is between the
delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring
authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done;
to the latter, no valid objection can be made." 14 Besides, in the very language of the decree, the authority of the
BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being
"subject to the direction and control of the BOARD." That the grant of such authority might be the source of graft and
corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties
will not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one
which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after
the effectivity of this Decree within which to register with and secure a permit from the BOARD to
engage in the videogram business and to register with the BOARD all their inventories of videograms,
including videotapes, discs, cassettes or other technical improvements or variations thereof, before
they could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the
possession of any person engaged in the videogram business without the required proof of registration
by the BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of
such videogram be for private showing and/or public exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any
videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that
the presumption of innocence may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be sufficient to overcome such
presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A
TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that
when certain facts have been proved that they shall be prima facie evidence of the existence of the
guilt of the accused and shift the burden of proof provided there be a rational connection between the
facts proved and the ultimate facts presumed so that the inference of the one from proof of the others
 is not unreasonable and arbitrary because of lack of connection between the two in common
experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact proved,
which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that
the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period counted from its
effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of existence
as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While the underlying
objective of the DECREE is to protect the moribund movie industry, there is no question that public welfare is at bottom
of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the
viewing public brought about by the availability of unclassified and unreviewed video tapes containing pornographic
films and films with brutally violent sequences; and losses in government revenues due to the drop in theatrical
attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere payment
of Mayor's permit and municipal license fees are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE.
These considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and confined its jurisdiction to such
a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the
discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the
rule of law, as there ought to be, the last offender should be courts of justice, to which rightly litigants
submit their controversy precisely to maintain unimpaired the supremacy of legal norms and
prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no clear
violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and
void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 92585 May 8, 1992

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

DAVIDE, JR., J.:

1
This is a petition erroneously brought under Rule 44 of the Rules of Court 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).

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

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)
5
"grave abuse of discretion and completely without jurisdiction" 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
6
reimbursement from the OPSF shall be held in abeyance.

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
7
it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods.

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
9
collections to the OPSF to facilitate COA's audit action on the reimbursement claims.

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
10
position. 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
11
ensuing years. 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
12
la Paz of the Office of Energy Affairs:

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
13
following grounds:

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

14
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration.
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
15
sales. 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
16
commission of the following errors:

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES

FROM THE OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING

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

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
18
from notice.

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

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

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

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:

Financing
Period
 Reimbursem
ent Rate

Pesos per
Barrel

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

22
days.

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
23
attached Department of Finance circular.

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:

Financing
Period
Reimbursem
ent Rate

(PBbl.)

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

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

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
25
certificates in cash if not utilized, subject to availability of funds.

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

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
27
charges are recoverable from the OPSF is entitled to great weight and consideration. 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
28
expenditures, or uses of government funds and properties.

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

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

1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary
government expenditures and as the monetary claims of petitioner are not allowed by law, the COA
acted within its jurisdiction in denying them;

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

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

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the Department of
Finance violates P.D. No. 1956 and E.O. No. 137; and

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

29
charges.

We find no merit in the first assigned error.

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

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

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and
settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned and controlled corporations with original
 charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been
granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c)
other government-owned or controlled corporations and their subsidiaries; and (d) 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.

30
These present powers, consistent with the declared independence of the Commission, 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,
31
unnecessary, excessive, or extravagant expenditures or uses of funds and property.

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.

32
The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez and Ramos
33
vs.Aquino, 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
34
definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code of the Philippines and
35
Administrative Code of 1987. Pursuant to its power to promulgate accounting and auditing rules and regulations for
36
the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 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
37
G. Bernas:

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
38
as applying only to persons or things of the same kind or class as those specifically mentioned. 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
39
legislature, in making the delegation, has prescribed the manner of the exercise of the delegated authority.

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
40
exemption. 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
41
OPSF. 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
42
from payment of OPSF imposts as effected by OEA has no legal basis;" 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
43
the time of its formulation." 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
44
dues. Rather, such imposts are built in or already incorporated in the prices of oil products.

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
45
was never published in the Official Gazette 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. . . .

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

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
47
1986, 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
48
authority. 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,
49
the latter acted beyond its jurisdiction. Respondents, on the other hand, contend that said amount was already
50
disallowed by the OEA for failure to substantiate it. 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
51
1987 and 1988.

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
52
Satisfaction of Indebtedness to Government." Petitioner also mentions communications from the Board of Energy
and the Department of Finance that supposedly authorize compensation.

53
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 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
54
or right to make compensation is not given to the private person." The reason for this, as stated in Commissioner of
55
Internal Revenue vs. Algue, Inc., 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
56
because "P.D. 1956, amended, did not create a source of taxation; it instead established a special fund . . .," 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:

(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
57
state. 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.

58
It is settled 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
59
each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

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.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner, vs. JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA
CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY
OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.

Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.

MEDIALDEA, J.:

The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in
full, as follows (78 O.G. 5861):

EXECUTIVE ORDER No. 73

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX
CODE, AS AMENDED

WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;

WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered
the 1978 revised values obsolete;

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred
to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units
of an additional source of revenue;

WHEREAS, there is an urgent need for local governments to augment their financial resources to meet
the rising cost of rendering effective services to the people;

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:

SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors
during the latest general revision of assessments shall take effect beginning January 1, 1987 for
purposes of real property tax collection.

SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement
this Executive Order.

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.

SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.

SEC. 5. This Executive Order shall take effect immediately.

On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order No. 73
until June 30, 1987.

1
The petitioner, Francisco I. Chavez, is a taxpayer and an owner of three parcels of land. He alleges the following: that
Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby
mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land;
that any increase in the value of real property brought about by the revision of real property values and assessments
would necessarily lead to a proportionate increase in real property taxes; that sheer oppression is the result of
increasing real property taxes at a period of time when harsh economic conditions prevail; and that the increase in the
market values of real property as reflected in the schedule of values was brought about only by inflation and economic
recession.

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-
lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally alleges the
following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax
on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments;
that the General Revision of Assessments does not meet the requirements of due process as regards publication,
notice of hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings (improvements)
which is not provided in Presidential Decree No. 464, but only in an administrative regulation of the Department of
2
Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 is even more oppressive and
unconstitutional as it imposes successive increase of 150% over the 1986 tax.

The Office of the Solicitor General argues against the petition.

The petition is not impressed with merit.

Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the revision
of the assessments and the effectivity thereof are concerned. It should be emphasized that Executive Order No. 73
merely directs, in Section 1 thereof, that:

SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors
during the latest general revision of assessments shall take effect beginning January 1, 1987 for
purposes of real property tax collection. (emphasis supplied)

The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464 which
provides, as follows:

SEC. 21. General Revision of Assessments. — Beginning with the assessor shall make a calendar
year 1978, the provincial or city general revision of real property assessments in the province or city to
take effect January 1, 1979, and once every five years thereafter: Provided; however, That if property
values in a province or city, or in any municipality, have greatly changed since the last general revision,
the provincial or city assesor may, with the approval of the Secretary of Finance or upon bis direction,
undertake a general revision of assessments in the province or city, or in any municipality before the
fifth year from the effectivity of the last general revision.

Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as
the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If
at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to
raise any objection against said decree. It was ROAP which questioned the constitutionality thereof. Furthermore,
Presidential Decree No. 464 furnishes the procedure by which a tax assessment may be questioned:

SEC. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with the action of the
provincial or city assessor in the assessment of his property may, within sixty days from the date of
receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of
Assessment Appeals of the province or city, by filing with it a petition under oath using the form
prescribed for the purpose, together with copies of the tax declarations and such affidavit or
documents submitted in support of the appeal.

xxx xxx xxx

SEC. 34. Action by the Local Board of assessment Appeals. — The Local Board of Assessment
Appeals shall decide the appeal within one hundred and twenty days from the date of receipt of such
appeal. The decision rendered must be based on substantial evidence presented at the hearing or at
least contained in the record and disclosed to the parties or such relevant evidence as a reasonable
mind might accept as adequate to support the conclusion.

In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses,
administer oaths, conduct ocular inspection, take depositions, and issue subpoena and
subpoenaduces tecum. The proceedings of the Board shall be conducted solely for the purpose of
ascertaining the truth without-necessarily adhering to technical rules applicable in judicial proceedings.

The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a
copy each of the decision of the Board. In case the provincial or city assessor concurs in the revision
or the assessment, it shall be his duty to notify the property owner of such fact using the form
prescribed for the purpose. The owner or administrator of the property or the assessor who is not
satisfied with the decision of the Board of Assessment Appeals, may, within thirty days after receipt of
the decision of the local Board, appeal to the Central Board of Assessment Appeals by filing his appeal
under oath with the Secretary of the proper provincial or city Board of Assessment Appeals using the
prescribed form stating therein the grounds and the reasons for the appeal, and attaching thereto any
evidence pertinent to the case. A copy of the appeal should be also furnished the Central Board of
Assessment Appeals, through its Chairman, by the appellant.

Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals
concerned shall forward the same and all papers related thereto, to the Central Board of Assessment
Appeals through the Chairman thereof.

xxx xxx xxx

 SEC. 36. Scope of Powers and Functions. — The Central Board of Assessment Appeals shall have
jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The
said Board shall decide cases brought on appeal within twelve (12) months from the date of receipt,
which decision shall become final and executory after the lapse of fifteen (15) days from the date of
receipt of a copy of the decision by the appellant.

In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express
authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths,
take depositions, and issue subpoenas and subpoenas duces tecum.

The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to
the conduct of its business.

Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who doubts the
assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the, owner or administrator
of the property or the assessor is not satisfied with the decision of the Local Board of Assessment Appeals, he may,
within thirty days from the receipt of the decision, appeal to the Central Board of Assessment Appeals. The decision of
the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the date
of receipt of the decision.

Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73
amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases
of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) andSison v.
Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).

The reliance on these two cases is certainly misplaced because the due process requirement called for therein applies
to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.

Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real
property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the
increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January
1, 1988. Section 5 thereof is quoted herein as follows:

SEC. 5. The increase in real property taxes resulting from the revised real property assessments as
provided for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No.
1621, shall be collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the
Ministry of Finance and the Ministry of Local Government to establish the new systems of tax collection
and assessment provided herein and in order to alleviate the condition of the people, including real
property owners, as a result of temporary economic difficulties. (emphasis supplied)

The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property
taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample
justification in its "whereas' clauses, as follows:

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred
to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units
of an additional source of revenue;

WHEREAS, there is an urgent need for local governments to augment their financial resources to meet
the rising cost of rendering effective services to the people; (emphasis supplied)

xxx xxx xxx

The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in the
present petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order No. 73.
Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things,
unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main proceeding, and it
may be laid down as a general rule that an intervention is limited to the field of litigation open to the original parties (59
Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).

We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for
collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real
property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real
properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one
of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government
expenditures and their variations.

ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.SO ORDERED
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-22074 April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, respondents.

Josue H. Gustilo and Ramirez and Ortigas for petitioner.

Office of the Solicitor General and Attorney V.G. Saldajena for respondents.

BENGZON, J.P., J.:

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on various
dates, with foreign insurance companies not doing business in the Philippines namely: Imperio Compañia de Seguros,
La Union y El Fenix Español, Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros Alianza, Tokio
Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance
Limited. Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines, in consideration for the assumption by the latter of liability on
an equivalent portion of the risks insured. Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in
Manila and by the foreign reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company,
which was signed by both parties in Switzerland.

The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of Philippine
Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to keep a register in Manila
where the risks ceded to the foreign reinsurers where entered, and entry therein was binding upon the reinsurers. A
proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for by
the foreign reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering their affairs
in the Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance
premiums. Conflicts and/or differences between the parties under the reinsurance contracts were to be arbitrated in
Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their contract shall be construed
by the laws of the Philippines.

Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the
following premiums:

1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71

1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its income tax returns
for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, per letter dated April 13, 1959,
the Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded
reinsurance premiums, thus:

1953

Gross premium per investigation . . . . . . . . . . P768,580.00

Withholding tax due thereon at 24% . . . . . . . . P184,459.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00

Compromise for non-filing of withholding

100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .

TOTAL AMOUNT DUE & COLLECTIBLE . . . . P230,673.00

==========

1954

Gross premium per investigation . . . . . . . . . . P780.880.68

Withholding tax due thereon at 24% . . . . . . . . P184,411.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00

Compromise for non-filing of withholding

100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .

TOTAL AMOUNT DUE & COLLECTIBLE . . . .

 P234,364.00
==========

Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest was denied and it
appealed to the Court of Tax Appeals.

On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:

IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the respective sums of P202,192.00 and P173,153.00
or the total sum of P375,345.00 as withholding income taxes for the years 1953 and 1954, plus the statutory
delinquency penalties thereon. With costs against petitioner.

Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal Revenue's
assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers.

Petitioner maintain that the reinsurance premiums in question did not constitute income from sources within the
Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have office here.

The reinsurance contracts, however, show that the transactions or activities that constituted the undertaking to reinsure
Philippine Guaranty Co., Inc. against loses arising from the original insurances in the Philippines were performed in the
Philippines. The liability of the foreign reinsurers commenced simultaneously with the liability of Philippine Guaranty
Co., Inc. under the original insurances. Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the
foreign reinsurers. Entries made in such register bound the foreign resinsurers, localizing in the Philippines the actual
cession of the risks and premiums and assumption of the reinsurance undertaking by the foreign reinsurers. Taxes on
premiums imposed by Section 259 of the Tax Code for the privilege of doing insurance business in the Philippines
were payable by the foreign reinsurers when the same were not recoverable from the original assured. The foreign
reinsurers paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in consideration for
administration and management by the latter of the affairs of the former in the Philippines in regard to their reinsurance
activities here. Disputes and differences between the parties were subject to arbitration in the City of Manila. All the
reinsurance contracts, except that with Swiss Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in
the Philippines and later signed by the foreign reinsurers abroad. Although the contract between Philippine Guaranty
Co., Inc. and Swiss Reinsurance Company was signed by both parties in Switzerland, the same specifically provided
that its provision shall be construed according to the laws of the Philippines, thereby manifesting a clear intention of the
parties to subject themselves to Philippine law.

Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the Philippines.
1
The word "sources" has been interpreted as the activity, property or service giving rise to the income. The reinsurance
premiums were income created from the undertaking of the foreign reinsurance companies to reinsure Philippine
Guaranty Co., Inc., against liability for loss under original insurances. Such undertaking, as explained above, took place
in the Philippines. These insurance premiums, therefore, came from sources within the Philippines and, hence, are
subject to corporate income tax.

The foreign insurers' place of business should not be confused with their place of activity. Business should not be
2
continuity and progression of transactions while activity may consist of only a single transaction. An activity may occur
outside the place of business. Section 24 of the Tax Code does not require a foreign corporation to engage in business
in the Philippines in subjecting its income to tax. It suffices that the activity creating the income is performed or done in
the Philippines. What is controlling, therefore, is not the place of business but the place ofactivity that created an
income.

Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines because
they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it
merely directs that the kinds of income mentioned therein should be treated as income from sources within the
Philippines but it does not require that other kinds of income should not be considered likewise.1äwphï1.ñët

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to
preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its
shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry
and those which come within the State's territory, and facilities and protection which a government is supposed to
provide. Considering that the reinsurance premiums in question were afforded protection by the government and the
recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state.

Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal Revenue
requiring no withholding of the tax due on the reinsurance premiums in question relieved it of the duty to pay the
corresponding withholding tax thereon. This defense of petitioner may free if from the payment of surcharges or
penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate if from
liability to pay such withholding tax The Government is not estopped from collecting taxes by the mistakes or errors of
3
its agents.
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code, suffice it to state that this question
has already been answered in the affirmative in Alexander Howden & Co., Ltd. vs. Collector of Internal Revenue, L-
19393, April 14, 1965.

Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted to the
foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount to its foreign insurers in
1953 and 1954, no withholding tax was due.

The pertinent section of the Tax Code States:

Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations subject to taxation
under this Title not engaged in trade or business within the Philippines and not having any office or place of
business therein, there shall be deducted and withheld at the source in the same manner and upon the same
items as is provided in Section fifty-three a tax equal to twenty-four per centum thereof, and such tax shall be
returned and paid in the same manner and subject to the same conditions as provided in that section.

The applicable portion of Section 53 provides:

(b) Nonresident aliens. — All persons, corporations and general copartnerships (compañias colectivas), in
what ever capacity acting, including lessees or mortgagors of real or personal property, trustees acting in any
trust capacity, executors, administrators, receivers, conservators, fiduciaries, employers, and all officers and
employees of the Government of the Philippines having the control, receipt, custody, disposal, or payment of
interest, dividends, rents, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and income of any nonresident alien individual,
not engaged in trade or business within the Philippines and not having any office or place of business therein,
shall (except in the case provided for in subsection [a] of this section) deduct and withhold from such annual or
periodical gains, profits, and income a tax equal to twelve per centum thereof: Provided That no deductions or
withholding shall be required in the case of dividends paid by a foreign corporation unless (1) such corporation
is engaged in trade or business within the Philippines or has an office or place of business therein, and (2)
more than eighty-five per centum of the gross income of such corporation for the three-year period ending with
the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the
corporation has been in existence)was derived from sources within the Philippines as determined under the
provisions of section thirty-seven: Provided, further, That the Collector of Internal Revenue may authorize such
tax to be deducted and withheld from the interest upon any securities the owners of which are not known to the
withholding agent.

The above-quoted provisions allow no deduction from the income therein enumerated in determining the amount to be
withheld. According, in computing the withholding tax due on the reinsurance premium in question, no deduction shall
be recognized.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered to pay to
the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or a total amount of P375,345.00,
as withholding tax for the years 1953 and 1954, respectively. If the amount of P375,345.00 is not paid within 30 days
from the date this judgement becomes final, there shall be collected a surcharged of 5% on the amount unpaid, plus
interest at the rate of 1% a month from the date of delinquency to the date of payment, provided that the maximum
amount that may be collected as interest shall not exceed the amount corresponding to a period of three (3) years.
With costs againsts petitioner.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala, JJ., concur.

Makalintal and Zaldivar, JJ., took no part.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-23645 October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee, vs. ENRICO PALOMAR, in his capacity as Postmaster General, HON.
BRIGIDO R. VALENCIA, in his capacity as Secretary of Public Works and Communications, and DOMINGO
GOPEZ, in his capacity as Acting Postmaster of San Fernando, Pampanga, respondent-appellants.

CASTRO, J.:

1 2
This appeal puts in issue the constitutionality of Republic Act 1635, as amended by Republic Act 2631, which
provides as follows:

To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period from
August nineteen to September thirty every year the printing and issue of semi-postal stamps of different
denominations with face value showing the regular postage charge plus the additional amount of five centavos
for the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears
such semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on
newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall constitute a
special fund and be deposited with the National Treasury to be expended by the Philippine Tuberculosis
Society in carrying out its noble work to prevent and eradicate tuberculosis.

The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative orders
numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these administrative
orders were issued with the approval of the respondent Secretary of Public Works and Communications.

The pertinent portions of Adm. Order 3 read as follows:

Such semi-postal stamps could not be made available during the period from August 19 to September 30,
1957, for lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and another at "10
+ 5" centavos, will soon be released for use by the public on their mails to be posted during the same period
starting with the year 1958.

During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever
class, and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in this
country or abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp showing
the additional value of five centavos intended for the Philippine Tuberculosis Society.

In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage
meters, each piece of such mail shall bear at least one such semi-postal stamp if posted during the period
above stated starting with the year 1958, in addition to being charged the usual postage prescribed by existing
regulations. In the case of business reply envelopes and cards mailed during said period, such stamp should
be collected from the addressees at the time of delivery. Mails entitled to franking privilege like those from the
office of the President, members of Congress, and other offices to which such privilege has been granted, shall
each also bear one such semi-postal stamp if posted during the said period.

Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes without
the required semi-postal stamp, shall be returned to the sender, if known, with a notation calling for the affixing
of such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable and forwarded to the
Dead Letter Office for proper disposition.

Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:

In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such extra
charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued, instead of
affixing the semi-postal stamp in the manner hereinafter indicated:

1. Second-class mail. — Aside from the postage at the second-class rate, the extra charge of five centavos for
the Philippine Tuberculosis Society shall be collected on each separately-addressed piece of second-class
mail matter, and the total sum thus collected shall be entered in the same official receipt to be issued for the
postage at the second-class rate. In making such entry, the total number of pieces of second-class mail posted
shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered
separate from the postage in both of the official receipt and the Record of Collections.

2. First-class and third-class mail permits. — Mails to be posted without postage affixed under permits issued
by this Bureau shall each be charged the usual postage, in addition to the five-centavo extra charge intended
 for said society. The total extra charge thus received shall be entered in the same official receipt to be issued
for the postage collected, as in subparagraph 1.

3. Metered mail. — For each piece of mail matter impressed by postage meter under metered mail permit
issued by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an
official receipt issued for the total sum thus received, in the manner indicated in subparagraph 1.

4. Business reply cards and envelopes. — Upon delivery of business reply cards and envelopes to holders of
business reply permits, the five-centavo charge intended for said society shall be collected in cash on each
reply card or envelope delivered, in addition to the required postage which may also be paid in cash. An official
receipt shall be issued for the total postage and total extra charge received, in the manner shown in
subparagraph 1.

5. Mails entitled to franking privilege. — Government agencies, officials, and other persons entitled to the
franking privilege under existing laws may pay in cash such extra charge intended for said society, instead of
affixing the semi-postal stamps to their mails, provided that such mails are presented at the post-office window,
where the five-centavo extra charge for said society shall be collected on each piece of such mail matter. In
such case, an official receipt shall be issued for the total sum thus collected, in the manner stated in
subparagraph 1.

Mail under permits, metered mails and franked mails not presented at the post-office window shall be affixed
with the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be treated in the
same way as herein provided for other mails.

Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and Instrumentalities
Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts "copies of
periodical publications received for mailing under any class of mail matter, including newspapers and magazines
admitted as second-class mail."

The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong,
Manila did not bear the special anti-TB stamp required by the statute, it was returned to the petitioner.

In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of Pampanga,
to test the constitutionality of the statute, as well as the implementing administrative orders issued, contending that it
violates the equal protection clause of the Constitution as well as the rule of uniformity and equality of taxation. The
lower court declared the statute and the orders unconstitutional; hence this appeal by the respondent postal authorities.

For the reasons set out in this opinion, the judgment appealed from must be reversed.

I.

Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory relief is
unavailing because this suit was filed after the petitioner had committed a breach of the statute. While conceding that
the mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of Republic Act 1635, as
amended, the trial court nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64 of the
Rules of Court, "If before the final termination of the case a breach or violation of ... a statute ... should take place, the
action may thereupon be converted into an ordinary action."

The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of the
statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the court to treat
an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs after the filing of the
3
action but before the termination thereof.

Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action, then
indeed the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an ordinary
action.

Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach of the
statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in terms provides
that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It does not follow,
however, that only postal authorities can be guilty of violating it by accepting mails without the payment of the anti-TB
stamp. It is obvious that they can be guilty of violating the statute only if there are people who use the mails without
paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach of the law, so in the
matter of the anti-TB stamp the mere attempt to use the mails without the stamp constitutes a violation of the statute. It
is not required that the mail be accepted by postal authorities. That requirement is relevant only for the purpose of
fixing the liability of postal officials.

Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not only
with respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail that he might
send in the future. Thus, in his complaint, the petitioner prayed that due course be given to "other mails without the
semi-postal stamps which he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as
amended, as well as other mails hereafter to be sent by or to other mailers which bear the required postage, without
collection of additional charge of five centavos prescribed by the same Republic Act." As one whose mail was returned,
the petitioner is certainly interested in a ruling on the validity of the statute requiring the use of additional stamps.

II.

We now consider the constitutional objections raised against the statute and the implementing orders.

1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the claim is
made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the
population and that even among postal patrons the statute discriminatorily grants exemption to newspapers while
Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices performing
governmental functions. .

The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the
exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against it must be
viewed in the light of applicable principles of taxation.

To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant
4 5
exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of
6
taxation, more than in other areas, the legislature possesses the greatest freedom in classification. The reason for this
is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to
7
achieve an equitable distribution of the tax burden.

That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that
statutory classification of mail users must bear some reasonable relationship to the end sought to be attained, and that
absent such relationship the selection of mail users is constitutionally impermissible. This is altogether a different
8
proposition. As explained in Commonwealth v. Life Assurance Co.:

While the principle that there must be a reasonable relationship between classification made by the legislation
and its purpose is undoubtedly true in some contexts, it has no application to a measure whose sole purpose is
to raise revenue ... So long as the classification imposed is based upon some standard capable of reasonable
comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction,
equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at
527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580
(1910).

We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it
sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation must be
sought in the legislature. Now, the classification of mail users is not without any reason. It is based on ability to pay, let
alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax burden, Congress
must have concluded that the contribution to the anti-TB fund can be assured by those whose who can afford the use
of the mails.

The classification is likewise based on considerations of administrative convenience. For it is now a settled principle of
law that "consideration of practical administrative convenience and cost in the administration of tax laws afford
9
adequate ground for imposing a tax on a well recognized and defined class." In the case of the anti-TB stamps,
undoubtedly, the single most important and influential consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenienceof collecting the tax through the post offices. The small amount
of five centavos does not justify the great expense and inconvenience of collecting through the regular means of
collection. On the other hand, by placing the duty of collection on postal authorities the tax was made almost self-
enforcing, with as little cost and as little inconvenience as possible.

And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were already
a class by themselves even before the enactment of the statue and all that the legislature did was merely to select their
class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a distinction that
exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard [them]
10
and concentrate on some abstract identities is lifeless logic."

Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be conceded as
a necessary corollary. Tax exemptions are too common in the law; they have never been thought of as raising issues
under the equal protection clause.

It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law and
administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The application of the
lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable in the light of
differences in status of mail users. The Constitution does not require this kind of equality.

As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to foster what
11
it conceives to be a beneficent enterprise. This is the case of newspapers which, under the amendment introduced by
Republic Act 2631, are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from taxation.
The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty, is to be strictly
12
construed. Administrative Order 9 of the respondent Postmaster General, which lists the various offices and
instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-
known principle of constitutional law.

The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other
diseases which, it is said, are equally a menace to public health. But it is never a requirement of equal protection that
13
all evils of the same genus be eradicated or none at all. As this Court has had occasion to say, "if the law presumably
hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have
14
been applied."

2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public purpose as
no special benefits accrue to mail users as taxpayers, and second, because it violates the rule of uniformity in taxation.

The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying of taxes
except as they are used to compensate for the burden on those who pay them and would involve the abandonment of
15
the most fundamental principle of government — that it exists primarily to provide for the common good.

Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated tax.
A tax need not be measured by the weight of the mail or the extent of the service rendered. We have said that
considerations of administrative convenience and cost afford an adequate ground for classification. The same
considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating
16
equally on all persons within the class regardless of the amount involved. As Mr. Justice Holmes said in sustaining
the validity of a stamp act which imposed a flat rate of two cents on every $100 face value of stock transferred:

One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the
tax, so far as actual values are concerned, is manifest. But, here again equality in this sense has to yield to
practical considerations and usage. There must be a fixed and indisputable mode of ascertaining a stamp tax.
In another sense, moreover, there is equality. When the taxes on two sales are equal, the same number of
shares is sold in each case; that is to say, the same privilege is used to the same extent. Valuation is not the
only thing to be considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on
checks, irrespective of income or earning capacity, and many others, illustrate the necessity and practice of
17
sometimes substituting count for weight ...

According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General points
out, the Society is not really the beneficiary but only the agency through which the State acts in carrying out what is
18
essentially a public function. The money is treated as a special fund and as such need not be appropriated by law.

3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court invalidated
Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power.

Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid in cash
instead of the purchase of the anti-TB stamp. It further states that mails deposited during the period August 19 to
September 30 of each year in mail boxes without the stamp should be returned to the sender, if known, otherwise they
should be treated as nonmailable.

It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB
stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the undertaking. The
authority given to the Postmaster General to raise funds through the mails must be liberally construed, consistent with
19
the principle that where the end is required the appropriate means are given.

The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but also
that of the regular postage. In the case of business reply cards, for instance, it is obvious that to require mailers to affix
the anti-TB stamp on their cards would be to make them pay much more because the cards likewise bear the amount
of the regular postage.

It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB stamp, but
a declaration therein that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamp" is a
declaration that such mail matter is nonmailable within the meaning of section 1952 of the Administrative Code.
Administrative Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal officials and
employees. As for Administrative Order 9, we have already said that in listing the offices and entities of the
Government exempt from the payment of the stamp, the respondent Postmaster General merely observed an
established principle, namely, that the Government is exempt from taxation.

ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to costs.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

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

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant, vs. JUAN POSADAS,
JR., Collector of Internal Revenue, defendant-appellant.

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, giftmortis
causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon transmission or the
transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise
or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or
deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code, "the rights to the
succession of a person are transmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the
heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the
moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for
the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co.,
vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas
vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs.
Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs.
Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that
while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as
forced heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no distinction
between different classes of heirs. That article does not speak of forced heirs; it does not even use the word "heir". It
speaks of the rights of succession and the transmission thereof from the moment of death. The provision of section 625
of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect
transmission of property does not affect the general rule laid down in article 657 of the Civil Code. The authentication of
a will implies its due execution but once probated and allowed the transmission is effective as of the death of the
testator in accordance with article 657 of the Civil Code. Whatever may be the time when actual 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 thecestui que trust (Shelton
vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possesson
of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs.
Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He took such
legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p. 542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the
payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be
plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their
beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases,
the trust may last for fifty years, or for a longer period which does not offend the rule against petuities. The collection of
the tax would then be left to the will of a private individual. The mere suggestion of this result is a sufficient warning
against the accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435;
10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19
Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150;
Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the
privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the
support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the
payment of taxes solely because no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18
Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government's power of
taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon
tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts,
1 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; Muñoz & 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.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee, vs. CITY OF ILOILO, defendants-appellants.

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

business in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco
and Ledesma from Plazoleto Gay to Valeria. St. P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market as

soon as said place is declared commercial P24.00 per door p.a.

Section 4. — All ordinances or parts thereof inconsistent herewith are hereby amended.

Section 5. — Any person found violating this ordinance shall be punished with a fine note exceeding Two
Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the
Court.
 Section 6 — This ordinance shall take effect upon approval.

ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses,
aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of
ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or
Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the
store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and
Quezon City, which cities, according to him, do not impose tenement or apartment taxes.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S.
Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S.
Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise
been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively,
against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for
being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of
the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution,"
and that the City be ordered to refund the amounts collected from them under the said ordinance.

1
On March 30, 1966, 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
2
repugnant to a controlling statute. 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
3
maintain that it is a "property tax" or "real estate tax," and not a "tax on persons engaged in any occupation or
4
business or exercising privileges," or a license tax, or a privilege tax, or an excise tax. 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
5
under Sec. 38 of the Iloilo City Charter, Com. Act 158." .

It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the
6
appellees confuse the tax with the real estate tax within the meaning of the Assessment Law, which, although not
7
applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter. A real estate tax is a direct tax on
8
the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable
9
regardless of whether the property is used or not, although the value may vary in accordance with such factor. The tax
is usually single or indivisible, although the land and building or improvements erected thereon are assessed
10 11
separately, except when the land and building or improvements belong to separate owners. It is a fixed proportion of
12
the assessed value of the property taxed, and requires, therefore, the intervention of assessors. It is collected or
13 14
payable at appointed times, and it constitutes a superior lien on and is enforceable against the property 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
15
not within the ordinance." 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
16
to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege." .

"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
17
from the nature and essence of the subject." 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
 18
house 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
19
business enterprise, 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
20
to the amount of their annual income. .

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,
21
calling or activity by both the State and a political subdivision thereof. .

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
22
license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax. .

"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
23
taxing district, during the same taxing period, and they must be the same kind or character of tax." 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.

24
At all events, there is no constitutional prohibition against double taxation in the Philippines. 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
26
provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax." 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
27
that prohibition." 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
28
which they may be engaged. Therefore, the tax in question is not oppressive in the manner the lower court puts it. On
29
the other hand, the charter of Iloilo City 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
30
professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation. .

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
31
upon all property of the same class or character within the taxing authority." 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
32
purpose should be imposed in different territorial subdivisions at the same time. So 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
33
uniformity of taxation is accomplished. 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
34
that tax statutes are intended to operate uniformly and equally. .

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..
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

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

CITY OF BAGUIO, plaintiff-appellee, vs. FORTUNATO DE LEON, defendant-appellant.

FERNANDO, J.:

1
In this appeal, a lower court decision upholding the validity of an ordinance of the City of Baguio imposing a license
fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendant-appellant
Fortunato de Leon. He was held liable as a real estate dealer with a property therein worth more than P10,000, but not
in excess of P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That is the principal
question. In addition, there has been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction
of the City Court of Baguio, where the suit originated, a complaint having been filed against him by the City Attorney of
Baguio for his failure to pay the amount of P300 as license fee covering the period from the first quarter of 1958 to the
fourth quarter of 1962, allegedly, inspite of repeated demands. Nor was defendant-appellant agreeable to such a suit
being instituted by the City Treasurer without the consent of the Mayor, which for him was indispensable. The lower
court was of a different mind.

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

The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the city charter of
2
Baguio empowering it to fix the license fee and regulate "businesses, trades and occupations as may be established
or practiced in the City."

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

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

It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant were to be
sustained in his contention that no such statutory authority for the enactment of the challenged ordinance could be
discerned from the language used in the amendatory act. That is about all that needs to be said in upholding the lower
court, considering that the City of Baguio was not devoid of authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps and asserted that the
challenged ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now turn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in the suit for the
collection of the real estate dealer's fee from him in the amount of P300. He contended before the lower court, and it is
his contention now, that while the amount of P300 sought was within the jurisdiction of the City Court of Baguio where
this action originated, since the principal issue was the legality and constitutionality of the challenged ordinance, it is
not such City Court but the Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on September 7,
4
1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano. The plaintiff in that case filed
a claim for the payment of his salary before the Justice of the Peace Court of Pagadian, Zamboanga del Sur. The
question of jurisdiction was raised; the defendant Mayor asserted that what was in issue was the enforcement of the
decision of the Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the case.
The above plea was curtly dismissed by Us, as what was involved was "an ordinary money claim" and therefore "within
the original jurisdiction of the Justice of the Peace Court where it was filed, considering the amount involved." Such is
likewise the situation here.
 5
Moreover, in City of Manila v. Bugsuk Lumber Co., a suit to collect from a defendant this license fee corresponding to
the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the amount involved. The thought that
the municipal court lacked jurisdiction apparently was not even in the minds of the parties and did not receive any
consideration by this Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is raised, it is the Court
of First Instance that should have original jurisdiction on the matter. It does not admit of doubt, however, that what
confers jurisdiction is the amount set forth in the complaint. Here, the sum sought to be recovered was clearly within
the jurisdiction of the City Court of Baguio.

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

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

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

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

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

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

There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is
13
a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso. Thus: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation; ..." About two years later,
14
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente incorporated the above
excerpt in his opinion and continued: "Taking everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the
Constitution."

15
To satisfy this requirement then, all that is needed as held in another case decided two years later, is that the statute
or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." This Court is
16
on record as accepting the view in a leading American case that "inequalities which result from a singling out of one
17
particular class for taxation or exemption infringe no constitutional limitation."

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

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

In much the same way that an act of a department head of the national government, performed within the limits of his
18
authority, is presumptively the act of the President unless reprobated or disapproved, similarly the act of the City
Treasurer, whose position is roughly analogous, may be assumed to carry the seal of approval of the City Mayor unless
repudiated or set aside. This should be the case considering that such city official is called upon to see to it that
revenues due the City are collected. When administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be resorted to by him. It
would be a reflection on the state of the law if such fidelity to duty would be met by condemnation rather than
commendation.

So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to it from the
functional and pragmatic test. If a city treasurer has to await the nod from the city mayor before a municipal ordinance
is enforced, then opportunity exists for favoritism and undue discrimination to come into play. Whatever valid reason
may exist as to why one taxpayer is to be accorded a treatment denied another, the suspicion is unavoidable that such
a manifestation of official favor could have been induced by unnamed but not unknown consideration. It would not be
going too far to assert that even defendant-appellant would find no satisfaction in such a sad state of affairs. The more
desirable legal doctrine therefore, on the assumption that a choice exists, is one that would do away with such
temptation on the part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against defendant-appellant.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, vs. CITY OF BUTUAN, MEMBERS OF
THE MUNICIPAL BOARD, THE CITY MAYOR and THE CITY TREASURER, all of the CITY O
BUTUAN, defendants-appellees.

CONCEPCION, C.J.:

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint,
with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of
business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board
and its City Treasurer. Plaintiff — seeks to recover the sums paid by it to the City of Butuan — hereinafter referred to
as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal
Ordinance No. 122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof.
Both parties submitted the case for decision in the lower court upon a stipulation to the effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola" soft
drinks for sale to customers in the City of Butuan and all the municipalities in the Province of Agusan. These
"Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for
distribution and sale in the City of Butuan and all municipalities of Agusan. .

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended
by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and
Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of
24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to
December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961.

4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under
protest and those that if may later on pay until the termination of this case on the ground that Ordinance No.
110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form to
be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as
Exhibit "C".

6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of its
warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss
Statement, the defendants claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs
only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance with the
findings of the representative of the undersigned City Attorney who verified the records of the plaintiff.

7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92
which price is uniform throughout the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.

8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance No.
110, as amended of the City of Butuan in their respective memoranda.

xxx xxx x x x1äwphï1.ñët

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof.
Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported
or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft
drinks and carbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines
the meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall
be paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed from the
cargo manifest or bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft
drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for
failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay
the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading
or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the
ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10
of the ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges
Fund; 40% for the General Fund and 20% for the School Fund."

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2)
it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory;
and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation
of legislative powers.

The second and last objections are manifestly devoid of merit. Indeed — independently of whether or not the tax in
question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on
which we need not and do not express any opinion - double taxation, in general, is not forbidden by our fundamental
law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United
1
States and of some States of the Union. Then, again, the general principle against delegation of legislative powers, in
2
consequence of the theory of separation of powers is subject to one well-established exception, namely: legislative
3
powers may be delegated to local governments — to which said theory does not apply — in respect of matters of local
concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks
— in the production and sale of which plaintiff is engaged — or less than P0.0042 per bottle, is manifestly too small to
be excessive, oppressive, or confiscatory.

The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax
prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling"
soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said
merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee
of any person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks."
And, pursuant to section 3-A, which was inserted by said Ordinance No. 122:

... — Definition of the Term Consignee or Agent. — For purposes of this Ordinance, a consignee of agent shall
mean any person, association, partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to whom is consigned or shipped no less
than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax,unless
they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in
business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000
cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax "shall be based
and computed from the cargo manifest or bill of lading ... showing the number of cases" — not sold — but "received" by
the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into the
City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty,
4
which is beyond defendant's authority to impose by express provision of law.

Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid,
as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only
sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or
on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by
said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the
disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality
5
under all circumstances, or negate the authority to classify the objects of taxation. The classification made in the
6
exercise of this authority, to be valid, must, however, be reasonable and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose
of the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification applies equally all those who belong
7
to the same class.

8
These conditions are not fully met by the ordinance in question. Indeed, if its purpose were merely to levy a burden
upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than
agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax.

WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance
No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts
collected from and paid under protest by the latter, with interest thereon at the legal rate from the date of the
promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited
permanently from enforcing said Ordinance, as amended. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. L-69259 January 26, 1988

DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs.

INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.

GUTIERREZ, JR., J.:

The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's
contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to
Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of
first refusal under a lease contract.

Briefly, the facts of the case are summarized as follows:

In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of
real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela),
Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of
the Bulacan land registry.

On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same
property and providing that during the existence or after the term of this lease the lessor should he
decide to sell the property leased shall first offer the same to the lessee and the letter has the priority
to buy under similar conditions (Exhibits A to A-5)

On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive)

The contract of lease, as well as the assignment of lease were annotated at he back of the title, as per
stipulation of the parties (Exhs. A to D-3 inclusive)

On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco
and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased
property (TCT No.T-4240) together with another parcel of land also located in Malinta Estate,
Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant corporation with a
total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)

On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease
agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot. No. 1095 in
its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia
Pacheco and Delphin Pacheco.

After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision
reads:

ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs
preferential right to acquire the subject property (right of first refusal) and ordering the defendants and
all persons deriving rights therefrom to convey the said property to plaintiff who may offer to acquire
the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is 27,169
square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp.
246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)

The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.

The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision.

We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition and
gave it due course.

The petitioners allege that:

The denial of the petition will work great injustice to the petitioners, in that:

1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a
parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the
 Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366,
although the prevailing value thereof is approximately P300/sq. meter or P8.1 Million;

2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or transfer
of actual ownership interests by petitioners to third parties; and

3. Assuming arguendo that there has been a transfer of actual ownership interests, private respondent
will acquire the land not under "similar conditions" by which it was transferred to petitioner Delpher
Trades Corporation, as provided in the same contractual provision invoked by private respondent. (pp.
251-252, Rollo)

The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the
Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which,
in effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of
exchange."

Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades
Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses
Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the
parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the
corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095
which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was
transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties,
Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the
corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all
about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration,
they refer to this scheme as "estate planning." (p. 252, Rollo)

Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject
parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that
the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there
was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in
exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in
substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the
corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity of
interest." (p. 254, Rollo)

The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that they
exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter, or even
spirit of the contract. There is a sale when ownership is transferred for a price certain in money or its equivalent (Art.
1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of another thing (Art.
1638, Civil Code)." (pp. 254-255, Rollo)

On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and
distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the Pacheco's
same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a
separate and distinct corporate entity, is not a party who may allege that this separate corporate existence should be
disregarded. It maintains that there was actual transfer of ownership interests over the leased property when the same
was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock.

We rule for the petitioners.

After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from
the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton
[1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original
unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became
stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay
for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries
and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the
Pachecos took no par value shares in exchange for their properties.

A no-par value share does not purport to represent any stated proportionate interest in the capital
stock measured by value, but only an aliquot part of the whole number of such shares of the issuing
corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot
sharer in the assets of the corporation. But this character of proportionate interest is not hidden
beneath a false appearance of a given sum in money, as in the case of par value shares. The capital
stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money,
but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This
indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no
matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value
of shares, the attention of persons interested in the financial condition of a corporation is focused upon
 the value of assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence on the
Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107).

Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a
square meter was turned over to the family's corporation for only P14.00 a square meter.

It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the
corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family
group.

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest
their properties and change the nature of their ownership from unincorporated to incorporated form by organizing
Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes.

As explained by Eduardo Neria:

xxx xxx xxx

ATTY. LINSANGAN:

Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses
Hernandez and Pacheco in connection with their execution of a deed of exchange on
the properties for no par value shares of the defendant corporation?

A Yes, sir.

COURT:

Q What do you mean by "point of view"?

A To take advantage for both spouses and corporation in entering in the deed of
exchange.

ATTY. LINSANGAN:

Q (What do you mean by "point of view"?) What are these benefits to the spouses of
this deed of exchange?

A Continuous control of the property, tax exemption benefits, and other inherent
benefits in a corporation.

Q What are these advantages to the said spouses from the point of view of taxation in
entering in the deed of exchange?

A Having fulfilled the conditions in the income tax law, providing for tax free exchange
of property, they were able to execute the deed of exchange free from income tax and
acquire a corporation.

Q What provision in the income tax law are you referring to?

A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2)
Exceptions regarding the provision which I quote: "No gain or loss shall also be
recognized if a person exchanges his property for stock in a corporation of which as a
result of such exchange said person alone or together with others not exceeding four
persons gains control of said corporation."

Q Did you explain to the spouses this benefit at the time you executed the deed of
exchange?

A Yes, sir

Q You also, testified during the last hearing that the decision to have no par value
share in the defendant corporation was for the purpose of flexibility. Can you explain
flexibility in connection with the ownership of the property in question?

A There is flexibility in using no par value shares as the value is determined by the
board of directors in increasing capitalization. The board can fix the value of the
shares equivalent to the capital requirements of the corporation.
 Q Now also from the point of taxation, is there any flexibility in the holding by the
corporation of the property in question?

A Yes, since a corporation does not die it can continue to hold on to the property
indefinitely for a period of at least 50 years. On the other hand, if the property is held
by the spouse the property will be tied up in succession proceedings and the
consequential payments of estate and inheritance taxes when an owner dies.

Q Now what advantage is this continuity in relation to ownership by a particular person

of certain properties in respect to taxation?

A The property is not subjected to taxes on succession as the corporation does not
die.

Q So the benefit you are talking about are inheritance taxes?

A Yes, sir. (pp. 3-5, tsn., December 15, 1981)

The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the
Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether
avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal
Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a
contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco
family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence,
the private respondent has no basis for its claim of a light of first refusal under the lease contract.

WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then
Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of
the then Court of First Instance of Bulacan is DISMISSED. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-13203 January 28, 1961

YUTIVO SONS HARDWARE COMPANY, petitioner, vs. COURT OF TAX APPEALS and COLLECTOR OF
INTERNAL REVENUE, respondents.

GUTIERREZ DAVID, J.:

This is a petition for review of a decision of the Court of Tax Appeals ordering petitioner to pay to respondent Collector
of Internal Revenue the sum of P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the fourth quarter
of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, or a sum total of P2,215,809.27, plus costs
of the suit.

From the stipulation of facts and the evidence adduced by both parties, it appears that petitioner Yutivo Sons Hardware
Co. (hereafter referred to as Yutivo) is a domestic corporation, organized under the laws of the Philippines, with
principal office at 404 Dasmariñas St., Manila. Incorporated in 1916, it was engaged, prior to the last world war, in the
importation and sale of hardware supplies and equipment. After the liberation, it resumed its business and until June of
1946 bought a number of cars and trucks from General Motors Overseas Corporation (hereafter referred to as GM for
short), an American corporation licensed to do business in the Philippines. As importer, GM paid sales tax prescribed
by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being collected only
once on original sales, Yutivo paid no further sales tax on its sales to the public.

On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) was organized to engage in the business of
selling cars, trucks and spare parts. Its original authorized capital stock was P1,000,000 divided into 10,000 shares with
a par value of P100 each.

At the time of its incorporation 2,500 shares worth P250,000 appear to have been subscribed into equal proportions by
Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three named subscribers are
brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two are respectively sons of Yu Tiong Sin
and Albino Sycip, who are among the founders of Yutivo.

After the incorporation of SM and until the withdrawal of GM from the Philippines in the middle of 1947, the cars and
tracks purchased by Yutivo from GM were sold by Yutivo to SM which, in turn, sold them to the public in the Visayas
and Mindanao.

When GM decided to withdraw from the Philippines in the middle of 1947, the U.S. manufacturer of GM cars and trucks
appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of selling
exclusively to SM. In the same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as
importer, paid sales tax prescribed on the basis of its selling price to SM, and since such sales tax, as already stated, is
collected only once on original sales, SM paid no sales tax on its sales to the public.

On November 7, 1950, after several months of investigation by revenue officers started in July, 1948, the Collector of
Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as deficiency sales
tax plus surcharge covering the period from the third quarter of 1947 to the fourth quarter of 1949; or from July 1, 1947
to December 31, 1949, claiming that the taxable sales were the retail sales by SM to the public and not the sales at
wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former
being the subsidiary of the latter.

The assessment was disputed by the petitioner, and a reinvestigation of the case having been made by the agents of
the Bureau of Internal Revenue, the respondent Collector in his letter dated November 15, 1952 countermanded his
demand for sales tax deficiency on the ground that "after several investigations conducted into the matter no sufficient
evidence could be gathered to sustain the assessment of this Office based on the theory that Southern Motors is a
mere instrumentality or subsidiary of Yutivo." The withdrawal was subject, however, to the general power of review by
the now defunct Board of Tax Appeals. The Secretary of Finance to whom the papers relative to the case were
endorsed, apparently not agreeing with the withdrawal of the assessment, returned them to the respondent Collector
for reinvestigation.

After another investigation, the respondent Collector, in a letter to petitioner dated December 16, 1954, redetermined
that the aforementioned tax assessment was lawfully due the government and in addition assessed deficiency sales
tax due from petitioner for the four quarters of 1950; the respondents' last demand was in the total sum of
P2,215,809.27 detailed as follows:

Deficiency 75% Total Amount

Sales Tax Surcharge Due
Assessment (First) of November 7, 1950
for deficiency sales Tax for the period
from 3rd Qrtr 1947 to 4th Qrtr 1949 P1,031,296.60 P773,473.45 P1,804,769.05
 inclusive
Additional Assessment for period from
1st to 4th Qrtr 1950, inclusive 234,880.13 176,160.09 411,040.22
Total amount demanded per letter of
December 16, 1954 P1,266,176.73 P949,632.54 P2,215,809.27

This second assessment was contested by the petitioner Yutivo before the Court of Tax Appeals, alleging that there is
no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner Yutivo; (2) that
assuming the separate personality of SM may be disregarded, the sales tax already paid by Yutivo should first be
deducted from the selling price of SM in computing the sales tax due on each vehicle; and (3) that the surcharge has
been erroneously imposed by respondent. Finding against Yutivo and sustaining the respondent Collector's theory that
there was no legitimate or bona fide purpose in the organization of SM — the apparent objective of its organization
being to evade the payment of taxes — and that it was owned (or the majority of the stocks thereof are owned) and
controlled by Yutivo and is a mere subsidiary, branch, adjunct, conduit, instrumentality or alter ego of the latter, the
Court of Tax Appeals — with Judge Roman Umali not taking part — disregarded its separate corporate existence and
on April 27, 1957, rendered the decision now complained of. Of the two Judges who signed the decision, one voted for
the modification of the computation of the sales tax as determined by the respondent Collector in his decision so as to
give allowance for the reduction of the tax already paid (resulting in the reduction of the assessment to P820,509.91
exclusive of surcharges), while the other voted for affirmance. The dispositive part of the decision, however, affirmed
the assessment made by the Collector. Reconsideration of this decision having been denied, Yutivo brought the case
to this Court thru the present petition for review.

It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporation petitions to which it may be connected. However, "when the notion of
legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime," the law will regard the
corporation as an association of persons, or in the case of two corporations merge them into one. (Koppel [Phil.], Inc.
vs. Yatco, 77 Phil. 496, citing I Fletcher Cyclopedia of Corporation, Perm Ed., pp. 135 136; United States vs.
Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.) Another rule is that, when the corporation is
the "mere alter ego or business conduit of a person, it may be disregarded." (Koppel [Phil.], Inc. vs. Yatco, supra.)

After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals was
not justified in finding that SM was organized for no other purpose than to defraud the Government of its lawful
revenues. In the first place, this corporation was organized in June, 1946 when it could not have caused Yutivo any tax
savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars and
trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was
the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and
trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply continued
its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a tax
evasion device runs counter to the fact that there was no tax to evade.

Making the observation from a newspaper clipping (Exh. "T") that "as early as 1945 it was known that GM was
preparing to leave the Philippines and terminate its business of importing vehicles," the court below speculated that
Yutivo anticipated the withdrawal of GM from business in the Philippines in June, 1947. This observation, which was
made only in the resolution on the motion for reconsideration, however, finds no basis in the record. On the other hand,
GM had been an importer of cars in the Philippines even before the war and had but recently resumed its operation in
the Philippines in 1946 under an ambitious plan to expand its operation by establishing an assembly plant here, so that
it could not have been expected to make so drastic a turnabout of not merely abandoning the assembly plant project
but also totally ceasing to do business as an importer. Moreover, the newspaper clipping, Exh. "T", was published on
March 24, 1947, and clipping, merely reported a rumored plan that GM would abandon the assembly plant project in
the Philippines. There was no mention of the cessation of business by GM which must not be confused with the
abandonment of the assembly plant project. Even as respect the assembly plant, the newspaper clipping was quite
explicit in saying that the Acting Manager refused to confirm that rumor as late as March 24, 1947, almost a year after
SM was organized.

At this juncture, it should be stated that the intention to minimize taxes, when used in the context of fraud, must be
proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified
by a mere speculation. This is because fraud is never lightly to be presumed. (Vitelli & Sons vs. U.S 250 U.S. 355;
Duffin vs. Lucas, 55 F (2d) 786; Budd vs. Commr., 43 F (2d) 509; Maryland Casualty Co. vs. Palmette Coal Co., 40 F
(2d) 374; Schoonfield Bros., Inc. vs. Commr., 38 BTA 943; Charles Heiss vs. Commr 36 BTA 833; Kerbaugh vs.
Commr 74 F (2d) 749; Maddas vs. Commr., 114 F. (2d) 548; Moore vs. Commr., 37 BTA 378; National City Bank of
New York vs. Commr., 98 (2d) 93; Richard vs. Commr., 15 BTA 316; Rea Gane vs. Commr., 19 BTA 518). (See also
Balter, Fraud Under Federal Law, pp. 301-302, citing numerous authorities: Arroyo vs. Granada, et al., 18 Phil. 484.)
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at the most, create
only suspicion. (Haygood Lumber & Mining Co. vs. Commr., 178 F (2d) 769; Dalone vs. Commr., 100 F (2d) 507).

In the second place, SM was organized and it operated, under circumstance that belied any intention to evade sales
taxes. "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat
taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private and
public documents, constantly subject to inspection by the tax authorities. As a matter of fact, after Yutivo became the
importer of GM cars and trucks for Visayas and Mindanao, it merely continued the method of distribution that it had
initiated long before GM withdrew from the Philippines.
On the other hand, if tax saving was the only justification for the organization of SM, such justification certainly ceased
with the passage of Republic Act No. 594 on February 16, 1951, governing payment of advance sales tax by the
importer based on the landed cost of the imported article, increased by mark-ups of 25%, 50%, and 100%, depending
on whether the imported article is taxed under sections 186, 185 and 184, respectively, of the Tax Code. Under
Republic Act No. 594, the amount at which the article is sold is immaterial to the amount of the sales tax. And yet after
the passage of that Act, SM continued to exist up to the present and operates as it did many years past in the
promotion and pursuit of the business purposes for which it was organized.

In the third place, sections 184 to 186 of the said Code provides that the sales tax shall be collected "once only on
every original sale, barter, exchange . . , to be paid by the manufacturer, producer or importer." The use of the word
"original" and the express provision that the tax was collectible "once only" evidently has made the provisions
susceptible of different interpretations. In this connection, it should be stated that a taxpayer has the legal right to
decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits.
(U.S. vs. Isham 17 Wall. 496, 506; Gregory vs. Helvering 293 U.S. 465, 469; Commr. vs. Tower, 327 U.S. 280; Lawton
vs. Commr 194 F (2d) 380). Any legal means by the taxpayer to reduce taxes are all right Benry vs. Commr. 25 T. Cl.
78). A man may, therefore, perform an act that he honestly believes to be sufficient to exempt him from taxes. He does
not incur fraud thereby even if the act is thereafter found to be insufficient. Thus in the case of Court Holding Co. vs.
Commr. 2 T. Cl. 531, it was held that though an incorrect position in law had been taken by the corporation there was
no suppression of the facts, and a fraud penalty was not justified.

The evidence for the Collector, in our opinion, falls short of the standard of clear and convincing proof of fraud. As a
matter of fact, the respondent Collector himself showed a great deal of doubt or hesitancy as to the existence of fraud.
He even doubted the validity of his first assessment dated November 7, 1959. It must be remembered that the fraud
which respondent Collector imputed to Yutivo must be related to its filing of sales tax returns of less taxes than were
legally due. The allegation of fraud, however, cannot be sustained without the showing that Yutivo, in filing said returns,
did so fully knowing that the taxes called for therein called for therein were less than what were legally due.
Considering that respondent Collector himself with the aid of his legal staff, and after some two years of investigation
and duty of investigation and study concluded in 1952 that Yutivo's sales tax returns were correct — only to reverse
himself after another two years — it would seem harsh and unfair for him to say in 1954 that Yutivo fully knew in
October 1947 that its sales tax returns were inaccurate.

On this point, one other consideration would show that the intent to save taxes could not have existed in the minds of
the organizers of SM. The sales tax imposed, in theory and in practice, is passed on to the vendee, and is usually billed
separately as such in the sales invoice. As pointed out by petitioner Yutivo, had not SM handled the retail, the
additional tax that would have been payable by it, could have been easily passed off to the consumer, especially since
the period covered by the assessment was a "seller's market" due to the post-war scarcity up to late 1948, and the
imposition of controls in the late 1949.

It is true that the arrastre charges constitute expenses of Yutivo and its non-inclusion in the selling price by Yutivo cost
the Government P4.00 per vehicle, but said non-inclusion was explained to have been due to an inadvertent
accounting omission, and could hardly be considered as proof of willful channelling and fraudulent evasion of sales tax.
Mere understatement of tax in itself does not prove fraud. (James Nicholson, 32 BTA 377, affirmed 90 F. (2) 978, cited
in Merten's Sec. 55.11 p. 21) The amount involved, moreover, is extremely small inducement for Yutivo to go thru all
the trouble of organizing SM. Besides, the non-inclusion of these small arrastre charges in the sales tax returns of
Yutivo is clearly shown in the records of Yutivo, which is uncharacteristic of fraud (See Insular Lumber Co. vs.
Collector, G.R. No. L-719, April 28, 1956.)

We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner as to
make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail and maintaining
stores for spare parts as well as service repair shops. It is not disputed that the petitioner, which is engaged principally
in hardware supplies and equipment, is completely controlled by the Yutivo, Young or Yu family. The founders of the
corporation are closely related to each other either by blood or affinity, and most of its stockholders are members of the
Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by the leading stockholders of Yutivo
headed by Yu Khe Thai. At the time of its incorporation 2,500 shares worth P250,000.00 appear to have been
subscribed in five equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe Jin, Yu Eng Poh and Washington Sycip.
The first three named subscribers are brothers, being the sons of Yu Tien Yee, one of Yutivo's founders. Yu Eng Poh
and Washington Sycip are respectively sons of Yu Tiong Sing and Alberto Sycip who are co-founders of Yutivo.
According to the Articles of Incorporation of the said subscriptions, the amount of P62,500 was paid by the aforenamed
subscribers, but actually the said sum was advanced by Yutivo. The additional subscriptions to the capital stock of SM
and subsequent transfers thereof were paid by Yutivo itself. The payments were made, however, without any transfer
of funds from Yutivo to SM. Yutivo simply charged the accounts of the subscribers for the amount allegedly advanced
by Yutivo in payment of the shares. Whether a charge was to be made against the accounts of the subscribers or said
subscribers were to subscribe shares appears to constitute a unilateral act on the part of Yutivo, there being no
showing that the former initiated the subscription.

The transactions were made solely by and between SM and Yutivo. In effect, it was Yutivo who undertook the
subscription of shares, employing the persons named or "charged" with corresponding account as nominal
stockholders. Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly aware of these
subscriptions, but considering that they were the principal officers and constituted the majority of the Board of Directors
of both Yutivo and SM, their subscriptions could readily or easily be that of Yutivo's Moreover, these persons were
related to death other as brothers or first cousins. There was every reason for them to agree in order to protect their
common interest in Yutivo and SM.
The issued capital stock of SM was increased by additional subscriptions made by various person's but except Ng Sam
Bak and David Sycip, "payments" thereof were effected by merely debiting 'or charging the accounts of said
stockholders and crediting the corresponding amounts in favor of SM, without actually transferring cash from Yutivo.
Again, in this instance, the "payments" were Yutivo, by effected by the mere unilateral act of Yutivo a accounts of the
virtue of its control over the individual persons charged, would necessarily exercise preferential rights and control
directly or indirectly, over the shares, it being the party which really undertook to pay or underwrite payment thereof.

The shareholders in SM are mere nominal stockholders holding the shares for and in behalf of Yutivo, so even
conceding that the original subscribers were stockholders bona fide Yutivo was at all times in control of the majority of
the stock of SM and that the latter was a mere subsidiary of the former.

True, petitioner and other recorded stockholders transferred their shareholdings, but the transfers were made to their
immediate relatives, either to their respective spouses and children or sometimes brothers or sisters. Yutivo's shares in
SM were transferred to immediate relatives of persons who constituted its controlling stockholders, directors and
officers. Despite these purported changes in stock ownership in both corporations, the Board of Directors and officers
of both corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe Siong Hu Khe Jin and Yu Eng Poll (all of
the Yu or Young family) continued to constitute the majority in both boards. All these, as observed by the Court of Tax
Appeals, merely serve to corroborate the fact that there was a common ownership and interest in the two corporations.

SM is under the management and control of Yutivo by virtue of a management contract entered into between the two
parties. In fact, the controlling majority of the Board of Directors of Yutivo is also the controlling majority of the Board of
Directors of SM. At the same time the principal officers of both corporations are identical. In addition both corporations
have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo's president, Yu Khe Thai.
There is therefore no doubt that by virtue of such control, the business, financial and management policies of both
corporations could be directed towards common ends.

Another aspect relative to Yutivo's control over SM operations relates to its cash transactions. All cash assets of SM
were handled by Yutivo and all cash transactions of SM were actually maintained thru Yutivo. Any and all receipts of
cash by SM including its branches were transmitted or transferred immediately and directly to Yutivo in Manila upon
receipt thereof. Likewise, all expenses, purchases or other obligations incurred by SM are referred to Yutivo which in
turn prepares the corresponding disbursement vouchers and payments in relation there, the payment being made out
of the cash deposits of SM with Yutivo, if any, or in the absence thereof which occurs generally, a corresponding
charge is made against the account of SM in Yutivo's books. The payments for and charges against SM are made by
Yutivo as a matter of course and without need of any further request, the latter would advance all such cash
requirements for the benefit of SM. Any and all payments and cash vouchers are made on Yutivo stationery and made
under authority of Yutivo's corporate officers, without any copy thereof being furnished to SM. All detailed records such
as cash disbursements, such as expenses, purchases, etc. for the account of SM, are kept by Yutivo and SM merely
keeps a summary record thereof on the basis of information received from Yutivo.

All the above plainly show that cash or funds of SM, including those of its branches which are directly remitted to
Yutivo, are placed in the custody and control of Yutivo, resources and subject to withdrawal only by Yutivo. SM's being
under Yutivo's control, the former's operations and existence became dependent upon the latter.

Consideration of various other circumstances, especially when taken together, indicates that Yutivo treated SM merely
as its department or adjunct. For one thing, the accounting system maintained by Yutivo shows that it maintained a
high degree of control over SM accounts. All transactions between Yutivo and SM are recorded and effected by mere
debit or credit entries against the reciprocal account maintained in their respective books of accounts and indicate the
dependency of SM as branch upon Yutivo.

Apart from the accounting system, other facts corroborate or independently show that SM is a branch or department of
Yutivo. Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat Yutivo — Manila as their "Head Office" or
"Home Office" as shown by their letters of remittances or other correspondences. These correspondences were
actually received by Yutivo and the reference to Yutivo as the head or home office is obvious from the fact that all cash
collections of the SM's branches are remitted directly to Yutivo. Added to this fact, is that SM may freely use forms or
stationery of Yutivo

The fact that SM is a mere department or adjunct of Yutivo is made more patent by the fact that arrastre conveying,
and charges paid for the "operation of receiving, loading or unloading" of imported cars and trucks on piers and
wharves, were charged against SM. Overtime charges for the unloading of cars and trucks as requested by Yutivo and
incurred as part of its acquisition cost thereof, were likewise charged against and treated as expenses of SM. If Yutivo
were the importer, these arrastre and overtime charges were Yutivo's expenses in importing goods and not SM's. But
since those charges were made against SM, it plainly appears that Yutivo had sole authority to allocate its expenses
even as against SM in the sense that the latter is a mere adjunct, branch or department of the former.

Proceeding to another aspect of the relation of the parties, the management fees due from SM to Yutivo were taken up
as expenses of SM and credited to the account of Yutivo. If it were to be assumed that the two organizations are
separate juridical entities, the corresponding receipts or receivables should have been treated as income on the part of
Yutivo. But such management fees were recorded as "Reserve for Bonus" and were therefore a liability reserve and
not an income account. This reserve for bonus were subsequently distributed directly to and credited in favor of the
employees and directors of Yutivo, thereby clearly showing that the management fees were paid directly to Yutivo
officers and employees.
Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually extended all the credit to the
latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly
sold by Yutivo to SM as well as advances or loans for the expenses of the latter when the capital had been exhausted.
Thus, the increases in the capital stock were made in advances or "Guarantee" payments by Yutivo and credited in
favor of SM. The funds of SM were all merged in the cash fund of Yutivo. At all times Yutivo thru officers and directors
common to it and SM, exercised full control over the cash funds, policies, expenditures and obligations of the latter.

Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals correctly disregarded
the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo.

Petitioner contends that the respondent Collector had lost his right or authority to issue the disputed assessment by
reason of prescription. The contention, in our opinion, cannot be sustained. It will be noted that the first assessment
was made on November 7, 1950 for deficiency sales tax from 1947 to 1949. The corresponding returns filed by
petitioner covering the said period was made at the earliest on October 1, as regards the third quarter of 1947, so that it
cannot be claimed that the assessment was not made within the five-year period prescribed in section 331 of the Tax
Code invoked by petitioner. The assessment, it is admitted, was withdrawn by the Collector on insufficiency of
evidence, but November 15, 1952 due to insufficiency of evidence, but the withdrawal was made subject to the
approval of the Secretary of Finance and the Board of Tax Appeals, pursuant to the provisions of section 9 of Executive
Order No. 401-A, series of 1951. The decision of the previous assessment of November 7, Collector countermanding
the as 1950 was forwarded to the Board of Tax Appeals through the Secretary of Finance but that official, apparently
disagreeing with the decision, sent it back for re-investigation. Consequently, the assessment of November 7, 1950
cannot be considered to have been finally withdrawn. That the assessment was subsequently reiterated in the decision
of respondent Collector on December 16, 1954 did not alter the fact that it was made seasonably. In this connection, it
would appear that a warrant of distraint and levy had been issued on March 28, 1951 in relation with this case and by
virtue thereof the properties of Yutivo were placed under constructive distraint. Said warrant and constructive distraint
have not been lifted up to the present, which shows that the assessment of November 7, 1950 has always been valid
and subsisting.

Anent the deficiency sale tax for 1950, considering that the assessment thereof was made on December 16, 1954, the
same was assessed well within the prescribed five-year period.

Petitioner argues that the original assessment of November 7, 1950 did not extend the prescriptive period on
assessment. The argument is untenable, for, as already seen, the assessment was never finally withdrawn, since it
was not approved by the Secretary of Finance or of the Board of Tax Appeals. The authority of the Secretary to act
upon the assessment cannot be questioned, for he is expressly granted such authority under section 9 of Executive
Order No. 401-And under section 79 (c) of the Revised Administrative Code, he has "direct control, direction and
supervision over all bureaus and offices under his jurisdiction and may, any provision of existing law to the contrary not
withstanding, repeal or modify the decision of the chief of said Bureaus or offices when advisable in public interest."

It should here also be stated that the assessment in question was consistently protested by petitioner, making several
requests for reinvestigation thereof. Under the circumstances, petitioner may be considered to have waived the
defense of prescription.

"Estoppel has been employed to prevent the application of the statute of limitations against the government in
certain instances in which the taxpayer has taken some affirmative action to prevent the collection of the tax
within the statutory period. It is generally held that a taxpayer is estopped to repudiate waivers of the statute of
limitations upon which the government relied. The cases frequently involve dissolved corporations. If no waiver
has been given, the cases usually show come conduct directed to a postponement of collection, such, for
example, as some variety of request to apply an overassessment. The taxpayer has 'benefited' and 'is not in a
position to contest' his tax liability. A definite representation of implied authority may be involved, and in many
cases the taxpayer has received the 'benefit' of being saved from the inconvenience, if not hardship of
immediate collection. "

Conceivably even in these cases a fully informed Commissioner may err to the sorrow of the revenues, but
generally speaking, the cases present a strong combination of equities against the taxpayer, and few will
seriously quarrel with their application of the doctrine of estoppel." (Mertens Law of Federal Income Taxation,
Vol. 10-A, pp. 159-160.)

It is also claimed that section 9 of Executive Order No. 401-A, series of 1951 — es involving an original assessment of
more than P5,000 — refers only to compromises and refunds of taxes, but not to total withdrawal of the assessment.
The contention is without merit. A careful examination of the provisions of both sections 8 and 9 of Executive Order No.
401-A, series of 1951, reveals the procedure prescribed therein is intended as a check or control upon the powers of
the Collector of Internal Revenue in respect to assessment and refunds of taxes. If it be conceded that a decision of the
Collector of Internal Revenue on partial remission of taxes is subject to review by the Secretary of Finance and the
Board of Tax Appeals, then with more reason should the power of the Collector to withdraw totally an assessment be
subject to such review.

We find merit, however, in petitioner's contention that the Court of Tax Appeals erred in the imposition of the 5% fraud
surcharge. As already shown in the early part of this decision, no element of fraud is present. Pursuant to Section 183
of the National Internal Revenue Code the 50% surcharge should be added to the deficiency sales tax "in case a false
or fraudulent return is willfully made." Although the sales made by SM are in substance by Yutivo this does not
necessarily establish fraud nor the willful filing of a false or fraudulent return.
The case of Court Holding Co. v. Commissioner of Internal Revenue (August 9, 1943, 2 TC 531, 541-549) is in point.
The petitioner Court Holding Co. was a corporation consisting of only two stockholders, to wit: Minnie Miller and her
husband Louis Miller. The only assets of third husband and wife corporation consisted of an apartment building which
had been acquired for a very low price at a judicial sale. Louis Miller, the husband, who directed the company's
business, verbally agreed to sell this property to Abe C. Fine and Margaret Fine, husband and wife, for the sum of
$54,000.00, payable in various installments. He received $1,000.00 as down payment. The sale of this property for the
price mentioned would have netted the corporation a handsome profit on which a large corporate income tax would
have to be paid. On the afternoon of February 23, 1940, when the Millers and the Fines got together for the execution
of the document of sale, the Millers announced that their attorney had called their attention to the large corporate tax
which would have to be paid if the sale was made by the corporation itself. So instead of proceeding with the sale as
planned, the Millers approved a resolution to declare a dividend to themselves "payable in the assets of the
corporation, in complete liquidation and surrender of all the outstanding corporate stock." The building, which as above
stated was the only property of the corporation, was then transferred to Mr. and Mrs. Miller who in turn sold it to Mr. and
Mrs. Fine for exactly the same price and under the same terms as had been previously agreed upon between the
corporation and the Fines.

The return filed by the Court Holding Co. with the respondent Commissioner of Internal Revenue reported no taxable
gain as having been received from the sale of its assets. The Millers, of course, reported a long term capital gain on the
exchange of their corporate stock with the corporate property. The Commissioner of Internal Revenue contended that
the liquidating dividend to stockholders had no purpose other than that of tax avoidance and that, therefore, the sale by
the Millers to the Fines of the corporation's property was in substance a sale by the corporation itself, for which the
corporation is subject to the taxable profit thereon. In requiring the corporation to pay the taxable profit on account of
the sale, the Commissioner of Internal Revenue, imposed a surcharge of 25% for delinquency, plus an additional
surcharge as fraud penalties.

The U. S. Court of Tax Appeals held that the sale by the Millers was for no other purpose than to avoid the tax and
was, in substance, a sale by the Court Holding Co., and that, therefore, the said corporation should be liable for the
assessed taxable profit thereon. The Court of Tax Appeals also sustained the Commissioner of Internal Revenue on
the delinquency penalty of 25%. However, the Court of Tax Appeals disapproved the fraud penalties, holding that an
attempt to avoid a tax does not necessarily establish fraud; that it is a settled principle that a taxpayer may diminish his
tax liability by means which the law permits; that if the petitioner, the Court Holding Co., was of the opinion that the
method by which it attempted to effect the sale in question was legally sufficient to avoid the imposition of a tax upon it,
its adoption of that methods not subject to censure; and that in taking a position with respect to a question of law, the
substance of which was disclosed by the statement indorsed on it return, it may not be said that that position was taken
fraudulently. We quote in full the pertinent portion of the decision of the Court of Tax Appeals: .

". . . The respondent's answer alleges that the petitioner's failure to report as income the taxable profit on the
real estate sale was fraudulent and with intent to evade the tax. The petitioner filed a reply denying fraud and
averring that the loss reported on its return was correct to the best of its knowledge and belief. We think the
respondent has not sustained the burden of proving a fraudulent intent. We have concluded that the sale of the
petitioner's property was in substance a sale by the petitioner, and that the liquidating dividend to stockholders
had no purpose other than that of tax avoidance. But the attempt to avoid tax does not necessarily establish
fraud. It is a settled principle that a taxpayer may diminish his liability by any means which the law
permits. United States v. Isham, 17 Wall. 496; Gregory v. Helvering, supra; Chrisholm v. Commissioner, 79
Fed. (2d) 14. If the petitioner here was of the opinion that the method by which it attempted to effect the sale in
question was legally sufficient to avoid the imposition of tax upon it, its adoption of that method is not subject to
censure. Petitioner took a position with respect to a question of law, the substance of which was disclosed by
the statement endorsed on its return. We can not say, under the record before us, that that position was taken
fraudulently. The determination of the fraud penalties is reversed."

When GM was the importer and Yutivo, the wholesaler, of the cars and trucks, the sales tax was paid only once and on
the original sales by the former and neither the latter nor SM paid taxes on their subsequent sales. Yutivo might have,
therefore, honestly believed that the payment by it, as importer, of the sales tax was enough as in the case of GM
Consequently, in filing its return on the basis of its sales to SM and not on those by the latter to the public, it cannot be
said that Yutivo deliberately made a false return for the purpose of defrauding the government of its revenues which will
justify the imposition of the surcharge penalty.

We likewise find meritorious the contention that the Tax Court erred in computing the alleged deficiency sales tax on
the selling price of SM without previously deducting therefrom the sales tax due thereon. The sales tax provisions
(sees. 184.186, Tax Code) impose a tax on original sales measured by "gross selling price" or "gross value in money".
These terms, as interpreted by the respondent Collector, do not include the amount of the sales tax, if invoiced
separately. Thus, General Circular No. 431 of the Bureau of Internal Revenue dated July 29, 1939, which implements
sections 184.186 of the Tax Code provides: "

. . .'Gross selling price' or gross value in money' of the articles sold, bartered, exchanged, transferred as the
term is used in the aforecited sections (sections 184, 185 and 186) of the National Internal Revenue Code, is
the total amount of money or its equivalent which the purchaser pays to the vendor to receive or get the goods.
However, if a manufacturer, producer, or importer, in fixing the gross selling price of an article sold by him has
included an amount intended to cover the sales tax in the gross selling price of the articles, the sales tax shall
be based on the gross selling price less the amount intended to cover the tax, if the same is billed to the
purchaser as a separate item.

General Circular No. 440 of the same Bureau reads:

 Amount intended to cover the tax must be billed as a separate em so as not to pay a tax on the tax. — On
sales made after he third quarter of 1939, the amount intended to cover the sales tax must be billed to the
purchaser as separate items in the, invoices in order that the reduction thereof from the gross ailing price may
be allowed in the computation of the merchants' percentage tax on the sales. Unless billed to the purchaser as
a separate item in the invoice, the amounts intended to cover the sales tax shall be considered as part of the
gross selling price of the articles sold, and deductions thereof will not be allowed, (Cited in Dalupan, Nat. Int.
Rev. Code, Annotated, Vol. II, pp. 52-53.)

Yutivo complied with the above circulars on its sales to SM, and as separately billed, the sales taxes did not form part
of the "gross selling price" as the measure of the tax. Since Yutivo had previously billed the sales tax separately in its
sales invoices to SM General Circulars Nos. 431 and 440 should be deemed to have been complied. Respondent
Collector's method of computation, as opined by Judge Nable in the decision complained of —

. . . is unfair, because . . .(it is) practically imposing tax on a tax already paid. Besides, the adoption of the
procedure would in certain cases elevate the bracket under which the tax is based. The late payment is already
penalized, thru the imposition of surcharges, by adopting the theory of the Collector, we will be creating an
additional penalty not contemplated by law."

If the taxes based on the sales of SM are computed in accordance with Gen. Circulars Nos. 431 and 440 the total
deficiency sales taxes, exclusive of the 25% and 50% surcharges for late payment and for fraud, would amount only to
P820,549.91 as shown in the following computation:

Sales Taxes Due

Gross Sales of Total Gross Selling
Rates of and Computed
Vehicles Exclusive Price Charged to
Sales Tax under Gen. Cir
of Sales Tax the Public
Nos. 431 & 400
5% P11,912,219.57 P595,610.98 P12,507,83055
7% 909,559.50 63,669.16 973,228.66
10% 2,618,695.28 261,869.53 2,880,564.81
15% 3,602,397.65 540,359.65 4,142,757.30
20% 267,150.50 53,430.10 320,580.60
30% 837,146.97 251,114.09 1,088,291.06
50% 74,244.30 37,122.16 111,366.46
75% 8,000.00 6,000.00 14,000.00
TOTAL P20,220,413.77 P1,809,205.67 P22,038,619.44

Less Taxes Paid by

Yutivo 988,655.76
Deficiency Tax still due P820,549.91

This is the exact amount which, according to Presiding Judge Nable of the Court of Tax Appeals, Yutivo would pay,
exclusive of the surcharges.

Petitioner finally contends that the Court of Tax Appeals erred or acted in excess of its jurisdiction in promulgating
judgment for the affirmance of the decision of respondent Collector by less than the statutory requirement of at least
two votes of its judges. Anent this contention, section 2 of Republic Act No. 1125, creating the Court of Tax Appeals,
provides that "Any two judges of the Court of Tax Appeals shall constitute a quorum, and the concurrence of two
judges shall be necessary to promulgate decision thereof. . . . " It is on record that the present case was heard by two
judges of the lower court. And while Judge Nable expressed his opinion on the issue of whether or not the amount of
the sales tax should be excluded from the gross selling price in computing the deficiency sales tax due from the
petitioner, the opinion, apparently, is merely an expression of his general or "private sentiment" on the particular issue,
for he concurred the dispositive part of the decision. At any rate, assuming that there is no valid decision for lack of
concurrence of two judges, the case was submitted for decision of the court below on March 28, 1957 and under
section 13 of Republic Act 1125, cases brought before said court hall be decided within 30 days after submission
thereof. "If no decision is rendered by the Court within thirty days from the date a case is submitted for decision, the
party adversely affected by said ruling, order or decision, may file with said Court a notice of his intention to appeal to
the Supreme Court, and if no decision has as yet been rendered by the Court, the aggrieved party may file directly with
the Supreme Court an appeal from said ruling, order or decision, notwithstanding the foregoing provisions of this
section." The case having been brought before us on appeal, the question raised by petitioner as become purely
academic.

IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under review is hereby modified in that
petitioner shall be ordered to pay to respondent the sum of P820,549.91, plus 25% surcharge thereon for late payment.

So ordered without costs.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-17962 April 30, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. BLAS GONZALES, defendant-appellant..

REGALA, J.:

This is an appeal from the decision of the Court of First Instance of Manila under Civil Case No. 42912 the dispositive
portion of which provided:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering said defendant to pay plaintiff the sums of P106,226.75 and P37,849.58 as deficiency
income taxes for the years 1946 and 1947, respectively, (each inclusive of the 50% surcharge) plus the 50%
surcharge and 1% monthly interest on the aforesaid amount from June 15, 1957 until the whole amount is fully
paid, and costs of this suit.

The records of this case disclose that since 1946, the defendant-appellant, Blas Gonzales, has been a private
concessionaire in the U.S. Military Base at Clark Field, Angeles City: He was engaged in the manufacture of furniture
and, per agreement with base authorities, supplied them with his manufactured articles.

On March 1, 1947 and March 1, 1948, the appellant filed his income tax returns for the years 1946 and 1947,
respectively, with the then Municipal Treasurer of Angeles, Pampanga. In the return for 1946, he declared a net income
of P9,352.84 and income tax liability of P111.17 while for the year 1947, he declared as net income the amount of
P16,829.10 and a tax liability therefor in the sum of P1,395.95. In the above two returns, he declared the sums of
P80,459.75 and P1,707,355.57 as his total sales for the said two years, respectively, or an aggregate sales of
P1,787,848.32 for both years.

Upon investigation, however, the Bureau of Internal Revenue discovered that for the years 1946 and 1947, the
appellant had been paid a total of P2,199,920.50 for furniture delivered by him to the base authorities. The appellant do
not deny the above amount which, for the record, was furnished by the Purchasing Officer of the Clark Field Air Base
on the Bureau of Internal Revenue's representation.

Compared against the sales figure provided by the base authorities, therefore, the amount of P1,787,848.32 declared
by the appellant as his total sales for the two tax years in question was short or underdeclared by some P412,072.18.
Accordingly, the appellee considered this last mentioned amount as unreported item of income of the appellant for
1946. Further investigation into the appellant's 1946 profit and loss statement disclosed "local sales," that is, sales to
persons other than the United States Army, in the amount of P124,510.43. As a result, the appellee likewise
considered the said amount as unreported income for the said year. The full amount of P124,510.43 was considered as
taxable income because the appellant could not produce the books of account on the same upon which any deduction
could be based.

Adding up the above two items considered as unreported income the appellee assessed the appellant the total sum of
P340,179.84, broken down as follows:

Net income as per return P9,352.84

Add: Sales, US Army P492,531.93
Local Sales 124,510.43 536,582.61

Net income as per investigation 545,935.45

Less: Personal & additional exemptions 4,500.00

Net taxable income P541,435.45

Tax due thereon P226,897.73
Less: Tax already assessed 111.17

Deficiency tax due P226,786.56

50% surcharge 113,393.28

TOTAL AMOUNT DUE & COLLECTIBLE P340,179.84

==========
On November 14, 1953, the Bureau of Internal Revenue sent a letter of demand to the appellant for the above amount
as deficiency income tax, the sum of P300.00 as compromise for his failure to keep the required journal and ledger,
and finally, the sum of P153.75 as additional residence tax, all for the year 1946.

On March 31, 1954, on request of the appellant, the Bureau of Internal Revenue reinvestigated the case. At the end of
this new inquest, however, the appellee, thru, the then Collector of Internal Revenue, insisted on the payment of the
original assessment of P340,179.84. It suggested, though, that if the appellant disagreed with the said finding he could
submit the same for study, review and decision by the Conference Staff of the Bureau of Internal Revenue. In due time,
the above assessment was heard before the said body which, subsequently, recommended a reduction of the same to
P249,289.26, as deficiency income tax for the year 1946. After the recommendation was approved by the Bureau, the
corresponding assessment notice for the sum of P249,289.26 as deficiency income tax and 50% surcharge for the year
1946 and 1% monthly interest and penalty incident to delinquency was forthwith issued to the appellant.

On May 21, 1957, the above assessment was further revised by segregating the appellant's tax liability for the two
years in question. Pursuant to a memorandum of the BIR Regional Director of San Fernando, Pampanga, another
demand was made upon the appellant for the payment of P106,226.75 and P37,849.58 as income taxes due from him
for the years 1946 and 1947, respectively, or a total of P144,076.33.

When the appellant failed to pay the above demand, the appellee instituted the present suit on April 7, 1960. The
appellant filed his answer on July 7, 1960 and amended it on July 19, 1960.

Prior to the trial of the case, the appellant filed with the court below a motion to dismiss grounded on prescription and
lack of jurisdiction. The same was, however, denied by the lower court as unmeritorious. Moreover, for failure of the
appellant or his counsel to appear at the scheduled hearing, the defendant-appellant was declared in default. The
motion for reconsideration of this last order declaring the appellant in default for failure to appear was also denied by
the trial court for lack of merit.

On November 7, 1960, after the appellee had presented its documentary evidence against the appellant, the lower
court rendered the decision under appeal.

The appellant ascribes several errors to the decision of the court a quo, the more fundamental of which is the claim that
as a concessionaire in an American Air Base, he is not subject to Philippine tax laws pursuant to the United States-
Philippine Military Bases Agreement. In support of the claim, the following provision of the above Bases Agreement is
invoked:

ARTICLE XVIII.—Sales and Services within the Bases

1. It is mutually agreed that the United States shall have the right to establish on bases, free of all license; fees;
sales excise or other taxes or imposts; Government agencies including concessions, such as sales
commissaries and post exchanges, messes and social clubs, for the exclusive use of the United States military
forces and authorized civilian personnel and their families. The merchandise or services sold or dispensed by
such agencies shall be free of all taxes, duties and inspection by the Philippine authorities. Administrative
measures shall be taken by the appropriate authorities of the United States to prevent the sale of goods which
are sold under the provisions of this Article to persons not entitled to buy goods at such agencies, and,
generally, to prevent abuse of the privileges granted under this Article. There shall be cooperation between
such authorities and the Philippines to this end.

2. Except as may be provided in any other agreements, no persons shall habitually render any professional
services in a base except to or for the United States or to or for the persons mentioned in the preceding
paragraph. No business shall be established in a base, it being understood that the Government agencies
mentioned in the preceding paragraph shall not be regarded as businesses for the purpose of this Article.

The contention is clearly unmeritorious.

The above provision of the Military Bases Agreement has already been interpreted by this Court in at least two cases,
namely: Canlas v. Republic, G.R. No. 1,11035, May 31, 1958 and Naguiat v. J. A. Araneta, G.R. No. L-11594,
December 22, 1958. In the latter case this Court said:

The provision relied upon by the appellant plainly contemplates limiting the exemption from the licenses, fees
and taxes enumerated therein to the right to establish Government agencies, including concessions, and to the
merchandise or services sold or dispensed by such agencies. The income tax, which is certainly not on the
right to establish agencies or on the merchandise or services sold or dispensed thereby, but on the owner or
operator of such agencies, is logically excluded. The payment by the latter of the income tax is perfectly
content with and would not frustrate the obvious objective of the agreement, namely, to enable the members of
the United States Military Forces and authorized civilian personnel and their families to procure merchandise or
services within the bases at reduced prices. This construction is unmistakably borne out by the fact that, in
dealing particularly with the matter of income tax, the Military Bases Agreement provides as follows:

INTERNAL REVENUE TAX EXEMPTION

1. No member of the United States armed forces, except Filipino citizens, serving in the Philippines in
connection with the bases and residing in the Philippines by reason only of such services, or his
 dependents, shall be liable to pay income tax in the Philippines except in respect of income derived
from Philippine sources.

It is urged for the applicant that no opposition has been registered against his petition on the issues
above-discussed. Absence of opposition, however, does not preclude the scanning of the whole record
by the appellate court, with a view to preventing the conferment of citizenship to persons not fully
qualified therefor (Lee Ng Len vs. Republic, G.R. No. L-20151, March 31, 1965). The applicant's
complaint of unfairness could have some weight if the objections on appeal had been on points not
previously passed upon. But the deficiencies here in question are not new but well-known, having been
ruled upon repeatedly by this Court, and we see no excuse for failing to take them into
account.1äwphï1.ñët

2. No national of the United State serving or employed in the Philippines in connection with the
maintenance, operation or defense of the bases and residing in the Philippines by reason only of such
employment, or his spouse, and minor children and dependent parents of either spouses, shall be
liable to pay income tax in the Philippines except in respect of income derived from Philippine source
or sources than the United States source.

3. No persons referred to in paragraphs 1 and 2 of this article shall be liable to pay the Government or
local authorities of the Philippines any poll or residence tax, or any import or export duty, or any other
tax on personal property imported for his own use; provided that privately ovned vehicles shall be
subject to the payment of the following only, when certified as being used for military purposes by
appropriate United States authorities, the normal license plate and registration fees.

4. No national of the United States, or corporation organized under the laws of the United States,
resident in the United States, shall be liable to pay income tax in the Philippines in respect to any
profits derived under a contract made in the United States in connection with the construction,
maintenance, operation and defense of the bases, or any tax in the nature of a license in respect of
any service or work for the United States in connection with the construction, maintenance, operation
and defense of the bases.

None of the above-quoted covenants shields a concessionaire, like the appellant, from the payment of the income tax.
For one thing, even the exemption in favor of members of the United States Armed Forces and nationals of the United
States does not include income derived from Philippine sources.

The appellant cannot seek refuge in the use of "excise" or "other taxes or imposts" in paragraph 1 of Article XVIII of the
Military Bases Agreement, because, as already stated, said terms are employed with specific application to the right to
establish agencies and concessions within the bases and to the merchandise or services sold or dispensed by such
agencies or concessions.

The same conclusion was reached in the case of Canlas v. Republic, supra.

The appellant maintains, however, that the rulings in the above two cases are inapplicable to the suit at bar because
the said cases involved the income of public utility operators in the Air Base who were not "concessionaires" like him.

The above contention is as unmeritorious as it is untrue. In the case of Araneta v. Manila Pencil Company Ins.,G.R. No.
L-8182, June 29, 1957, this Court already ruled that operators of freight and bus services are within the meaning of the
word "concession" appearing in the Military Bases agreement. Thus, in the Canlas case above, We said:

There is no dispute as to the fact that defendant Manila Pencil Company, as successor-in-interest of the
Philippine Consolidated Freight Lines, Inc., was engaged in and duly licensed by the U.S. Military authorities to
operate a freight and bus service within the Clark Field Air Base, a military reservation established in
conformity with the agreement concluded between the Government of the Philippines and the United States on
March 14, 1947 (43 O.G. No. 3, p. 1020). And as such grantee of a franchise, which this Court was held to be
embraced within the meaning of the word "concession" appearing in the treaty and was declared exempted
from the payment of the contractor's tax (Araneta v. Manila Pencil Company, G.R. No. L-10507, May 30, 1958)
... .

It is very clear, therefore, that the rulings of this Court in the two cases above cited are applicable to this appeal under
consideration.

The other point raised by the appellant on this appeal pertains to the refusal of the trial court to reconsider its order
declaring him in default for the failure of his counsel to appear at the scheduled trial despite due notice. He complains
that when the trial proceeded in his absence, he was denied his day in court. In the premises, his counsel insists that
this absence then was for a good and reasonable cause.

Suffice it to say in regard to the above that the matter complained of is beyond this Court to disturb. The matter of
adjournments, postponements, continuances and reconsideration of orders of default lies within the discretion of courts
and will not be interfered with either by mandamus or appeal (Samson v. Naval, 41 Phil. 838) unless a showing of
grave abuse can be made against said courts. Moreover, where the absence of a party from the trial was due to his
own fault, he should not be heard to complain that he was deprived of his day in court. (Sandejas v. Robles, 81 Phil.
421; Siojo v. Tecson, 88 Phil. 531)
The-counsel's excuse for his absence at the trial was alleged "lack of transportation facilities in his place of residence
at Gagalangin, Tondo, Manila, on that morning of August 8, when torrential rain poured down in his locality." The lower
court did not deem this as a sufficiently valid explanation because it observed that despite such torrential rain, the
counsel for the plaintiff-appellee, a lady attorney who was then a resident of a usually inundated area of Sampaloc,
Manila, somehow made it to the court. Under these circumstances, the trial court's ruling can hardly be considered as
an abuse of his discretion.

Finally, the appellant disputes the lower court's finding of fraud against him in this incident. He argues that the facts
invoked by the lower court do not sufficiently establish the same.

As rightly argued by the Solicitor General's office, since fraud is a state of mind, it need not be proved by direct
evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation
purposes his true and actual income derived from his furniture business at the Clark Field Air Base for two consecutive
years is an indication of his fraudulent intent to cheat the Government of its due taxes.

The substantial undeclaration of income in the income tax returns of the appellant for four consecutive years,
coupled with his intentional overstatement of deductions made the imposition of the fraud penalty proper.
(Eugenio Perez v. Court of Tax Appeals and Collector of Internal Revenue, G. R. No. L-10507, May 30, 1958.)

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered affirming in full the decision here appealed from,
with costs against the defendant-appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 156 September 27, 1946

MILTON GREENFIELD, plaintiff-appellant, vs. BIBIANO L. MEER, defendant-appellee.

FERIA, J.:

This is an appeal from the decision of the Court of First Instance of Manila which dismisses the complaint of the plaintiff
and appellant containing two causes of action; one to recover the sum of P9,008.14 paid as income tax for the year
1939 by plaintiff to defendant under protest, by reason of defendant having disallowed a deduction of P67,307.80
alleged by plaintiff to be losses in his trade or business; and the other to reclaim, in the event the first cause of action is
dismissed, the sum of P475 collected by defendant from plaintiff illegally according to the latter, because the former
has erroneously computed the tax on personal and additional exemptions.

The following are the pertinent facts stipulated and submitted by the parties to the lower court:

2. That since the year 1933 up to the present time, the plaintiff has been continuously engaged in the
embroidery business located at 385 Cristobal, City of Manila and carried on under his name;

3. That in 1935 the plaintiff began engaging in buying and selling mining stocks and securities for his own
exclusive account and not for the account of others . . .;

4. That Exhibit A attached to the complaint and made a part hereof represents plaintiff's purchases and sales of
each class of stock and security as well as the profits and losses resulting on each class during the year 1939;

5. That the plaintiff has not been a dealer in securities as defined in section 84 (t) of Commonwealth Act No.
466; that he has no established place of business for the purchase and sale of mining stocks and securities;
and that he was never a member of any stock exchange;

6. That the plaintiff filed an income tax return for the calendar year 1939 showing that he made a net profit
amounting to P52,449.29 on embroidery business and P17,850 on dividends from various corporations; and
that from the purchase and sales of mining stocks and securities he made a profit of P10,741.30 and incurred
losses in the amount of P78,049.10, thereby sustaining a net loss of P67,307.80, which income tax return is
hereto attached and marked Exhibit B;

7. That in said income tax return for 1939, the plaintiff declared the results of his stock transactions under
Schedule B (Income from Business);but the defendant ruled that they should be declared in the income tax
return, Exhibit B, under Schedule D (Gains and Losses from Sales or Exchanges of Capital Assets, real or
personal);

8. That in said income tax return, said plaintiff claims his deduction of P67,307.80 representing the net loss
sustained by him in mining stocks securities during the year 1939; and that the defendant disallowed said item
of deduction on the ground that said losses were sustained by the plaintiff from the sale of mining stocks and
securities which are capital assets, and that the loss arising from the sale of the same should be allowed only
to the extent of the gains from such sales, which gains were already taken into consideration in the
computation of the alleged net loss of P67,307.80;

9. That the defendant assessed plaintiff's income tax return for the year 1939 at P13,771.06 as shown in the
following computation appearing in the audit sheet of the defendant hereto attached and marked Exhibit C;

Net income as per return of plaintiff for 1939 P70,299.29

Add: Net Loss on sale of mining stocks and

securities disallowed in audit 67,307.80

P137,607.09

Total net income as per office audit =========

Amount of tax on net income as per office audit P13,821.06

Less: Tax on exemptions:

Personal exemption P2,500.00

Additional exemption 1,000.00

Total P3,500.00
 Tax on exemption 50.00

P13,771.06

Net amount of tax due =========

10. That the defendant computed the graduated rate of income tax due on the entire net income as per office
audit, without first deducting therefrom the amount of personal and additional exemptions to which the plaintiff
is entitled, allowing said plaintiff a deduction from the assessed tax the amount of P50 corresponding to the
exemption of P3,500;

11. That the plaintiff, objecting and excepting to all the ruling of the defendant above mentioned and in
assessing plaintiff with P13,771.06, claimed from the defendant the refund of P9,008.14 or in the alternative
case P475, which claim of plaintiff was overruled by the defendant;

The questions raised by appellant in his four (4) assignments of error may be reduced into the following: (1) Whether
the losses sustained by the plaintiff from the buying and selling of mining securities during the year 1939 are losses
incurred in trade and business, deductible under section 30 (d) (1)(A) of Commonwealth Act No. 466 from his gains in
his embroidery business and other income; or whether they are capital losses from sales of capital assets which shall
be allowed only to the extent of the gains from such sales under section 34 of the same Commonwealth Act No. 466.
And (2) whether, under the present law, the personal and additional exemptions granted by section 23 of the same Act,
should be considered as a credit against or be deducted from the net income, or whether it is the tax on such
exemptions that should be deducted from the tax on the total net income.

1. As to the first question, it is agreed in the above-quoted stipulation of facts that the plaintiff was not a dealer in
securities or share of stock as defined in section 84 (t) of Commonwealth Act No. 466. The question for determination
is whether appellant, though not a dealer in mining securities, may be considered as engaged in the business of buying
and selling them under section 30 (d), (1) (A) of said Act No. 466.

It is evident that, taking into consideration the nature of mining securities, which may be bought or sold either as a
business or for speculation purposes only, the National Assembly of the Philippines has deemed it necessary to define
or determine beforehand in section 84 (t) of Commonwealth Act No. 466 who may be considered as persons engaged
in the trade or business of buying and selling securities within the meaning of the phrase "incurred in trade or business"
used in section 30 (d) (1) (A) of the same Act, in order to avoid any question or doubt as to deductibility of all losses
incurred by a merchant in securities from his net income from whatever source. The definition of dealer or merchant in
securities given in said section 84 (t) includes persons, natural or juridical, who are engaged in the purchase and sale
of securities whether for his their own account or for others, provided they have a place of business and are regularly
engaged therein. There was formerly some doubt or question as to whether a person engaged in buying or selling
securities for his own account might be considered as engaged in that trade or business, and several cases involving
such question had been submitted to the United States Federal Courts for ruling, and to the Income Tax Units of the
United States Bureau of Internal Revenue for opinion. But with the inclusive definition of the term "dealer" or merchant
of securities given in section 84 (t) of Act No. 466, such doubt can no longer arise.

Said section 84 (t) reads as follows:

(t) The term "dealer in securities" means a merchant of stocks or securities, whether an individual, partnership,
or corporation, with an established place of business, regularly engaged in the purchase of securities and their
resale of customers; that is, one who as a merchant buys securities and sells them to customers with a view to
the gains and profits that may be derived therefrom.

Appellant assumes, however, that the above-quoted definition does not cover or include all persons engaged in the
trade or business of buying and selling securities within the meaning of said section 30 (d) (1) (A). He contends that,
although he is not a dealer in mining securities, he may be considered as having been engaged in the trade or
business of buying and selling securities. And in support of his contention appellant quotes Opinion No. 1818 of the
Income Tax Unit of the United States Bureau of Internal Revenue(I.T. No. 1818, C.B. II, pp. 39-41), in which opinion the
following was said:

The taxpayer is not a member of any stock exchange, has no place of business, and does not make purchase
and sales of securities for customers. Much of his trading is done on margin. He devotes the greater part of the
time in his broker's office keeping in touch with the market. He has no other trade or business, his income
consisting entirely of interest bonds, dividends on stocks, and profits from the sale or disposition of securities.

Advice is requested (1) whether this taxpayer is entitled to the benefit of section 204 of the Revenue Act of
1921, with reference to a net loss incurred in 1921, from the sale of stocks; (2) whether he is entitled to the
benefit of section 206 of the Revenue Act of 1921, with regard to gains derived in 1922 from the sale of two
blocks of stock held more than two years.

1. Section 204 (a) provides in part:

That as used in this section the term "net loss" means only net losses resulting from the operation of any trade
or business regularly carried on by the taxpayer . . .
 The question is, than, whether the taxpayer was regularly engaged in the trade or business of buying and
selling securities.

The interpretation placed upon the term "business or trade" by the courts and the department may be indicated
by a few illustrative decisions. In two early cases (In re Marson [1871], Fed. Cas. No. 9142, andIn
re Woodward [1876], Fed. Cas. No. 18001) it was held that a speculator in stocks was not a "merchant or
tradesman" within the meaning of the Bankruptcy Act of 1867. It was said in the former case:

"The only business he was engaged in was what is called speculating in stocks, that is, buying and selling
them, with a view to his own profit, to be made by the excess of the selling price over the buying price . . . The
fact that the bankrupt was engaged in no other business can not have the effect to make him a merchant or a
tradesman, because he carried on the business he did carry on in the way which he carried it on."

That is, although his business was buying and selling, since this business was simply with a view to his own
profit and not for others, has was not a merchant or tradesman. Compare In re Surety Guarantee & Trust Co.
([1902], 121 Fed., 73) and In re H.R. Leighton & Co. ([1906], 147 Fed., 311).

With this background, the Department, in Treasury Decisions 1989, 2005, 2090, and 2135 (not published in
Bulletin service), held that the provision of paragraph B of the 1913 Act, allowing as a deduction for the
purpose of the normal tax "losses actually sustained during the year, incurred in trade . . .", did not include
losses from isolated transactions; for instance, in stocks and bonds. In Mente vs. Eisner ([1920], 266 Fed.,
161) (certiorari denied, 254 U.S., 635), these rulings were upheld in a case in which a manufacturer of bagging
was denied deductions for losses in buying and selling cotton on the cotton exchange for his individual
account, not connected with his manufacturing business. (Cf. Black vs. Bolen [1920], 268 Fed., 427.) Likewise,
in L.O. 601 (not published in Bulletin service), it was held that "losses sustained by a person in buying and
selling securities in his own account, he not being a licensed stock and bond broker buying and selling for
others as well as for himself, are not deductible as losses in trade within the meaning of paragraph B of the Act
of October 3, 1913." The basis of these opinions is thus seen to be (1) that dealing in securities on one's own
account is not technically a "trade"; (2) that isolated transactions in securities, not connected with the tax
payer's regular business do not constitute a "trade."

In the Act of September 8, 1916, the wording of the 1913 Act was slightly changed (section 5 [a], fourth) to
permit a deduction of "losses actually sustained during the year, incurred in his business or trade . . ." Under
this more liberal provision, it has been uniformly held that where a taxpayer devoted all his time, or the major
portion of it, to buying and selling securities on his own account, this occupation was his "business"; and
therefore he was permitted to deduct losses sustained in such dealings as being "incurred in his business." A.
R. R. 404 (C.B. 4, p. 157); semble L. O.601. These rulings are inferentially supported by the definitions of trade
or business to comprehend "all his activities for gain, profit, or livelihood, entered into with sufficient frequency,
or occupying such portion of his time or attention as to constitute a vocation," contained in article 8 of
Regulations 41, relative to the war excess-profits tax (approved in Woods vs. Lewellyn [1921], 289 Fed., 498). .
.

It is submitted that these decisions are a sound interpretation of the accepted definition of business: "Business
is a very comprehensive term and embraces everything about which a person can be employed." Black's Law
Dictionary, 158, citing People vs. Commissioners of Taxes (23 New York, 242, 244). "That which occupies the
time, attention and labor of men for the purpose of a livelihood or profit." Bouvier's Law Dictionary, Vol. 1, p.
273. Fling vs. Stone Tracy Co. (1910), 220 U. S., 107 at 171; 31 Sup Ct., 342; 55 Law. ed., 389; Ann. Cas.
1912-B, 1312; cited with approval in Von Baumbach vs. Sargent Land Company (1916), 242 U. S., 503, at 515.
If they are sound, the facts of the instant case require a ruling that the taxpayer was regularly engaged in the
business of buying and selling securities on his own account and was, therefore, entitled to the benefit of the
provisions of section 204(a). (I. T. No. 1818; C. B. II-2, pp. 39-41.)

But, assuming arguendo that the above-quoted opinion may be applied to the present case, it is evident that the
appellant can not be considered as having been engaged in the business of buying and selling securities within the
meaning of section 30 (d) (1) (A) of Act No. 466 According to said opinion, in order that he may so be considered, it is
necessary that he must devote all his time or at least a major portion thereof to said business and that the latter must
be regularly carried on by him.

In the stipulation of facts presented in this case it is agreed that "since the year 1933 up to the present time, the plaintiff
has been continuously engaged in the embroidery business," and that "in 1935, the plaintiff beganengaging in buying
and selling mining stocks and securities for his own exclusive account." There is nothing therein to show that plaintiff
and appellant has regularly devoted all his time or the major portion thereof to the business of buying and selling
mining securities for his own account. On the contrary, it having been stipulated that he has been continuously
engaged in the embroidery business during the same time, it necessarily follows that he has not and could not have
devoted regularly all his time or a major portion thereof to the buying and selling of mining securities.

Furthermore, from Exhibit A attached to the complaint and made a part of said stipulation of facts, which represents
plaintiff's purchases and sales of each class of stocks and securities as well as the profits and losses resulting
therefrom during the year 1939, it appears that he made purchases and sales of securities only on several days of
some months and nothing on others. As shown in said exhibit, during the month of January, 1939, appellant purchased
shares of stock of different mining corporations on January 2, 3, 4, 6, 13, 19, 20, 25, 30, and sold some of them on
January 4, 10, 13 and 31. During February he made purchases on the dates 1, 8, 13, 14, 25, and 27; and sales on 6, 9,
10, 16, 22, and 30, and sold some on March 9 only. During April he made two purchases on April 3 and 5, and one sale
on April 4. During May he purchased mining shares of stock on May 9, 10, 13, 19, 24, and 25; and sold some of them
on May 9, 10, 12, 13, and 31. During June appellant made purchases on 1, 3, 5, 8, 13, 15, and 17, and sales on 22, 23,
24, and 28. During July, purchases on 1, 3, 6, 19; and sales on July 24, 25, 26, and 27. During August he purchased
shares of stock on some mining corporations on 5,7, 16, and 18 and sold shares of one mining corporation on August
10 only. During September appellant did not purchase or sell any securities. During October he sold securities only on
the 12th of said month, and he made no purchase at all. And during November and December he did not purchase or
sell any.

Appellant contends that as from Exhibit A it appears that the mining securities were inventoried in order to arrive at his
profits and losses, they cannot be considered as capital assets, because, according to section 34, the term capital
assets does not include property which would properly be included in the inventory. But it is to be observed that the law
refers not to property merely included, but to that which would be properly included in the inventory. Section 148 of the
Income Tax Regulations No. 2 of February 10, 1940 (39 Off. Gaz., 325), provides that "the securities (to be) inventoried
as here provided may include only those held for purposes of resale and not for investment," and that "the taxpayers
who buy and sell or hold securities for investment or speculation, . . . are not dealers insecurities within the meaning of
this rule." And the General Counsel of the Federal Bureau of Internal Revenue, after quoting Article 105 of United
States Regulations 74 from which said section 148 of our Income Tax Regulations was taken, said that a person not a
dealer in securities is precluded from the use of inventories in computing his net income."(C. B. X-2, p. 128, G. C. M.,
9656.)

The lower court has not therefore erred in dismissing appellant's first cause of action, on the ground that the losses
sustained by appellant from the buying and selling of mining securities are not losses incurred in business or trade but
are capital losses from sales of capital assets, as contended by appellee.

2. With regard to the second point, the lower court held that, as the new law does not provide that the personal
exemptions shall be allowed in the nature of a deduction from the net income, as prescribed in the old law, and there is
a distinction between exemption and deduction, the tax due on said exemptions must be deducted from the tax due on
the whole net income, instead of deducting the total amount of the exemptions from the net income.

The argument of the appellee in support of the lower court's decision is that the omission in section 23 of Act No. 466
of the phrase "in the nature of a deduction" found in section 7 of the old law, shows that it was the intention of the
National Assembly to adopt the innovation proposed by the Tax Commission which prepared the draft of the new law,
an innovation based on what is known as the "Wisconsin Plan" now in operation in several American states. Under said
plan, the cumulative amount of the tax is fixed on any given amount of net income without regard to the status of the
taxpayer, and then this amount is reduced by the tax credit fixed in the law according to the status of the taxpayer and
the number of his dependents as follows: for single individuals, there is allowed a tax credit of P10; for married persons
or heads of family, P30; and for each dependent below 21 years of age, P10.

Section 7 of the old law provided: "For the purpose of the normal tax only, there shall be allowed as an exemption in
the nature of a deduction from the amount of the net income . . ."; while section 23 of the new law provides: "For the
purpose of the tax provided for in this Title there shall be allowed the following exemptions." Now, the question to be
determined or answered is: Does this change in the phraseology of the law show the intention of the National Assembly
to change the theory or policy of the old law so as to deduct now the tax on the personal and additional exemptions
from the tax fixed on the amount of the net income, instead of deducting the amount of personal and additional
exemptions from that of the net income, before determining the tax due on the latter?

It is a well-settled rule of statutory construction that where a statue has been enacted which is susceptible of several
interpretations there is no better means for ascertaining the will and intention of the legislature than that which is
afforded by the history of the statue. Taking into consideration the history of section 23 of the Commonwealth Act No.
466, the answer to the above-propounded question must obviously be in the negative. Section 22 of the bill entitled "An
Act to revise, amend and codify the Internal Revenue Laws of the Philippines," prepared by the Tax Commission and
submitted to the National Assembly of the Philippines, in substitution of section 7 of the old Income Tax Law, reads as
follows:

SEC. 22. Amount of tax credit allowable to individuals.—There shall be allowed as a credit in the nature of a
deduction from the amount of the tax payable by each citizen or resident of the Philippines under section 20:

(a) Tax credit of single individuals.—The sum of P10 if the person making the return is a single person or a
married person legally separated from his or her spouse.

(b) Tax credit of a married person or head of family.—The sum of P30 if the person making the return is a
married man with a wife not legally separated from him, or a married woman with a husband not legally
separated from her, or the head of the family; Provided, That from the tax due on the aggregate income of both
husband and wife when not legally separated only one tax credit of P30 shall be deducted. For the purpose of
this section, the term "head of a family" includes an unmarried man or a woman with one or both parents, or
one or more brothers or sisters, or one or more legitimate, recognized natural or adopted children dependent
upon him or her for their chief support where such brothers, sisters, or children are less than twenty-one years
of age.

(c) Additional tax credit for dependents.—The sum of P10 for each legitimate, recognized natural, or adopted
child wholly dependent upon the taxpayer, if such dependents are under twenty-one years of age, or incapable
 of self-support because mentally or physically defective. The additional tax credit under this paragraph shall be
allowed only if the person making the return is the head of the family.

But the National Assembly, instead of adopting or incorporating said proposed section 22 in the National Internal
Revenue Code, C. A. No. 466, copied substantially in section 23 of the latter provision of section 7 of the old law
relating to personal and additional exemptions, with the only modification that the amount of personal exemption of
single individuals has been reduced from two thousand to one thousand pesos, and that of married persons or heads
of family from four thousand to two thousand five hundred pesos.

If it were the intention of the National Assembly to adopt the "Wisconsin plan" proposed by the tax Commission, it
would have adopted literally, or at least substantially, the provisions of said section 22 as section 23 of Commonwealth
Act No. 466, instead of substantially incorporating section 7 of the old Income Tax Law as section 23 of the new,
except the first paragraph thereof which reads: "For the purpose of the normal tax only, there shall be allowed as an
exemption in the nature of a deduction from the amount of the net income." This was changed in said section 23, which
provides: "For the purpose of the tax provided for in this Title, there shall be allowed the following exemptions:" From
the fact that the National Assembly discarded completely section 22 of the bill drafted in accordance with the
"Wisconsin Plan" and submitted by the Tax Commission, it is to be presumed that the National Assembly of the
Philippines did not intend to introduce any substantial change in the old law in so far as the effect of personal and
additional exemptions on the income tax is concerned.

The mere fact that the phrase "in the nature of a deduction" found in section 7 of the old law was omitted in section 23
of the new or National Internal Revenue Code did not and could not effect any change in the law. It is evident that said
phrase was added or inserted in said section 7 only out of extreme caution, because, even without it, the exemption
would have to be deducted from the gross income in order to determine the net income subject to tax. Had the
provision in the old law been drafted in exactly the same term as that of said section 23, the same construction should
have been adopted. Because "Exception is an immunity or privilege; it is freedom from a charge or burden to which
others are subjected." (Florar vs. Sherifan, 137 Ind., 28; 36 N. E., 365, 369.) If the amounts of personal and additional
exemptions fixed in section 23 are exempt from taxation, they should not be included as part of the net income, which
is taxable. There is nothing in said section 23 to justify the contention that the tax on personal exemptions (which are
exempt from taxation) should first be fixed, and then deducted from the tax on the net income.

The change of phraseology alone does not lead to the conclusion that it was the intention of the lawmaker to amend or
change the constructions of the old law as contended by the appellee. For it is a well-established rule, recognized by
the Supreme Court of Ohio in the case of Conger vs. Barker's Adm'r (11 Ohio St., 1); "that in the revision of statutes,
neither an alteration in phraseology nor the omission or addition of words in the latter statute, shall be held, necessarily,
to alter the construction of the former act. And the court is only warranted in holding the construction of a statute, when
revised, to be changed, where the intent of the legislature to make such change is clear, or the language used in the
new act plainly requires such change of construction. It should be rememberedthat condensation is a necessity in the
work of compilation or codification. Very frequently words which do not materially affect the sense will be omitted from
the statutes as incorporated in the code, or that same general idea will be expressed in briefer phrases. No design of
altering the law itself could rightly be predicated upon such modifications of the language." (Emphasis ours.) (See Black
on the construction and Interpretation of the Laws, Second Edition, pp. 594, 595.)

Our Income Tax Law is patterned after the United States Revenue or Income Tax Laws. the United States Revenue
Laws of 1916, 1918, 1921, 1924, 1926, 1928 and 1932 considered the personal and additional exemptions as credits
against the net income for the purpose of the normal tax; and subsequently, the United States Revenue Acts of 1934,
1936 and 1938 amended the former acts by making said exemptions as credits against the net income for the purpose
of both the normal tax and surtax. Section 7 of our old Income Tax Law, instead of providing that the personal and
additional exemptions shall be allowed as a credit against the net income, as in the United States Revenue Acts,
prescribed that the amounts specified therein shall be allowed as an exemption in a nature of deduction from the
amount of the net income. Which has exactly the same effect as the provision regarding personal and additional
exemptions in the said United States Revenue Acts. For, as it was explained in the Ways and Means Committee
Report No. 764, 73d Congress, 2d Session, pages 6, 23:

To carry out the policy of retaining practically the same tax burden on ordinary income, it is necessary in
connection with the proposed plan to allow the personal exemption and credits for dependents as an offset
against surtax as well as normal tax. The personal exemption and credits for defendants would appear to be in
lieu of deductions for necessary living expenses. They may well apply to both taxes as do all other ordinary
deductions.

And Paul and Mertens, Law of Federal Taxation, Vol. 3, p. 509, state regarding the change in the United States
Revenue Act of 1934: "The practical effect of this statutory change is to convert the personal exemption and credit for
dependents into deductions . . ." (Emphasis ours.)

The lower court, therefore, erred in not declaring that personal and additional exemptions claimed by appellant should
be credited against or deducted from the net income, and consequently in not sentencing appellee to refund to
appellant the sum of P475.

In view of all the foregoing, the decision of the lower court is affirmed in so far as it dismisses appellant's first cause of
action, and is reversed in so far as it dismissed his second cause of action. Appellee is sentenced to refund to
appellant the sum of P475 claimed in the second cause of action of the complaint. Without pronouncement as to costs.
So ordered.
Moran, C.J., Pablo, Hilado, Bengzon, Briones, and Tuason, JJ., concur.

Separate Opinions

PARAS, J., concurring and dissenting:

I concur in the majority opinion in so far as it affirms the dismissal of appellant's first cause of action, but I dissent from
so much thereof as reverses the dismissal of appellant's second cause of action.

The elimination from section 23 of the National Internal Revenue Code of the words "in the nature of a deduction from
the amount of the net income"(which appeared in section 7 of the old Income Tax Law), could not have been effected
without a purpose; and said purpose certainly is not to retain the meaning and effect of the suppressed words. If the
legislative department did not intend to make an essential change, the logical and clear way of doing so was to recopy
the old provision. Said elimination was undoubtedly in answer to, and an acceptance of, the innovation proposed by the
Tax Commission, namely, that the amount payable under the present law should be the difference between the tax due
on the entire net income and that due on the exemptions, thereby doing away with the former practice of allowing the
exemptions to be deducted from the net income and basing the tax on the difference. We cannot say that the failure of
the law makers to incorporate in the new Code the provision regarding tax credits allowable to individuals, as prepared
and submitted by the Tax Commission to the National Assembly in substitution of section 7 of the old Income Tax Law,
suggests a rejection of the new plan and the retention of the old policy, since the desired aim had equally been
accomplished by mere elimination of the words above referred to. Indeed, at the rates fixed in section 21 of the new
Code, the amounts of personal and additional exemptions granted to individuals under section 23 are exactly the
amounts specified in the provision recommended by the Tax Commission, namely, P10 for single individuals, P30 for
married persons or heads of family, and P10 for each dependent. Section 23 should thus be construed not as an
original provision, but as one which is the result of a revision.

The interpretation now pursued by the Government is further consistent with the circumstance that the tax is levied
upon the "entire net income" (section 21), which means "the gross income computed under section 29, less the
deductions allowed by section 30" (section 28). It is significant that section 30 fails to make any reference to "personal
exemptions." The explanation contained in the Ways and Means Committee Report No. 764, 73rd Congress, 2nd
Session, to the effect that the "personal exemption and credits for dependents would appear to be in lieu of deductions
for necessary living expenses," cannot have controlling force because, in computing the net income both under the
new Code (section 31) and under the old Income Tax Law (section 5), no deduction is allowed in respect of living
expenses.

Of course, neither an alteration in phraseology nor the omission or addition of words in a later statute will necessarily
alter the construction of the former act, but, in the present case, the eliminated words were the very basis for the prior
construction. The alternation here is one of substance, and not merely of form.

Besides, the majority, by their position, are their position, are (unwittingly I hope) playing favorite to the taxpayers in the
upper brackets, — a situation which undoubtedly could not have been intended by the legislators. The following
remarks of counsel for the Government are in point:

Lastly, the action of the appellee Collector, in allowing merely a tax credit upon the amount of the personal
exemptions, gives all taxpayers entitled to the same exemptions, an equal privilege. The tax saving is the same
for taxpayers having equal number of the dependents, whether rich or poor, just as the amount of exemptions
remains the same for all taxpayers under analogous circumstances.

On the contrary, the method advocated by appellant (of deducting the exemption from the total taxable income)
benefits the rich taxpayers, rather than the poor ones. To convince us of the fact, it is enough to compute the
tax on an income lesser than appellant's; say of P15,000.

Appellant's Method Appellees

Net income. . . . . . 15,000.00 Net income . . . . . . . P 15,000.00

Less exemption . . . 3,500.00 Taxable income . . . . P15,000.00

Taxable income . . . P11,500.00

Taxed as follows:

Income Rate Tax Income Tax

P2,000.00 1% P20.00 P2,000.00 Exempt.

2,000.00 2% 40.00 2,000.00 P 10.00 (1,500 exempt)

2,000.00 3% 60.00 2,000.00 60.00

4,000.00 4% 160.00 4,000.00 160.00

 1,500.00 5% 75.00 5,000.00 250.00

P11,500.00 P355.00 P15,000.00 P480.00

A comparison of this computation with that of the tax on appellant's income, page 19 of this brief, reveals that,
in appellant's case, the deduction of the exemption results in a saving of 15 per cent tax on P3,500 (P525)
while in the case just discussed, where the taxpayer's income is much less, the deduction method saves the
taxpayer only 5 per cent tax on P3,500 (P175), because in this case the highest bracket of the taxpayer's
income is only subject to 5 per cent. So that the appellant, with an income of P137,607.09, economizes by the
deduction three times more than the second taxpayer whose income is merely P15,000. It requires little
argument to show that a method of computing taxes whereby the same exemption results in a higher benefit
for the taxpayer with the bigger income can neither be just nor equitable.

My vote is to affirm the judgment appealed from in toto.

PERFECTO, J., dissenting and concurring:

We dissent from the majority of affirming the decision of the lower court in so far as it dismisses appellant's first cause
of action.

Plaintiff "filed an income tax return for the calendar year 1939 showing that he made a net profit amounting to
P52,449.29 on embroidery business and P17,850 on dividends from various corporations; and that from the purchase
and sales of minings stock and securities he made a profit of P10,741.30 and incurred losses in the amount of
P78,049.10, thereby sustaining a net loss of P67,307.80. . .

Defendant disallowed the deduction of the loss of P67,307.18, on the theory that the loss was sustained by plaintiff
from the sale of mining stocks and securities which are capital assets and that the loss arising from the same should be
allowed only to the extent of the gain from such sales.

The question is whether the loss was incurred in trade and business.

"Business" is a very comprehensive term and embraces everything about which a person can be employed.
Black's Law Dictionary, 158, citing People vs. Commissioners of Taxes (23 New York, 242, 244). "That which
occupies the time, attention, and labor of men for the purpose of a livelihood or profit." Bouvier's Law
Dictionary, Vol. 1, p. 273. Flint vs. Stone Tracy co. (1910), 220 U. S., 107 at 171; 31 Sup. Ct., 342; 55 Law.
Ed., 389; Ann. Cas. 1912-B, Law. 1312, cited with approval in Von Baumbach vs. Sargent Land Company.
(1916) 242 U. S., 503 at 515.

We do not have any doubt the plaintiff engaged in the business and trade of buying and selling mining stocks and
securities. We do not see any reason why the losses sustained by him in said business should be disallowed in the
computation for purposes of determining the income tax he has to pay.

We are of opinion that the lower court's decision should be reversed and that, as to plaintiff's first cause of action,
defendant should be ordered to reimburse the plaintiff the amount of P9,008.14 paid by plaintiff to defendant under
protest.

In regards to the second cause of action of plaintiff, we agree with the theory of the majority as explained in the opinion,
but we can not concur in the dispositive part thereof ordering the refund of the sum of P475, in view of the conclusion
we have arrived at regarding plaintiff's first cause of action, it appearing that plaintiff only prays for the refund of P475
as an alternative in the event his first cause of action is dismissed.
 Republic of the Philippines
SUPREME COURT
Manila
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.

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
1
development of hydraulic power and the production of power from other sources.

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
2
instrumentalities and agencies of the government, including its financial institutions. 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
3
power on a nationwide basis. 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-
4
owned or controlled corporations including their subsidiaries. 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
firmsnever 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, 1985—The 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 isdirectly 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. Ordoñez, 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
5
with the ruling of that Department dated May 20,1988, as confirmed by this Office on June 15, 1988 . . .

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.

6
PETITIONER prays for such other relief and remedy as may be just and equitable in the premises.

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
7
nature and extent of the tax exemption privilege restored to NPC.

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
8
action and that it is not sufficient for him to have a mere general interest common to all members of the public.

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 appeal—Any 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
9
functions.

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
10
beyond statutory authority.

Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an unlawful exercise of
11 12
jurisdiction or to prevent the oppressive exercise of legal authority. 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
14
Aceytelene Co. Inc. vs. Commissioner of Internal Revenue. 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
15
existence. Petitioner cites rulings of the BIR that the phrase exemption from "all taxes, etc." from "all forms of taxes"
16
and "in lieu of all taxes" covers only taxes for which the taxpayer is directly liable.

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
17
arrangements, for purposes of tax and duty exemptions privileges.

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
18
the Real Property Tax Code, as amended.

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
19
promulgated said resolutions.

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.

20
Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of Albay, wherein
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
21 22
certificate which was assigned to respondent Caltex through a deed of assignment approved by the BIR 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.

23
The NPC is a non-profit public corporation created for the general good and welfare wholly owned by the government
24
of the Republic of the Philippines. From the very beginning of its corporate existence, the NPC enjoyed preferential
25
tax treatment to enable the Corporation to pay the indebtedness and obligation and in furtherance and effective
26
implementation of the policy enunciated in Section one of "Republic Act No. 6395" which provides:

Sec. 1. 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 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
27
one of this Act, . . ."

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
28
favor of a government political subdivision or instrumentality.

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
29
exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies.

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
30
such property "exemption is the rule and taxation the exception."

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,
31
or unless the latter Act fully embraces the subject matter of the earlier. The first effort of a court must always be to
32
reconcile or adjust the provisions of one statute with those of another so as to give sensible effect to both provisions.

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part or
33
a particular provision alone. When construing a statute, the reason for its enactment should be kept in mind and the
34 35
statute should be construed with reference to its intended scope and purpose and the evil sought to be remedied.

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
36
weight.

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
37
payment of all taxes relative to NPC's petroleum purchases including indirect taxes. 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 Charter—the 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 companies—as payment, in effect, of the tax
component shown in the sales invoices. (NOTE: These procedures varied over time—There 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
38
to be specific order to the Bureaus concerned for the resumption of the processing of these claims."

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance, the said opinion
39
ruling of the latter was confirmed and its implementation was directed.

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 inPhilippine 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
40
to do so. This report shall be in addition to the usual FIRB reporting requirements on incentive availment.

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,
41
has the power to modify, alter or reverse the construction of a statute given by a department secretary.

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.

42 43
The required "standard" need not be expressed. In Edu vs. Ericta and in De la Llana vs. Alba 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."

44 45
In People vs. Rosenthal the broad standard of "public interest" was deemed sufficient. In Calalang vs. Williams, , it
46
was "public welfare" and in Cervantes vs. Auditor General, 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
47 48
standard and so was "protection of fish fry or fish eggs.

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
49
Secretary, by authority of the President, on October 15, 1987.

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
50
and the time, to provide the required direct and efficacious, not to say specific solutions.

51
Thus, in the case of Tablarin vs. Gutierrez, 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 Osmeña, 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
52
constitutionality of legislation should be adopted.

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.

53
Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld in Albay.

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.

54
In Albay, 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
55
approved by the President of the Philippines as required by P.D. No. 776. 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.1âwphi1

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
56
per kilowatt hour that took effect just over a week ago., 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,
57
1975 was already amended by P.D. No. 1931 , 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.1a\^/phi1 There 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
58
rates. 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
59
consumers if the NPC is to survive and continue to provide our power requirements. The greater interest of the
people must be paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-19707 August 17, 1967

PHILIPPINE ACETYLENE CO., INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF
TAX APPEALS, respondents.

CASTRO, J.:

The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. During the period
from June 2, 1953 to June 30, 1958, it made various sales of its products to the National Power Corporation, an agency
of the Philippine Government, and to the Voice of America an agency of the United States Government. The sales to
the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683, on account of which the respondent
Commission of Internal Revenue assessed against, and demanded from, the petitioner the payment of P12,910.60 as
deficiency sales tax and surcharge, pursuant to the following-provisions of the National Internal Revenue Code:

Sec. 186. Percentage tax on sales of other articles.—There shall be levied, assessed and collected once only
on every original sale, barter, exchange, and similar transaction either for nominal or valuable considerations,
intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-
four and one hundred and eighty-five 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: . . . .

Sec. 183. Payment of percentage taxes.—(a) In general.—It shall be the duty of every person conducting
business on which a percentage tax is imposed under this Title, to make a true and complete return of the
amount of his, her, or its gross monthly sales, receipts or earnings, or gross value of output actually removed
from the factory or mill warehouse and within twenty days after the end of each month, pay the tax due
thereon: Provided, That any person retiring from a business subject to the percentage tax shall notify the
nearest internal revenue officer thereof, file his return or declaration and pay the tax due thereon within twenty
days after closing his business.

If the percentage tax on any business is not paid within the time specified above, the amount of the tax shall be
increased by twenty-five per centum, the increment to be a part of the tax.

The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from
taxation. It asked for a reconsideration of the assessment and, failing to secure one, appealed to the Court of Tax
Appeals.

The court ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and
not on the buyer with the result that the "petitioner Philippine Acetylene Company, the manufacturer or producer of
oxygen and acetylene gases sold to the National Power Corporation, cannot claim exemption from the payment of
sales tax simply because its buyer — the National Power Corporation — is exempt from the payment of all taxes." With
respect to the sales made to the VOA, the court held that goods purchased by the American Government or its
agencies from manufacturers or producers are exempt from the payment of the sales tax under the agreement
between the Government of the Philippines and that of the United States, provided the purchases are supported by
certificates of exemption, and since purchases amounting to only P558, out of a total of P1,683, were not covered by
certificates of exemption, only the sales in the sum of P558 were subject to the payment of tax. Accordingly, the
assessment was revised and the petitioner's liability was reduced from P12,910.60, as assessed by the respondent
1
commission, to P12,812.16.

The petitioner appealed to this Court. Its position is that it is not liable for the payment of tax on the sales it made to the
NPC and the VOA because both entities are exempt from taxation.

2
The NPC enjoys tax exemption by virtue of an act of Congress which provides as follows:

Sec. 2. To facilitate the 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.

It is contended that the immunity thus given to the NPC would be impaired by the imposition of a tax on sales made to
it because while the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former.
The petitioner invokes in support of its position a 1954 opinion of the Secretary of Justice which ruled that the NPC is
exempt from the payment of all taxes "whether direct or indirect."

We begin with an analysis of the nature of the percentage (sales) tax imposed by section 186 of the Code. Is it a tax on
the producer or on the purchaser? Statutes of the type under consideration, which impose a tax on sales, have been
3
described as "act[s] with schizophrenic symptoms," as they apparently have two faces — one that of a vendor tax, the
other, a vendee tax. Fortunately for us the provisions of the Code throw some light on the problem. The Code states
4
that the sales tax "shall be paid by the manufacturer or producer," who must "make a true and complete return of the
amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the
5
factory or mill warehouse and within twenty days after the end of each month, pay the tax due thereon."

But it is argued that a sales tax is ultimately passed on to the purchaser, and that, so far as the purchaser is an entity
like the NPC which is exempt from the payment of "all taxes, except real property tax," the tax cannot be collected from
sales.

Many years ago, Mr. Justice Oliver Wendell Holmes expressed dissatisfaction with the use of the phrase "pass the tax
6
on." Writing the opinion of the U.S. Supreme Court in Lash's Products v. United States, he said: "The phrase 'passed
the tax on' is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser
does not really pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but
that is all. . . . The price is the sum total paid for the goods. The amount added because of the tax is paid to get the
goods and for nothing else. Therefore it is part of the price . . .".

It may indeed be that the incidence of the tax ultimately settles on the purchaser, but it is not for that reason alone that
one may validly argue that it is a tax on the purchaser. The exemption granted to the NPC may be likened to the
immunity of the Federal Government from state taxation and vice versa in the federal system of government of the
7
United States. In the early case of Panhandle Oil Co. v. Mississippi the doctrine of intergovernment mental tax
immunity was held as prohibiting the imposition of a tax on sales of gasoline made to the Federal Government. Said
the Supreme court of the United States:

A charge at the prescribed. rate is made on account of every gallon acquired by the United States. It is
immaterial that the seller and not the purchaser is required to report and make payment to the state. Sale and
purchase constitute a transaction by which the tax is measured and on which the burden rests. . . . The
necessary operation of these enactments when so construed is directly to retard, impede and burden the
exertion by the United States, of its constitutional powers to operate the fleet and hospital. . . . To use the
number of gallons sold the United States as a measure of the privilege tax is in substance and legal effect to
tax the sale. . . . And that is to tax the United States — to exact tribute on its transactions and apply the same
to the support of the state.1äwphï1.ñët

Justice Holmes did not agree. In a powerful dissent joined by Justices Brandeis and Stone, he said:

If the plaintiff in error had paid the tax and added it to the price the government would have nothing to say. It
could take the gasoline or leave it but it could not require the seller to abate his charge even if it had been
arbitrarily increased in the hope of getting more from the government than could be got from the public at large.
. . . It does not appear that the government would have refused to pay a price that included the tax if
demanded, but if the government had refused it would not have exonerated the seller. . . .

. . . I am not aware that the President, the Members of the Congress, the Judiciary or to come nearer to the
case at hand, the Coast Guard or the officials of the Veterans' Hospital [to which the sales were made],
because they are instrumentalities of government and cannot function naked and unfed, hitherto have been
held entitled to have their bills for food and clothing cut down so far as their butchers and tailors have been
taxed on their sales; and I had not supposed that the butchers and tailors could omit from their tax returns all
receipts from the large class of customers to which I have referred. The question of interference with
Government, I repeat, is one of reasonableness and degree and it seems to me that the interference in this
case is too remote.

But time was not long in coming to confirm the soundness of Holmes' position. Soon it became obvious that to test the
constitutionality of a statute by determining the party on which the legal incidence of the tax fell was an unsatisfactory
way of doing things. The fall of the bastion was signalled by Chief Justice Hughes' statement inJames v. Dravo
8
Constructing Co. that "These cases [referring to Panhandle and Indian Motorcycle Co. v. United States, 283 U.S. 570
(1931)] have been distinguished and must be deemed to be limited to their particular facts."

9
In 1941, Alabama v. King & Boozer held that the constitutional immunity of the United States from state taxation was
not infringed by the imposition of a state sales tax with which the seller was chargeable but which he was required to
collect from the buyer, in respect of materials purchased by a contractor with the United States on a cost-plus basis for
use in carrying out its contract, despite the fact that the economic burden of the tax was borne by the United States.

The asserted right of the one to be free of taxation by the other does not spell immunity from paying the added
costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted
no tax immunity. So far as a different view has prevailed, see Panhandle Oil Co. v. Mississippi and Graves v.
Texas Co., supra, we think it no longer tenable.

Further inroads into the doctrine of Panhandle were made in 1943 when the U.S. Supreme Court held that immunity
from state regulation in the performance of governmental functions by Federal officers and agencies did not extend to
those who merely contracted to furnish supplies or render services to the government even though as a result of an
increase in the price of such supplies or services attributable to the state regulation, its ultimate effect may be to
10
impose an additional economic burden on the Government.
But if a complete turnabout from the rule announced in Panhandle was yet to be made, it was so made in 1952 inEsso
Standard Oil v. Evans11 which held that a contractor is not exempt from the payment of a state privilege tax on the
business of storing gasoline simply because the Federal Government with which it has a contract for the storage of
gasoline is immune from state taxation.

This tax was imposed because Esso stored gasoline. It is not . . . based on the worth of the government
property. Instead, the amount collected is graduated in accordance with the exercise of Esso's privilege to
engage in such operations; so it is not "on" the federal property. . . . Federal ownership of the fuel will not
immunize such a private contractor from the tax on storage. It may generally, as it did here, burden the United
States financially. But since James vs. Dravo Contracting Co., 302 U.S. 134, 151, 82 L. ed. 155, 167, 58 S. Ct.
12
208, 114 ALR 318, this has been no fatal flaw. . . .

We have determined the current status of the doctrine of intergovernmental tax immunity in the United States, by
showing the drift of the decisions following announcement of the original rule, to point up the that fact that even in those
cases where exemption from tax was sought on the ground of state immunity, the attempt has not met with success.

As Thomas Reed Powell noted in 1945 in reviewing the development of the doctrine:

Since the Dravo case settled that it does not matter that the economic burden of the gross receipts tax may be
shifted to the Government, it could hardly matter that the shift comes about by explicit agreement covering
taxes rather than by being absorbed in a higher contract price by bidders for a contract. The situation differed
from that in the Panhandle and similar cases in that they involved but two parties whereas here the transaction
was tripartite. These cases are condemned in so far as they rested on the economic ground of the ultimate
incidence of the burden being on the Government, but this condemnation still leaves open the question
whether either the state or the United States when acting in governmental matters may be made legally liable
to the other for a tax imposed on it as vendee.

The carefully chosen language of the Chief Justice keeps these cases from foreclosing the issue. . . . Yet at the
time it would have been a rash man who would find in this a dictum that a sales tax clearly on the Government
13
as purchaser is invalid or a dictum that Congress may immunize its contractors.

If a claim of exemption from sales tax based on state immunity cannot command assent, much less can a claim resting
on statutory grant.

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part
of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser.
The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less
the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still
the same, namely, that the purchaser does not pay the tax. He 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
14
nothing else.

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely
15
a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser.

We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the
manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense.
Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible.

II

This conclusion should dispose of the same issue with respect to sales made to the VOA, except that a claim is here
made that the exemption of such sales from taxation rests on stronger grounds. Even the Court of Tax Appeals
appears to share this view as is evident from the following portion of its decision:

With regard to petitioner's sales to the Voice of America, it appears that the petitioner and the respondent are
in agreement that the Voice of America is an agency of the United States Government and as such, all goods
purchased locally by it directly from manufacturers or producers are exempt from the payment of the sales tax
under the provisions of the agreement between the Government of the Philippines and the Government of the
United States, (See Commonwealth Act No. 733) provided such purchases are supported by serially numbered
Certificates of Tax Exemption issued by the vendee-agency, as required by General Circular No. V-41, dated
October 16, 1947. . . .

The circular referred to reads:

Goods purchased locally by U.S. civilian agencies directly from manufacturers, producers or importers shall be
exempt from the sales tax.

It was issued purportedly to implement the Agreement between the Republic of the Philippines and the United States of
16
America Concerning Military Bases, but we find nothing in the language of the Agreement to warrant the general
exemption granted by that circular.
The pertinent provisions of the Agreement read:

ARTICLE V. — Exemption from Customs and Other Duties

No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies
or goods, including food stores and clothing, for exclusive use in the construction, maintenance, operation or
defense of the bases, consigned to, or destined for, the United States authorities and certified by them to be for
such purposes.

ARTICLE XVIII.—Sales and Services Within the Bases

1. It is mutually agreed that the United States Shall have the right to establish on bases, free of all licenses;
fees; sales, excise or other taxes, or imposts; Government agencies, including concessions, such as sales
commissaries and post exchanges, messes and social clubs, for the exclusive use of the United States military
forces and authorized civilian personnel and their families. The merchandise or services sold or dispensed by
such agencies shall be free of all taxes, duties and inspection by the Philippine authorities. . . .

Thus only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a
word, only sales to the quartermaster, are exempt under article V from taxation. Sales of goods to any other party even
if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are
not free from the payment of the tax.

On the other hand, article XVIII exempts from the payment of the tax sales made within the base by (not sales to)
commissaries and the like in recognition of the principle that a sales tax is a tax on the seller and not on the purchaser.

It is a familiar learning in the American law of taxation that tax exemption must be strictly construed and that the
exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that
17
such was the intention of the parties. Hence, in so far as the circular of the Bureau of Internal Revenue would give the
tax exemptions in the Agreement an expansive construction it is void.

We hold, therefore, that sales to the VOA are subject to the payment of percentage taxes under section 186 of the
Code. The petitioner is thus liable for P12,910.60, computed as follows:

Sales to NPC P145,866.70

Sales to VOA P 1,683.00

Total sales subject to tax P147,549.70

7% sales tax due thereon P 10,328.48

Add: 25% surcharge P 2,582.12

Total amount due and collectible P 12,910.60

Accordingly, the decision a quo is modified by ordering the petitioner to pay to the respondent Commission the amount
of P12,910.60 as sales tax and surcharge, with costs against the petitioner.

Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ., concur.

Concepcion, C.J., and Dizon, J., took no part.

 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. Nos. L-22805 & L-27858 June 30, 1975

WONDER MECHANICAL ENGINEERING CORPORATION represented by Mr. LUCIO QUIJANO, President &
General Manager, petitioner, vs. THE HON. COURT OF TAX APPEALS and THE BUREAU OF INTERNAL
REVENUE BEING REPRESENTED BY THE COMMISSIONER OF INTERNAL REVENUE, respondents.

ESGUERRA, J.:

Two petitions for review of the decisions of the respondent Court of Tax Appeals in G.R. Nos. L-22805 and L-27858.
The first decision (L-22805) dismissed the appeal of petitioner Wonder Mechanical Engineering Corporation in C.T.A.
Case No. 1036, "for lack of jurisdiction, the same having been filed beyond the 30 day period prescribed in Section 11
of Republic Act No. 1125", and confirmed the decision of respondent Commissioner of Internal Revenue which
"assessed against petitioner the total amount of P69,699.56 as fixed taxes and sales and percentage taxes, inclusive
of the 25% surcharge for the years 1953-54". The second decision (L-27858) ordered the same petitioner to pay,
respondent Commissioner of Internal Revenue the amount of "P25,080.91 as deficiency sales and percentage taxes
from 1957 to June 30, 1960, inclusive of the 25% surcharge, plus costs", based on the common principal issue of
"whether or not the manufacture and sale of steel chairs, jeepney parts and other articles which are not machines for
making other products, and job orders done by petitioner come within the purview of the tax exemption granted it under
Republic Act Nos. 35 and 901."

Petitioner is a corporation which was granted tax exemption privilege under Republic Act 35 in respect to the
"manufacture of machines for making cigarette paper, pails, lead washers, rivets, nails, candies. chairs, etc.". The tax
exemption expired on May 30, 1951. On September 14, 1953, petitioner applied with the Secretary of Finance for
reinstatement of the exemption privilege under the provisions of R.A. 901 approved July 7, 1954, the reinstatement to
commence on June 20, 1953, the date Republic Act 901 took effect.

In G.R. No. L-22805, respondent Commissioner of Internal Revenue, sometime in 1955, caused the investigation of
petitioner for the purpose of ascertaining whether or not it had any tax liability. The findings of Revenue Examiner
Alfonso B. Camillo on September 30, 1955, stated "that during the years 1953 and 1954 the petitioner was engaged in
the business of manufacturing various articles, namely, auto spare parts, flourescent lamp shades, rice threshers, post
clips, radio screws, washers, electric irons, kerosene stoves and other articles; that it also engaged in business of
electroplating and in repair of machines; that although it was engaged in said business, it did not provide itself with the
proper privilege tax receipts as required by Section 182 of the Tax Code and did not pay the sales tax on its gross
sales of articles manufactured by it and the percentage tax due on the gross receipts of its electroplating and repair
business pursuant to Sections 183, 185, 186 and 191 of the same Code".

Based on the foregoing, respondent Commissioner of Internal Revenue assessed against petitioner on November 29,
1955, the total amount of P69,699.56 as fixed taxes and sales and percentage taxes, inclusive of the 25% surcharge,
as follows:

Sales and percentage taxes for

1953 and 1954 P55,719.65

25% surcharge 13,929.91

C-14 fixed tax (1953-1954) 20.00

C-4 (27) fixed tax (1954) 10.00

C-4 (37) fixed tax (1953-1954) 20.00

TOTAL P69.699.56

Respondent also suggested the payment of the amount of P3,300.00 as penalties in extrajudicial settlement of
petitioner's violations of Sections 182, 183, 185, 186 and 191 of the Tax Code and of the Bookkeeping Regulations (p.
25, B.I.R. rec.).

In G.R. No. L-27858, respondent Commissioner of Internal Revenue caused the investigation of petitioner for the
purpose of ascertaining its tax liability on August 10, 1960, as a result of which on December 7, 1960, Revenue
Examiner Pedro Cabigao reported that "petitioner had manufactured and sold steel chairs without paying the 30%
sales tax imposed by Section 185(c) of the Tax Code; accepted job orders without paying the 3% tax in gross receipts
imposed by Section 191 of the same Code; manufactured and sold other articles subject to 7% sales tax under Section
186 of the same Code but not covered by the tax exemption privilege; failed to register with the Bureau of Internal
Revenue books of accounts and sales invoices as required by the Bookkeeping Regulations; failed to indicate in the
sales invoices the Residence Certificate number of customers who purchased articles worth P50.00 or over, in violation
of the Bookkeeping Regulation; and failed to produce its books of accounts and business records for inspection and
examination when required to do so by the revenue examiner in violation of the Bookkeeping Regulations (pp. 17-18
B.I.R. rec.)".

Based on the foregoing, the respondent Commissioner of Internal Revenue on October 6, 1961, assessed against the
petitioner "the payment of P25,080.91 as deficiency percentage taxes and 25% surcharge for 1957 to 1960 and
suggested the payment of P5,020.00 as total compromise penalty in extrajudicial settlement of the various violations of
the Tax Code and Bookkeeping Regulation (pp. 28-29 B.I.R. rec.).1äwphï1.ñët "

Regarding the compromise penalty suggested by respondent Bureau of Internal Revenue in both G.R. L-22805 and L-
27858, it does not appear that petitioner accepted the imposition of the compromise amounts. Hence We find no
compelling reasons to alter the decision of respondent Court of Tax Appeals in L-27858 that —

With respect to the compromise penalty in the total amount of P5,020.00 suggested by respondent to
be paid by petitioner, it is now a well settled doctrine that compromise penalty cannot be imposed or
collected without the agreement or conformity of the tax payer (Collector of Internal Revenue vs.
University of Santo Tomas, et al., G.R. Nos. L-11274 & L-11280, November 28, 1958; the Collector of
Internal Revenue v. Bautista, et al., G.R. Nos. L-12250 & 12259, May 27, 1959; the Philippines
International Fair, Inc. v. Collector of Internal Revenue, G.R. Nos. L-12928 & L-12932, March 31,
1962). (Emphasis for emphasis)

Inasmuch as the figures appearing in the Bureau of Internal Revenue's tax delinquency assessments in both cases (L-
22805 and L-27858) are not in dispute, and the respondent Court of Tax Appeals ruled in its decision in G.R. No. L-
27858 on the lone issue presented in both cases that the tax assessment of "P25,080.91 as deficiency sales and
percentage taxes from 1957 to June 30, 1960" must be paid by petitioner as the sale of other manufactured items did
not come within the purview, of the tax exemption granted petitioner. We find it no longer necessary to make a definite
stand on the question raised in L-22805 as to the alleged error committed by respondent Court of Tax Appeals in
dismissing the appeal in C.T.A. 1036 (subject matter of L-22805) for lack of jurisdiction, the same having been filed
beyond the 30-day period prescribed in Section 11 of Republic Act 1126. Suffice it to say on that issue that appellants
must perfect their appeal from the decision of the Commissioner of Internal Revenue to the Court of Tax Appeals within
the statutory period of 30 days, otherwise said Court acquires no jurisdiction.

We turn Our attention on the vital issue of tax exemption claimed by petitioner as basis for questioning the tax
assessments made by respondent Bureau of Internal Revenue in both cases (G.R. L-22805 and 27858). There is no
doubt that petitioner was given a Certificate of Tax Exemption By the Secretary of Finance on July 7,1954, as follows:

Be it known that upon application filed by Wonder Mechanical Engineering Corporation, 1310 M.
Hizon, Sta. Cruz, Manila, in respect to the manufacture of machines for making cigarette paper, pails,
lead washers, nails, rivets, candies, etc., the said industry/industries have been determined to be new
and necessary under the provisions of Republic Act No. 901 (or of Republic Act No. 35), in view of
which this Certificate of Tax Exemption has been issued entitling the abovenamed firm/person to tax
exemption from the payment of taxes directly payable by it/him in respect to the said industry/industries
until December 31, 1958, and thereafter to a diminishing exemption until June 20, 1959, as provided in
section 1 of Republic Act No. 901, except the exemption from the income tax which will wholly
terminate on June 20, 1955 (B.I.R. rec., page 13). (Emphasis for emphasis)

Republic Act 35, approved on September 30, 1946, grants to persons "who or which shall engage in a new and
necessary industry", for a period of four years from the date of the organization of such industry, exemption "from the
payment of all internal revenue taxes directly payable by such person". Republic Act 901, approved on June 20, 1953,
which amended Republic Act 35 by extending the period of tax exemption, elaborated on the meaning of "new and
necessary industry" as follows:

Sec. 2. For the purposes of this Act, a "new industry is one not existing or operating on a commercial
scale prior to January first, nineteen hundred and forty-five. Where several applications for
exemptionare filed in connection with the same kind of industry, the Secretary of Finance shall approve
them in the order in which they have been filed until the total output or production of those already
granted exemption for that particular kind of industry is sufficient to meet local demand or
consumption:Provided, That the limitation shall not apply to products intended for export. (Emphasis
for emphasis)

Sec. 3. For the purposes of this Act, a "necessary" industry is one complying with the following
requirements:

(1) Where the establishment of the industry will contribute to the attainment of a stable
and balanced national economy.

(2) Where the industry will operate on a commercial scale in conformity with up-to-date
practices and will make its products available to the general public in quantities and at
prices which justify its operation with a reasonable degree of permanency.

(3) Where the imported raw materials represent a value not exceeding sixty percentum
of the manufacturing cost plus reasonable selling price and administrative
 expenses:Provided, That a grantee of tax exemption shall use materials of domestic
origin, growth, or manufacture wherever the same are available or could be made
available in reasonable quantity and quality and at reasonable prices. ... (Emphasis for
emphasis) .

From the above-quoted provisions of the law, it is clear that an industry to be entitled to tax exemption must be "new
and necessary" and that the tax exemption was granted to new and necessary industries as an incentive to greater and
adequate production of products made scarce by the second world war which wrought havoc on our national economy,
a production "sufficient to meet local demand or consumption"; that will contribute "to the attainment of a stable and
balanced national economy"; an industry that "will make its products available to the general public in quantities and at
prices which will justify its operation."

Viewed in the light of the foregoing reasons for the State grant of tax exemption, We are firmly convinced that petitioner
was granted tax exemption in the manufacture and sale "of machines for making cigarette paper, pails, lead washers,
nails, rivets, candies, etc.", as explicitly stated in the Certificate of Exemption (Annex A of the petition in G.R. No. L-
22805), but certainly not for the manufacture and sale of the articles produced by those machines.

That such was the intention of the State when it granted tax exemption to the petitioner in the manufacture
ofmachines for making certain products could be deduced from the following:

Before the approval of the original grant of tax exemption to Petitioner for engaging in a new and
necessary industry under Republic Act No. 35, the then Secretary of Finance submitted a
memorandum to the Cabinet, dated March 3, 1949, the pertinent portions of which read as follows:

"... If (petitioner) turns out machines whenever orders therefore are received. Among
its products are a medicine tablet wrapping machine for Dr. Agustin Liboro,
photographs of which are attached, a loud speaker for the Manila Supply, and a
"Lompia wrapping"machine for a certain Chinese. ...

The manufacture of the above-mentioned machines can be considered a new and

necessary industry for the purpose of Republic Act No. 35. It is recommended that the
benefits of said Act be extended to this corporation in respect to said industry.

Respectfully submitted:
(SGD.) PIO PEDROSA
Secretary"

The letter of the Executive Secretary to the petitioner dated May 30, 1949, reads as follows:

"Sirs:

I have the honor to advise you that His Excellency, the President, has today, upon recommendation of
the Honorable, the Secretary of Finance, approved your application for exemption from the payment of
internal revenue taxes on your business of manufacturing machines for making a number of products,
such as cigarette paper, pails, lead washers, rivets, nails, candies, chairs, etc., under the provisions of
Section 2 of Republic Act No. 35.

Very respectfully,
(SGD.) TEODORO EVANGELISTA
Executive Secretary"
(Emphasis for emphasis)

Aside from the clarity of the State's intention in granting tax exemption to petitioner in so far as it manufactures
machines for making certain products, as manifested in the acts of its duly authorized representatives in the Executive
branch of the government, it is quite difficult for Us to believe that the manufacture of steel chairs, jeep parts, and other
articles not constituting machines for making certain products would fall under the classification of "new and necessary"
industries envisioned in Republic Acts 35 and 901 as to entitle the petitioner to tax exemption.

There is no way to dispute the "cardinal rule in taxation that exemptions therefrom are highly disfavored in law and he
who claims tax exemption must be able to justify his claim or right thereto by the dearest grant of organic or statute law"
as succinctly stated in the decision of the respondent Court of Tax Appeals in C.T.A. No. 1265 (L-27858).1äwphï1.ñët

Tax exemption must be clearly expressed and cannot be established by implication. Exemption from a common burden
cannot be permitted to exist upon vague implication. (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; House vs.
Posadas, 53 Phil. 338; Collector of Internal Revenue vs. Manila Jockey Club, Inc., G.R. No. L-8755, March 23, 1956,
98 Phil. 676).

WHEREFORE, the decisions of respondent Court of Tax Appeals in these two cases are affirmed. Costs against the
petitioner in both cases.

Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-26686 & L-26698 October 30, 1980

ATLAS FERTILIZER CORPORATION, petitioner, vs. COMMISSION OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents;

DE CASTRO, J.:

These two (2) cases are appeals by way of certiorari from the decision dated August 24, 1966 of the Court of Tax
Appeals granting Atlas Fertilizer Corporation a tax credit in the sum of P81,899.00 which may be applied by said
corporation in pay — of its outstanding and/or future liability for internal revenue taxes.

For the material facts, We could very well quote from the decision of the Court of Tax Appeals, the following.

Petitioner Atlas Fertilizer Corporation was formerly a department of Atlas Mining z Development
Corporation. The latter was granted by the Secretary of Finance a certificate of tax exemption under
Republic Act No. 901 as a new and necessary industry for engaging in the manufacture of fertilizer
namely, sulphuric acid, phosphoric acid, superphosphate, triple superphosphate and sun the tax
exemption privileges of Atlas Consolidated Mining and Development Corporation were later transferred
to the petitioner under the written authority of the Department of Finance dated November 27, 1957.
During the period from June 26, 1961 to October 24, 1962, petitioner imported raw materials,
equipment, spare parts, containers and other supplies on which it paid one-half or 60% of the
compensating taxes due thereon (Exhs. 1 and G, pp. 98-100, BIR rec.).

While petitioner was still enjoying partial tax exemption of 50% as a new and necessary industry under
Republic Act No. 901, Republic Act No. 3050, which took effect on June 17, 1961, granted tax
exemption to any person, partnership, company or corporation engaged or which shall engage in the
manufacture of of whatever nature from the payment, among others, of compensating taxes on their
importation of capital goods, equipment, snare raw materials, supplies containers and fuel To
implement z Republic Act No. 3050, the Department of Finance issued Department Order No. 105,
dated September 15, 1961, which provides, among others, as follows:

Any ... corporation ... which shall engage in the manufacture of fertilizer and desiring to enjoy the
privileges grandted under the provisions of Republic Act No. 3050 may file its application therefore with
the Secretary of Finance.

Fertilizer manufacturer ... which are granted tax exemption under Republic Act No. should likewise file
appellant com/implications for tax exemption under Republic Act No. 3050, indicating therein, among
other things, that the applicant waives the benefits of tax exemption authorized under Republic Act No.
3127.

In compliance with the above regulation, petitioner filed on January 25, 1962 with the Department of
Finance an application for tax exemption under the provisions of Republic Act No. 3050, which
application was approved by the Secretary of Finance on February 19, 1962. The tax exemption
granted by the said official to petitioner was made retroactive commencing on June 17, 1961, the date
of the effectivity of Republic Act No. 3050 (pp. 93-94, BIR rec.).

On the basis of the tax exemption granted by the Secretary of Finance under Republic Act No. 3050,
petitioner filed with responded on June 21, 1963 a claim for tax at of the compensating taxes
amounting to P 83,629.00 which petitioner allegedly paid to the Bureau of Customs on petitioner's
importations of tax exempt goods, equipment, materials and supplies during the period from June 26,
1961 to October 24, 1962 (pp. 88-90, BIR rec.). On June 22, 1963, the day after petitioner had filed its
for tax credit with respondent, petitioner filed a petition for review with this Court seek an order to
compel respondent to issue the corresponding letter of tax credit.

During the pendency of this case, petitioner's claim for tax credit of P 83,629.00 filed with respondent
was referred on June 26, 1963 to the Regional Director of Manila, BIR Regional District No. 3, for
investigation, report and recommendation. On July 15, 1963, the case was assigned to Revenue
Examiner Benjamin Fernandez. Shortly thereafter, the Manila Regional Office (District No. 3) was
divided into two (2) districts — North Manila and South Manila (District Nos. 5 and 6). As a
consequence thereof and the confusion which ensued as a result of the sorting and transfer of revenue
dockets and records, allocation and assignment of personnel, and the division and transfer of supplies,
equipment and furniture, the papers bearing on the tax credit of petitioner were misplaced. It was only
on January 25, 1965 when the investigating examiner submitted his report and recommended therein
that petitioner be granted a tax credit of P76,935.00, instead of P83, 629.00 as because the
importations and payment of the compensating taxes under Item Nos. 1, 17, 35, 50, 58, 61, 62, 64, 65,
67 and 68 were not supported with import entry declarations and receipts of tax payment
After hearing, the Court of Tax Appeals rendered its decision on August 24, 1966 from which both parties have
appealed to this Court.

In his appeal, the Commissioner of Internal Revenue (Commission Commissioner for short) assigns the following
errors:

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONER NEED NOT PROVE
THAT THE RAW MATERIALS, EQUIPMENT, SPARE PARTS, CONTAINERS AND OTHER
SUPPLIES IT IMPORTED WERE USED BY IT IN THE MANUFACTURE OF FERTILIZER TO BE
ENTITLED TO TAX EXEMPTION UNDER REPUBLIC ACT NO. 3050.

II

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT IT IS INCUMBENT UPON

RESPONDENT TO PROVE THAT THE IMPORTATIONS IN QUESTION WERE NOT USED BY THE
PETITIONER IN THE MANUFACTURE OF FERTILIZER NOTWITHSTANDING THE FACT THAT
THERE WAS ABSOLUTELY NO EVIDENCE INTRODUCED BY PETITIONER SHOWING THAT THE
SAID IMPORTATIONS WERE USED BY IT IN THE MANUFACTURE OF FERTILIZER.

III

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONER NEED NOT PROVE
THAT IT HAD PREVIOUSLY SECURED A SPECIFIC AUTHORITY FROM THE SECRETARY OF
FINANCE TO IMPORT THE GOODS IN QUESTION AS A PREREQUISITE FOR THE ENJOYMENT
OF ITS RIGHT TO TAX EXEMPTION UNDER REPUBLIC ACT NO. 3050.

IV

THE COURT OF FAX APPEALS ERRED IN HOLDING THAT THE PETITIONER HAS IN EFFECT
ABANDONED AND GIVEN UP ITS PARTIAL EXEMPTION PRIVILEGE UNDER REPUBLIC ACT NO.
901 BY SEEKING TO APPLY ITS TAX EXEMPTION UNDER REPUBLIC ACT NO. 3050.

THE COURT OF TAX APPEALS ERRED IN ORDERING RESPONDENT TO GRANT PETITIONER A

TAX CREDIT OF P81,899.00 IN SPITE OF THE FACT THAT PETITIONER IS NOT ENTITLED
THERETO.

On the other hand, Atlas Fertilizer Corporation (AFC for short), as appellant has also assigned the following errors:

THE COURT OF TAX APPEALS ERRED IN DENYING THE AWARD OF INTEREST TO THE
PETITIONER ON THE AMOUNT OF P81,899.00 FOUND TO BE DUE AS TAX CREDIT IN FAVOR
OF PETITIONER.

II

THE COURT OF TAX APPEALS ERRED IN CONCLUDING INCLUDING THAT PETITIONER FILED
ITS CLAIM FOR TAX CREDIT QUITE LATE OR ALMOST TWO YEARS FROM THE FIRST
PAYMENT OF THE COMPENSATING TAX AND EIGHT MONTHS FROM THE LAST PAYMENT
THEREOF.

III

THE COURT OF TAX APPEALS ERRED IN CONCLUDING INCLUDING THAT THE DELAY IN
PROCESSING THE CLAIM FOR TAX CREDIT WAS NOT PREMEDITATED AND INTENTIONAL BUT
CAUSED BY CIRCUMSTANCES BEYOND THE CONTROL OF RESPONDENT.

IV

THE COURT OF TAX APPEALS ERRED IN APPLYING THE EXISTING DOCTRINE THAT
INTEREST ON REFUND (OR TAX CREDIT) IS AWARDED ONLY WHERE COLLECTIVE TION OF
THE TAXES WAS ATTENDED WITH ARBITRARINESS.
 V

THE COURT OF TAX APPEALS ERRED IN NOT APPLYING THE APPLICABLE PROVISIONS OF
THE NEW CIVIL CODE, NAMELY, ARTICLES 2154, 2155 AND 2209, GOVERNMENT ING THE
RETURN OF PAYMENT'S BY REASON OF MISTAKE AND THE AWARD OF INTEREST WHEN THE
OBLIGOR INCURS DELAY.

Appeal by the Commissioner

The pertinent section upon which AFC based its claim for exemption reads:

Sec. 1. Notwithstanding any provisions of law to the contrary, subject to the conditions hereinafter
provided, any person, partnership, company or corporation engaged or which shall engage in the
manufacture of fertilizer of whatever nature be entitled to exemption until December 31, 1965 from the
payment of special port tax, margin fee on foreign exchange, sales and compensating taxes and
customs duties payable by such person, partnership, company or corporation, in respect to the
importation of capital goods, equipment, spare parts, raw materials, supplies, containers and fuel by
1
any of those engaged in the above industry, ...

Anent the first and second assignment of errors, the Commission Commissioner points out that it is well settled that
exemptions are strictly construed and are never presumed. And the burden of proof is on the claimant to establish
clearly his right to exempt Being an essential and indispensable requisite for the enjoyment of its tax exemption, the
fact that the AFC used the goods for the manufacture of fertilizer must be shown by it.

In refutation to the above contention, AFC claims that since the Secretary of Finance, on February 19, 1962, approved
its application for tax exemption under R.A. 3050, it may be assumed that among the matters considered by the
Secretary of Finance in processing the claim for exemption was the fact of actual use for the manufacture of fertilizer by
AFC of the importations made. It is, therefore, the position of AFC that the certificate of exemption granted by the
Secretary of Finance was sufficient proof that it used the imported articles in the manufacture of fertilizer.

That the burden of proof is on the claimant to establish his right to exemption cannot be gainsaid. In the instant case,
however, We feel that AFC need not adduce further evidence to show that it is entitled to exemption. It is to be
observed that there is no dispute that AFC is engaged in the manufacturing capture of fertilizer, as the very name of
AFC suggests the nature of its business. It is also pertinent to state that when R. A. 3050 took effect, AFC was already
enjoying partial exemption under R.A. 901 as a new and necessary industry engaged in the manufacture of fertilizer.
Furthermore, when the Secretary of Finance, on February 19, 1962, approved AFC's application for tax exemption
under R. A. 3050, We believe that he already considered that the importations were needed by AFC for the
manufacture of fertilizer. This may be inferred from the fact that before the Secretary of Finance approves an
application, he requires applicants to submit an application which "shall be in the form prescribed by the Secretary of
Finance and contain detailed and complete information caged for in such form. It shall contain a complete of raw
materials, supplies, con- re/containers, and fuel needed and for the exclusive use in the manufacture of fertilizer. There
shall be attached to the appellant com/implication a firm quotation of the complete machinery equipment and spare
parts thereof needed by and for the exclusive use of the applicant in the manufacture of fertilizer. The appellant
2
com/implication shall be sworn to before a notary public and filed in quadruplicate. Likewise, since it is presumed that
3
official duty has been regularly performed it can be assumed that the Secretary of Finance in approving the
application, was satisfied that those importations were not only needed for exclusive use in the manufacture of fertilizer
but that they were actually used therefor, for otherwise, the Secretary would have not approved the application.

We, therefore, agree with the position of AFC that the certiorari certificate of exemption granted by the Secretary of
Finance on February 19, 1962 was sufficient proof that it used the importations in question in the manufacture of
fertilizer. This is bolstered by the fact that the certificate of exemption was granted after the imported goods have
already arrived.

The Commissioner also argues that AFC failed to secure first an authority from the Secretary of Finance to import the
goods which AFC wanted to be exempt from tax before said goods were actually imported. According to the
Commissioner, such an authority is a prerequisite for the enjoyment of tax exemption, since in the letter of the
Secretary of Finance dated February 19, 1962 granting AFC tax exemption under R.A. 3050, the Secretary stated:

As a bonafide fertilizer manufacturer under the provisions of the aforesaid Act, you are entitled to
exemption from the payment of the special import tax, margin fee on foreign exchange, sales and
compensating taxes, and customs duties directly payable by you in respect to the importation of capital
goods, equipment spare part. run materials, supplies, containers and fuel which this office may
specifically authorize until December 31, 1965 unless sooner let/lat/after terminated for failure to
comply with the requirements of the law and existing regulations.

Indeed, it would be illogical for the AFC to produce the acquired specific authority to import because when the tax
exemption was granted on February 19, 1962, sixty-one (61) of the imported goods have already arrived, and the AFC
has paid the corresponding compensating taxes pursuant P. A. 901 granting manufacturer of fertilizer partial exemption
from payment of compensating taxes. With respect to the seven (7) importation which arrived after the grant of
exemption, it should be noted that AFC was able to withdraw them from customs custody. We must not lose sight of
the fact that before goods may be withdrawn from customs custody, it is necessary that "a true or photostat copy of the
letter-grant authorizing the tax-free importation of the articles applied to be withdrawn from customs custody" be
presented, pursuant to paragraph of the implementing rules and regulations which is Department Order No. 105-
4
A issued by the Secretary of Finance. Since AFC has successfully withdrawn all the seven (7) imported articles from
customs custody, after payment of the compensating taxes, it may be inferred that AFC has complied with the above
provision of Department Order No. 105-A — to produce AFC's authority to import.

On the fourth issue, the Commissioner contends that respondent court erred in ruling that AFC, by seeking to avail of
its exemption under R. A. No. 3050, has in effect abandoned and given up its partial exemption privilege under R.A.
No. 901. According to the Commissioner, AFC could not have abandoned or given up its exemption under R. A. No.
901 because it has already applied the same to the importations involved herein, and that one cannot abandon or give
up what he has already taken advantage of Furthermore, tax exemptions under R.A. 901 and R.A. 3050 cannot be
enjoyed simultaneous simultaneously.

The Commissioner's contention is without merit. Department, Order No. 105 issued by the Secretary of Finance
expressly directed fertilizer manufacturers enjoying benefits under R.A. No. 901 to likewise apply for the benefits of
R.A. No. 3050. Said Department Order No. 105 provides:

Fertilizer manufacturers who or which are granted tax exempt under R. A. No. 901 should likewise file
applications for tax exemption under R. A. No. 3050. ...

In compliance with said directive, AFC filed its application for total exemption under R. A. No. 3050 which was granted
by the Secretary of Finance. The Commissioner's argument that AFC enjoyed simultaneous exemption under R. A. No.
901 and R. A. No. 3050, is without factual basis. R. A. No. 901 grants partial exemption while R. A. 3050 grants total
exemption. Once a manufacturer of fertilizer chose to come under R. A. 3050, his partial exemption under R. A. 901
ceased. In effect, he enjoyed only one exemption benefit, the full exemption under R. A. No. 3050. As correctly ruled by
the respondent court, when AFC availed of the total exemption under R. A. No. 3050, it has in effect given up the
partial exemption which it was enjoying under R. A. No. 901.

Appeal by AFC

The assignment of errors of AFC may be synthesized to the sole issue as to whether or not the Government is liable for
the payment of interest on refunds (on tax credit) of taxes erroneously or illegally paid to it on the ground that the
commission Commissioner is guilty of unjust and unreasonable delay in performing an obligation of the Government .

AFC points out that the Commissioner received the claim for tax credit on June 21, 1963 but it was only on January 11,
1965 or more than eighteen (18) months later that a BIR examiner came to the premises of the taxpayer to investigate
the claim. In other words, the Commissioner did not act on the claim of AFC and this inaction is the essence of the
delay incur red by the Commissioner in the performance of an obligation which entitled AFC to reparation in the form of
interest payment.

On the alleged delay, the Commissioner in his brief explaining the following:

The records of this case show that petitioner's claim for tax credit was received by the Records Control
Section of the Bureau of Internal Revenue on June 21, 1963 (Memorandum for Petitioner, STA Case
No. 1410, p. 2, p. 121 STA par. 5 of Answer, CTA Case No. 1410, P. 14 STA and was received by the
Appellate Division of the said Bureau which processes claims of that nature on June 25, 1963. The
following day, or on June 26, 1963, the said claim was indorsed to then BIR Regional District No. 3,
Manila, for investigation and report and, on the same date, petitioner was duly notified of the said
indorsement. (Exh. D, p. 101, CTA rec.).

However, shortly after the claim for tax credit was referred to Regional District No. 3 for investigation
and report, the said district was divided into two districts to become Regional District Nos. 5 and 6.

As a consequence of the division, revenue dockets and records then handled by Region No. 3 had to
be sorted and apportioned between the two new districts. Office supplies, equipment and furniture
were likewise divided and transferred and personnel had to be allocated and assigned to each of the
new districts. Unfortunately, in the process, the papers bearing on petitioner's claim for tax credit was
misplaced.

This was discovered when the report previously requested on the said claim was called up in a
memorandum of the Deputy Com- Commissioner dated Nov. 23, 1964. As the fieldmen of the Bureau
of In- internal Revenue are grounded during the month of December of each year, the investigation
could not be immediately undertaken after the said call-up but had to wait until January. On January
27, 1965, the desired report contained in an indorsement dated January 25, 1965 was submitted (Exh.
1, supra).

Finding the above explanation meritorious, We agree with respondent court that the delay in processing the claim of
AFC for tax credit was neither premeditated nor intentional. The Commissioner did not sit on the claim of AFC. If there
was any delay, it was due to the splitting into two (2) districts of Regional District No. 3 where the claim was filed, as a
result of which the documents requesting for refund was misplaced. But the more important consideration is the when
settled rule that in the absence of a statutory provision clearly or expressly directing or authorizing payment of interest
5
on the amount to be refunded to taxpayer, the Government cannot be acquired to pay interest. Likewise, it is the rule
that interest may be awarded only when the collection of tax sought to be refunded was attended with
 6
arbitrariness. Such circumstance is not present in the case at bar as the payment of compensation taxes in question
was made freely and voluntarily and conformably with the partial exemption granted by Republic Act No. 901.

WHEREFORE, judgment is hereby rendered affirmed the decision of the Court of Tax Appeals. Without special pro-
announcement as to cost.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-20960-61 October 31, 1968

COMMlSSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners-appellants, vs.

PHILIPPINE ACE LINES, INC., respondent-appellee.

ANGELES, J.:

On appeal by the Government from the decision — rendered jointly in Tax Cases Nos. 964 & 984 — of the Court of
Tax Appeals, reversing the rulings of the Commissioner of Internal Revenue holding the Philippine Ace Lines, Inc.
liable to pay the aggregate amount of P1,407,724.57 as compensating taxes on four (4) ocean-going cargo vessels
acquired by said company from the Reparations Commission of the Philippines, and of the Commissioner of Customs
to place the four vessels under customs custody until the aforementioned amount claimed by the Government was first
paid.

The antecedent facts of the case are not in dispute and may be summarized briefly as follows:

Under date of January 23, 1959, the Reparations Commission agreed to sell to the Philippine Ace Lines the cargo
vessel M/S YAKAL and M/S MOLAVE which were procured by the former from Japan for the end-use of the latter
under the Philippine- Japanese Reparations Agreement of May 9, 1956, at the agreed prices of P4,283,241.48 and
P4,292,457.48, respectively. Similar agreements involving two (2) other ocean-going cargo vessels were subsequently
entered into by and between the same parties: one, dated November 11, 1959, referring to the purchase and sale of
M/S TINDALO for the price of P7,054.177.78 and, the other, concerning the purchase and sale of M/S NARRA under
date of December 14, 1959, for the price of P3,599,995.44. All these agreements — invariably denominated as
"Contract of Conditional Purchase and Sale of Reparations Goods" — stipulated, among others, that the Reparations
Commission retains title and ownership of the above-described vessels until they were fully paid for and that the
purchase prices of the vessels were to be paid by Philippine Ace Lines to the Reparations Commission under deferred
payment plans in ten (10) equal annual installments.

The four (4) vessels referred to were thereafter delivered to Philippine Ace Lines in Japan; they were taken to the
Philippines where they were registered in the Bureau of Customs in the name of the Reparations Commission; and
thereafter, the vessels were operated and utilized by Philippine Ace Lines in its shipping business, plying between ports
of foreign countries and the Philippines.

Sometime later, however, the Commissioner of Internal Revenue assessed against the Philippine Ace lines the
amounts of P304,428.00, P256,275.00, P499,948.10 and P305.073.47 as compensating taxes on the M/S YAKAL, M/S
NARRA, M/S TINDALO and M/S MOLAVE, respectively, and demanded payment of the said amounts. The
Commisioner of Customs, joining the Commissioner of Internal Revenue, then placed the vessels under customs
custody at the different ports of the Philippines where they were found at the time, and refused to give due course to
the "clearance" of said vessels as requested by their respective owner and operator — Reparations Commission and
Philippine Ace Lines — unless the compensating taxes assessed against the latter were first paid to the Commissioner
of Internal Revenue. Philippine Ace Lines protested said actions of the Commissioners of Internal Revenue and of
Customs, alleging that the legal title and ownership of the vessels operated by it were still vested with the Reparations
1
Commission which, under Section 14 of the Reparations Act, was exempt from payment of all duties, fees and taxes
on all reparations goods obtained by it; but the said officials rejected the protest and ruled that the compensating taxes
should first be paid, per directive to that effect by the Secretary of Finance. Subsequent protests — calling the attention
of the Commissioner of Internal Revenue and the Commissioner of Customs to the substantial loss and irreparable
injury it has suffered by the tying up of the four ships in port — also proved futile. Offshoots of the controversy,
Philippine Ace Lines interposed two (2) separate appeals (petitions for review) from the above rulings or decisions of
the Commissioner of Internal Revenue and the Commissioner of Customs, to the Court of Tax Appeals where they
were docketed as C.T.A. Case No. 964, involving M/S YAKAL and M/S NARRA, and C.T.A. Case No. 984, concerning
M/S TINDALO and M/S MOLAVE.

While the cases were pending trial, Philippine Ace Lines petitioned the court a quo to enjoin the collection of the
compensating tax assessed against it and after hearing, writs of preliminary injunction were issued upon the filing of
surety bonds to guarantee payment of the amounts claimed.

In the meantime, Congress enacted Republic Act No. 3079 (effective June 17, 1961) which amended Republic Act No.
1789, otherwise known as the Reparations Act, and provided as follows:

SEC. 14. Exemption from tax. — All reparations goods obtained by the Government shall be exempt from the
payment of all duties, fees and taxes. Reparations goods obtained by private parties shall be exempt from the
payment of customs duties, compensating tax, consular fees and the special import tax.

xxx xxx xxx

SEC. 20. This Act shall take effect upon its approval, except that the amendment contained in section seven
hereof relating to the requirements for procurement orders including the requirement of downpayment by
 private applicant end-users shall not apply to procurement orders already duly issued and verified at the time of
the passage of this amendatory Act, and except further that the amendment contained in section ten relating to
the insurance of the reparations goods by the end-users upon delivery shall apply also to goods covered by
contracts already entered into by the Commission and the end-user prior to the approval of this amendatory
Act as well as goods already delivered to the end-user, and except further that the amendments contained in
sections eleven and twelve hereof relating to the terms of the installment payments on capital goods disposed
of to private parties, and the execution of a performance bond before delivery of reparations goods, shall not
apply to contract for the utilization of reparations goods already entered into by the Commission and the end-
users prior to the approval of thisamendatory Act: Provided, That any end-user may apply the renovation of his
utilization contract with the commission in order to avail of any provision of this amendatory Act which is more
favorable to an applicant end-user than has heretofore been granted in like manner and to the same extent as
an end-user filing his application after the approval of this amendatory Act, and the Commission may agree to
such renovation on condition that the end-user shall voluntarily assume all the new obligations provided for in
this amendatory Act. [Emphasis supplied]

Invoking the favorable provisions of the new law (Republic Act No. 3079, above quote Philippine Ace Lines then
entered into "Renovated Contract(s) of Conditional Purchase and Sale of Reparations Goods" with the Reparations
Commission, covering the four (4) cargo vessels. It had previously acquired from the latter under the Reparations Act.
Thereafter, the said company filed a "Supplement to the Petition for Review" in each of the above entitled cases before
the Court of Tax Appeals, submitting therewith copies of the said renovated contracts it had entered with the
Reparations Commission regarding the purchase and sale of M/S MOLAVE, M/S TINDALO, M/S YAKAL and M/S
NARRA, with the allegation that "expressly implementing section 14 of Republic Act No. 3079 in the aforesaid
renovated contracts," the Reparations Commission and the Philippine Ace Lines have agreed as follows:

NOW THEREFORE, for and in consideration of the premises above stated and of the payments to be made by
the herein Conditional Vendee as stipulated in Annex "B" hereof which is made an integral part of this contract,
the parties herein agree to execute this renovation of contract of Conditional Purchase and Sale and the
Conditional Vendor hereby transfers and conveys unto the herein Conditional Vendee the ocean-going vessels
above-described ...; subject further to the pertinent provisions of Republic Act No. 1789 as amended, including
particularly the exempting provisions of Section 14 thereof relative to the exemption from payment of
compensating tax which the herein Conditional Vendee, as an implemented machinery, do hereby, by these
presents, implement. ...

In their "Answer to Supplement to Petition for Review" filed with the court below by counsel for the Commissioner of
Internal Revenue and the Commissioner of Customs, the foregoing allegation was admitted. They claimed, however,
that even if Philippine Ace Lines and the Reparations Commission have agreed to implement the provisions of Section
14 of Republic Act No. 1789, as amended by Republic Act No. 3079, in the "Renovated Contract of Conditional
Purchase and Sale of Reparations Goods" entered into between them, such implementation did not relieve the
Philippine Ace Lines from the payment of the compensating taxes in question. The parties thereafter submitted the
cases for decision upon a stipulation of facts containing, substantially, the facts as above set forth.

On January 25, 1963, the Court of Tax Appeals rendered a joint decision in the two cases, reversing the rulings of the
Commissioner of Internal Revenue and the Commissioner of Customs, in the following rationale:

The sole issue presented for our consideration is whether or not petitioner is liable for the compensating tax on
the four ocean-going vessels in question. Petitioner claims that it is not liable on the grounds that said vessels
are still owned by the Reparations Commission and that, assuming that it was liable therefor under Section 190
of the National Internal Revenue Code, in relation to Section 14 of Republic Act 1789 before its amendment, it
is now exempt from said tax by virtue of Section 20 of Republic Act No. 3079 in relation to Section 14 of
Republic Act No. 1789, as amended. On the other hand, respondent claims that petitioner is liable and that the
latter's liability is not affected by the exemption provision of the new law.

xxx xxx xxx

The Government does not deny the fact that petitioner has complied with all the requirements of law in order
that it may avail itself of all the favorable provisions granted in Republic Act No. 3079. It is, however, contended
that the favorable provisions mentioned in Section 20 of said Act which may be availed of by an applicant for
renovation of his utilization contract with the Reparations Commission do not include exemption from
compensating tax because such exemption is not expressly stated in the law. In providing that the favorable
provisions of Republic Act No. 3079 shall be available to applicants for renovation of their utilization contracts,
on condition that said applicants shall voluntarily assume all the new obligations provided in the new law, the
law intends to place persons who acquired reparations goods before the enactment of the amendatory Act on
the same footing as those who acquire reparations goods after its enactment. This is so because of the
provision that once an application for renovation of a utilization contract has been approved, the favorable
provisions of said Act shall be available to the applicant "in like manner and to the same extent as an end-user
filing his application after the approval of this amendatory Act." To deny exemption from compensating tax to
one whose utilization contract has been renovated, while granting the exemption to one who files an
application for acquisition of reparations goods after the approval of the new law, would be contrary to the
express mandate of the law that they both be subject to the same obligations and they both enjoy the same
privileges in like manner and to the same extent. It would be a manifest distortion of the literal meaning and
purpose of the law.
 FOR THE FOREGOING CONSIDERATIONS, the decisions appealed from in both cases are hereby reversed.
Accordingly, the surety bonds filed by petitioner to guarantee payment of the tax in question are thereby
cancelled. No pronouncement as to costs.

Not satisfied with the foregoing decision of the Court of Tax Appeals, the Government has interposed the instant
appeal therefrom to this Court.

Appellant now charges that the lower court had erred in holding that the renovation of the contracts of purchase and
sale of the vessels involved in these cases, after the approval of Republic Act No. 3079, entitled Philippine Ace Lines to
the exemption from payment of compensating tax under the provisions of the said law, notwithstanding the fact that the
vessels referred to were acquired from the Reparations Commission long before the approval of said amendatory Act
which, by the way, did not expressly authorize such exemption. It is argued that the favorable provisions of Republic
Act No. 3079 invoked by Philippine Ace Lines and relied upon by the decision of the court below cannot include
exemption from compensating tax, otherwise, had Congress intended so, it would have provided for such exemption in
clear and explicit terms; that the tax exemption contained in Section 14 of the amendatory Act cannot have retroactive
application in the absence of any provision for retroactivity; and that to grant such exemption to end-users who have
acquired reparations goods before the approval of Republic Act No. 3079 would be prejudicial to the Government.

2
Appellant's position calls to mind Commissioner of Internal Revenue vs. Bothelo Shipping Corporation, the factual
setting of which is on all fours with the case at bar, and where this Court, speaking through Chief Justice Roberto
Concepcion, disposed of the same charge and contentions in clear and unequivocal terms, in the following wise:

The inherent weakness of the last ground becomes manifest when we consider that, if true, there could be no
tax exemption of any kind whatsoever, even if Congress should wish to create one, because every such
exemption implies a waiver of the right to collect what otherwise would be due to the Government, and, in this
sense, is prejudicial thereto. In fact, however, tax exemptions may and do exist, such as the one prescribed in
section 14 of Republic Act No. 1789, as amended by Republic Act No. 3079, which, by the way, is "clear and
explicit," thus, meeting the first ground of appellant's contention. It may not be amiss to add that no tax
exemption — like any other legal exemption or exception — is given without any reason therefor. In much the
same way as other statutory commands, its avowed purpose is some public benefit or interest, which the law-
making body considers sufficient to offset the monetary loss entailed in the grant of the exemption.
Indeed, section 20 of Republic Act No. 3079 exacts a valuable consideration for the retroactivity of its favorable
provision, namely, the voluntary assumption, by the end-user, who bought reparations goods prior to June 17,
1961, of "all the new obligations provided for in" said Act.

The argument adduced in support of the third ground is that the view adopted by the Tax Court would operate
to grant exemption to particular persons, the Buyers therein. It should be noted, however, that there is no
constitutional injunction against granting tax exemptions to particular persons. In fact, it is not unusual to grant
legislative franchises to specific individuals or entities, conferring tax exemptions thereto. What the
fundamental law forbids is the denial of equal protection such as through unreasonable discrimination or
classification.

Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, not
particular persons but persons belonging to a particular class. Indeed, appellants do not assail the
Constitutionality of said section 14, insofar as it grants exemptions to end-users who, after the approval of
Republic Act No. 3079, on June 17, 1961, purchased reparations goods procured by the Commission. From
the view point of Constitutional Law, especially the equal protection clause, there is no difference between the
grant of exemption to said end-users, and the extension of the grant to those whose contracts of purchase and
sale were made before said date, under Republic Act No. 1789.

It is true that Republic Act No. 3079 does not explicitly declare that those who purchased reparations goods
prior to June 17, 1961, are exempt from the compensating tax. It does not say so, because they do notreally
enjoy such exemption, unless they comply with the proviso in Section 20 of said Act, by applying for the
renovation of their respective utilization contracts, "in order to avail of any provision of the Amendatory Act
which is more favorable" to the applicant. In other words, it is manifest, from the language of said section 20,
that the same intended to give such buyers the opportunity to be treated "in like manner and to the same extent
as an end-user filing his application after the approval of this Amendatory Act." Like the "most favored nation
clause" in international agreements, the aforementioned section 20 thus seeks, not to discriminate or to create
an exemption or exceptions, but to abolish the discrimination, exemption or exception that would otherwise
result, in favor of the end-user who bought after June 17, 1961 and against one who bought prior thereto.
Indeed, it is difficult to find substantial justification for the distinction between the one and the other. ...

We find no cogent reason to modify, much less depart from the conclusion reached in Bothelo, as expressed in the
above-quoted opinion of the Court there, and the same should resolve the identical problem now brought before Us in
this proceeding.

WHEREFORE, the decision of the Court of Tax Appeals appealed from in these cases is affirmed; no pronouncement
as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Fernando and Capistrano, JJ., concur.

Zaldivar, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 92585 May 8, 1992

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

DAVIDE, JR., J.:

1
This is a petition erroneously brought under Rule 44 of the Rules of Court 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).

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

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)
5
"grave abuse of discretion and completely without jurisdiction" 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
 under recovery, if any, shall be determined by the Ministry of Finance. "Cost under
recovery" 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 under recovery.

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
6
reimbursement from the OPSF shall be held in abeyance.

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
7
it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods.

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
9
collections to the OPSF to facilitate COA's audit action on the reimbursement claims.

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
10
position. 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
11
ensuing years. 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
12
la Paz of the Office of Energy Affairs:

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
13
following grounds:

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

14
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration.
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
15
sales. 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
16
commission of the following errors:

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES

FROM THE OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING

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

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
18
from notice.

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

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

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

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:
 Financing
Period
Reimbursem
ent Rate
Pesos per
Barrel
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
22
days.

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
23
attached Department of Finance circular.

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:

Financing
Period
Reimbursem
ent Rate
(PBbl.)
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

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

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
25
certificates in cash if not utilized, subject to availability of funds.

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

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
27
charges are recoverable from the OPSF is entitled to great weight and consideration. 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
28
expenditures, or uses of government funds and properties.

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

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

1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary
government expenditures and as the monetary claims of petitioner are not allowed by law, the COA
acted within its jurisdiction in denying them;

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

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

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the Department of
Finance violates P.D. No. 1956 and E.O. No. 137; and

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

29
charges.

We find no merit in the first assigned error.

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

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

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and
settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned and controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been
granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c)
other government-owned or controlled corporations and their subsidiaries; and (d) 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.

30
These present powers, consistent with the declared independence of the Commission, 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,
31
unnecessary, excessive, or extravagant expenditures or uses of funds and property.

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.

32
The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez and Ramos
33
vs.Aquino, 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
34
definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code of the Philippines and
35
Administrative Code of 1987. Pursuant to its power to promulgate accounting and auditing rules and regulations for
36
the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 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
37
G. Bernas:

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
38
as applying only to persons or things of the same kind or class as those specifically mentioned. 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
39
legislature, in making the delegation, has prescribed the manner of the exercise of the delegated authority.

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
40
exemption. 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
41
OPSF. 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
42
from payment of OPSF imposts as effected by OEA has no legal basis;" 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
43
the time of its formulation." 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
44
dues. Rather, such imposts are built in or already incorporated in the prices of oil products.

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
45
was never published in the Official Gazette 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. . . .

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

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
47
1986, 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
48
authority. 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,
49
the latter acted beyond its jurisdiction. Respondents, on the other hand, contend that said amount was already
50
disallowed by the OEA for failure to substantiate it. 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
51
1987 and 1988.

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
52
Satisfaction of Indebtedness to Government." Petitioner also mentions communications from the Board of Energy
and the Department of Finance that supposedly authorize compensation.

53
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 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
54
or right to make compensation is not given to the private person." The reason for this, as stated in Commissioner of
55
Internal Revenue vs. Algue, Inc., 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
56
because "P.D. 1956, amended, did not create a source of taxation; it instead established a special fund . . .," 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
57
state. 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.

58
It is settled 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
59
each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

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.
 FIRST DIVISION

[G.R. Nos. L-28739 & L-28902. March 29, 1972.]

DAVAO LIGHT & POWER CO., INC., Petitioner-Appellant, v. THE COMMISSIONER OF CUSTOMS and COURT
OF TAX APPEALS, Respondents-Appellees.

SYLLABUS

1. TAXATION; TAX EXEMPTION; SECTION 17 OF ACT 3636; NPC NOT COMPETITOR TO PETITIONERS
BUSINESS; INSTANT CASE. — While petitioner, Davao Light and Power Co., Inc. is engaged in a business or profit
making venture, the NPC on the other hand, was specifically created to undertake the development of hydraulic power
and the production of power from other sources for use of the government and general public. As envisioned by the law
creating it, the activity to be pursued by the NPC can hardly be motivated by profit or income and therefore does not fall
under the term competitor to petitioner‘s business. As such, Section 17 of Act 3636 which provides that any favorable
terms granted to any "competing individual, association of persons or corporation" shall ipso facto become part of a
franchise earlier issued will not apply. Hence tax exemption benefits granted to the NPC cannot be invoked by
petitioner.

2. ID.; ID.; ID.; ISOLATED SALE OF ELECTRIC POWER NOT ENOUGH TO CLASSIFY THE NPC AS COMPETING
WITH PETITIONERS ENTERPRISE. — The fact that the NPC supplied electric power to the National Development
Company (NDC) plant in Davao does not justify the claim that the NPC is competitor to petitioner‘s business, because
Section 10 of Commonwealth Act 120 (NPC charter) made it NPC‘s duty to supply power to NDC. Be that as it may,
such an isolated case of sale of electric power to one government-owned plant would not be enough to classify the
NPC as a competing concern to petitioner‘s enterprise, which must be assumed to be catering to the general public to
which the NPC has no dealing.

3. ID.; ID.; SECTION 2 REPUBLIC ACT NO. 358 APPLIES ONLY TO NPC. — The provisions of Section 2 of Republic
Act 358 granting tax exemption to the NPC, taken in the light of the existing legislation affecting the NPC, notably
Republic Act No. 357, must be construed as intended to benefit only the NPC, the lawmakers expecting (as so
unequivocally expressed in the law) that by relieving said corporation of tax obligations the NPC would be enabled to
pay easily its indebtedness or whatever indebtedness it is certain to incur.

4. ID.; TAX EXEMPTION NOT PRESUMED. — Petitioner cannot lay claim to the enjoyment of the tax exemption
benefits given to NPC because said corporation happened to be operating a power plant in the same locality where
petitioner has a franchise. The legal principle on the matter is firmly established and well-observed: exemption from
taxation is never presumed; for it cannot be made to rest on vague implication. The possession by petitioner of a permit
to operate an electric plant in Davao City does not entitle it to the same tax exemption privileges enjoyed by another
operator without an express provision of the law to that effect.

DECISION

REYES, J.B.L., J.:

These are appeals from the decision of the Court of Tax Appeals in CTA Cases Nos. 1337 and 1551, denying the claim
of Davao Light & Power Co., Inc., for refund of the amount paid by said company as customs duties, special import
taxes, compensating taxes and wharfage fees on the importations of electrical supplies and materials for installation
and use at its power plant.

The Davao Light & Power Co., Inc., hereafter referred to as Davao Light, is the grantee of a legislative franchise to
install, operate and maintain an electric light, heat and power plant in the city (then Municipality) of Davao, for a period
of 50 years. On two different occasions in 1962, it imported electrical supplies, materials and equipment for installation
in its power plant. The importations arrived in the port of Cebu City, on which the Collector of Customs imposed, and
Davao Light paid under protest, customs duties and taxes in the total amount of P9,928.00. As the Collector of
Customs later ruled unfavorably on the protests (Nos. 267, 268, 269 and 278) and denied its claim for refund of the
taxes and duties paid on the imported articles, Davao Light appealed to the Commissioner of Customs. And when said
official sustained the action of the Collector, Davao Light went to the Court of Tax Appeals, maintaining its claim to
exemption from the taxes and duties imposable on the aforementioned importations.

In the Court of Tax Appeals, the parties entered into a stipulation of facts, the pertinent provisions of which read as
follows:jgc:chanrobles.com.ph

"6. That the petitioner (Davao Light) is a grantee of a legislative franchise under Philippine Legislature Act No. 3760, . .
.;
"7. That the petitioner was granted by the Public Service Commission its Certificate of Public Convenience and
Necessity in 1931 and by virtue of said franchise has established and has been maintaining and operating a power
plant generating electric light, heat and power and distributing the same for sale within the municipality (now City) of
Davao;

"8. That the National Power Corporation was created by virtue of Commonwealth Act No. 120, and under Section 2,
par. (g) it was empowered and granted authority:chanrob1es virtual 1aw library

‗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 waterfalls in the Philippines and supplying such power to the inhabitants thereof; to acquire, construct,
install, maintain and operate and improve gas, oil or steam engines and/or other prime movers, generators and other
machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate and
maintain and administer power and lighting systems for the use of the Government and the general public; to sell
electric power and to fix the rates and provide for the collection of the charges for any service rendered: Provided, that
the rates of charges shall not be subject to revision by the Public Service Commission.‘

"9. That by virtue of this authority given the National Power Corporation, it established and constructed a power plant,
power stations and transmission lines in Davao City, for the purpose of generating electric light, heat and power for the
inhabitants of Davao City and its surrounding areas and that it is presently operating and maintaining said power plant,
power station and transmission lines and selling electric power, heat and light in the City of Davao;

"10. That Section 17 of (pre-Commonwealth) Act No. 3636 (Standard Electric Power & Light Franchises Law)
provides:chanrob1es virtual 1aw library

‗In the event of any competing individual, association of persons or corporation receiving either a franchise or
permission from the Government of the Philippine Islands, or from any province, city or municipality thereof, to conduct
a similar bosons in all or any substantial portion of the territory covered by this franchise to that of the grantee, in which
franchise or permission there shall be any term or terms more favorable than those herein granted or tending to place
the herein grantee at any disadvantage, then such term or terms shall ipso facto become a part of the terms hereof and
shall operate equally in favor of the grantee as in the case of said competing individual association of persons or
corporations.‘

x x x

"12. That under Section 2 of Republic Act No. 358, as amended by Republic Act No. 937, it is provided that ‗to facilitate
payment of its indebtedness, the National Power Corporation shall 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.‘"

It was therein petitioner‘s contention that pursuant to Section 17 of Act 3636, the provision of Republic Act 987 granting
tax exemption privileges to the National Power Corporation ipso facto became part of its franchise; hence, its claim to
exemption from taxes and customs duties on the importations in question.

In its decision of 15 December 1967, the Court of Tax Appeals affirmed the ruling of the Customs Commissioner, the
Court holding that the tax exemption privileges granted to the National Power Corporation were intended to benefit only
said government corporation and did not extend to other bodies or entities. Davao Light thus brought the present
petition for review in this Court, raising the same issue of the correctness of the imposition of taxes and customs duties
on its importations of electrical supplies and materials for use in its electric plant.

Petitioner in this instance reiterates the contention that is legislative franchise to construct, maintain and operate an
electric light, heat, and power system (granted by Act 3760) was specifically made subject to Act 3636, which Act, in its
Section 17, provides that any favorable terms granted to any "competing individual, association of persons or
corporation" shall ipso facto become part of a franchise earlier issued As the National Power Corporation (NPC) is
actually operating a power plant, power stations and transmission lines in Davao City and selling electric power, heat
and light in said locality, and said corporation is enjoying exemption from all taxes, duties, fees, imposts and charges
collectible by the government, it is argued that such tax exemption benefits ipso facto became part of its franchise and
are not available to petitioner.

There is no merit in petitioner‘s contention. Firstly, the aforecited provision of Section 17 of Act 3636 makes mention of
franchise or permit issued to "competing" individuals, associations or corporations. In short, by express provision of law
favorable terms contained in a subsequent franchise issued to an individual, association, etc. shall automatically be
considered incorporated in the franchise or permit earlier issued to another individual, association, etc. engaged in the
same business. The idea is to place both competing groups or entities on equal footing and not to give one an
advantage over the other. This principle of fair play, which is the basic idea behind the provision, does not find
operation in the present case.

It is undeniable that petitioner‘s purpose in securing a franchise to establish and operate an electric plant and power
stations was to engage in a business or profit-making venture. The NPC, on the other hand, was specifically created to
undertake the development of hydraulic power throughout the country and the production of power from other sources,
for use of the government and the general public. 1 As envisioned by the law creating it, the activity to be pursued by
the NPC can hardly be motivated by profit or income.

In operating and maintaining a power plant, power stations and transmission lines in Davao City, as duly authorized in
its charter, the NPC can not be considered as posing competition to petitioner‘s business. In fact, there is evidence on
record that the NPC does not sell electric power directly to the general public; instead, it did sell power to petitioner for
resale to the latter‘s customers. 2 In other words, the NPC is even the source of petitioner‘s merchandise; it is aiding
petitioner in its business operations, not competing with it.

Nor would the fact that the NPC supplies electric power to the National Development Company (NDC) plant in Davao
justify the claim that the NPC is a competitor to petitioner‘s business, because Section 10 of Commonwealth Act 120
(NPC charter) made it NPC‘s duty to supply power to the NDC.

Sec. 10. At any time that the Board certifies that the Corporation is able to furnish electric power for lighting and other
purposes to any office, shop, or establishment operated and/or owned or controlled by the National Government or by
any city, province, municipality or other political subdivision of the Commonwealth of the Philippines, the National
Government and the government of said city, province, municipality or other political subdivision shall be compelled to
secure from the Corporation as soon as practicable such electric power as it may need for lighting and the operation of
its offices, shops or establishments or for any work undertaken by it.

The provisions of this section shall also apply to firms or business owned or controlled by the National Government or
by the government of any city, province, municipality or other political subdivisions."cralaw virtua1aw library

Be that as it may, such an isolated case of sale of electric power to one government owned plant would not be enough
to classify the NPC as a "competing" concern to petitioner‘s enterprise, which must be assumed to be catering to the
general public to which the NPC has no dealing.

Secondly, petitioner can not rely on the provisions of Republic Act 358, as amended by Republic Act 987 3 , to support
its claim for tax exemption.

Section 1 of Republic Act 358, approved on 4 June 1949, amended Section 2 (k) of Commonwealth Act 120, which
authorized the NPC to "contract indebtedness and issue bonds subject to the approval of the President of the
Philippines, upon recommendation of the Secretary of Finance", in an amount not to exceed one hundred seventy
million five hundred pesos. Then in its Section 2, the same law provided:jgc:chanrobles.com.ph

"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." (Emphasis supplied)

On the same day, 4 June 1949, Republic Act 357 was approved, authorizing the President of the Philippines to
negotiate and contract loans from time to time from the International Bank for Reconstruction and Development, on
behalf of the NPC, and to guarantee, absolutely and unconditionally, as primary obligor and not merely as surety, the
payment of loans therefore contracted. 4 The provisions of Section 2 of Republic Act 358 granting tax exemptions to
the NPC, taken in the light of the existing legislation affecting the NPC, notably Republic Act 357, must be construed as
intended to benefit only the NPC, the lawmakers expecting (as so unequivocally expressed in the law) that by relieving
said corporation of tax obligations, the NPC would be enabled to pay easily its indebtedness or whatever indebtedness
it is certain to incur. In granting such tax exemption the government actually waived its right to collect taxes from the
NPC in order to facilitate the liquidation by said corporation of its liabilities, and the consequential release by the
government itself from its obligation (as principal obligor) in the transactions entered into by the President on behalf of
the NPC. Such condition, peculiar only to the NPC, cannot be said to exist in petitioner‘s case; hence, the absolute lack
of basis for awarding of equal privileges (granted to the NPC) to said petitioner.

Similarly, petitioner can not lay claim to the enjoyment of the tax exemption benefits given to NPC because said
corporation happened to be operating a power plant in the same locality where petitioner has a franchise. The legal
principle on the matter is firmly established and well-observed: exemption from taxation is never presumed; 5 for tax
exemption to be recognized, the grant must be clear and expressed; it cannot be made to rest on vague implications. 6
The possession by petitioner of a permit to operate an electric plant in Davao City does not entitle it to the same
exemption privileges enjoyed by another operator without an express provision of the law to that effect.

FOR THE FOREGOING CONSIDERATIONS, the decision of the Court of Tax Appeals is hereby affirmed, with costs
against the petitioner.

Concepcion, C.J., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-18080 April 22, 1963

TAN KIM KEE, petitioner, vs. THE COURT OF TAX APPEALS, ET AL., respondents.

REYES, J.B.L., J.:

Appeal from the majority decision of the Court of Tax Appeals affirming the denial of a claim for refund of the fixed and
sales taxes.

The case was submitted before the tax court under a stipulation of facts, as follows:

1. The petitioner is a producer of copra exporters in Davao City.

2. Petitioner produces copra in two ways, namely, the sun-dried method and the kiln-dried method.

3. Under the sun-dried method employed by petitioner, the nuts are first split into halves and are dried under
the sun to partly loosen the meat from the shell. After one or two days of drying in that state, the meat is
removed from the shell with an instrument designed for the purpose. To facilitate drying and handling, the meat
so removed is chopped into small pieces and the same is dried under the sun for at least three days or until its
moisture content is reduced to a minimum acceptable in the market.

4. The processes involved in copra-making under the kiln-dried method employed by the petitioner are the
same as the sun-dried method described above except that in the latter method, the nuts are first unhusked
before being split into halves and the meat is dried in a kiln or oven heated with fuel. Further, the drying
process (18-23 hours) under the kiln-dried method is shorter than the sun-dried method.

5. For the period from August 24, 1956 to December 31, 1956, petitioner's gross sales of copra produced by
him amounted to P17,917.53 on which he paid to the treasurer of Davao City, on January 10, 1957, the sum of
P1,254.24 as the 7% sales tax imposed by section 186 of the National Internal Revenue Code as amended by
Republic Act No. 1612.

6. Petitioner paid also to the same official on the same date, fixed taxes(c-14) of P40.00 for the years 1956 and
1957, pursuant to section 182 of the said code.

7. For the payment of the above-mentioned sales and fixed taxes, BIR official receipts Nos. C-146545,
respectively, were issued to the petitioner.

8. On September 6, 1957, petitioner filed with respondent a claim for the aforesaid taxes which claim was
denied by the latter on November 22, 1957.

9. On February 7, 1958, petitioner filed with respondent a request for reconsideration of the denial of his claim
for refund but said request was denied on February 13, 1958.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by
this stipulation of facts. 1äwphï1.ñët

10. Petitioner filed on April 30, 1958 his second request for reconsideration which was denied on July 1, 1958.

11. On August 12, 1958 petitioner filed with his Honorable Court the present petition for review which was
answered by respondent on September 26, 1958.

Not stipulated but nevertheless admitted in the pleadings is the additional fact that the petitioner is a producer of copra
out of his coconut plantation in Sta. Cruz, Davao.

The petitioner ascribes the following errors against the lower court:

I. The Tax Appeals Court erred in holding that the mere drying out process by which the coconuts produced
from petitioner's plantation are converted into copra (dried coconut), constitutes manufacturing as defined in
section 194(x) of the Tax Code.

II. The Tax Appeals Court erred in failing to consider the absurd, illogical and mischievous results that would
necessarily follow from its interpretation of section 194(x) of said code, contrary to the consistent legislative
policy of encouraging farmers by exempting their products from taxation.
This case involves an interpretation of Section 188(b) of the Tax Code, as amended by the shortlived revenue statute,
Republic Act No. 1612, when applied to copra making. Said Act took effect on 24 August 1956 until it was superseded
by Republic Act 1856 on 22 June 1957. This section, as it stood before and during the effectivity of Republic Act No.
1612, and after subsequent amendment by Republic Act 1856, provides (all emphasis supplied):

Before effectivity of RA No. 1612

(b) Agricultural products and the ordinary salt when sold, bartered, or exchanged in this country by the
producers or owner of the land where produced, as well as fish and its by-products when sold, bartered, or
exchanged by the fisherman or fishing operator, whether in their original state or not.

During the eleven-month effectivity of RA No. 1612

(b) Agricultural products and the ordinary salt in their original form when sold, bartered, or exchanged by the
producer or owner of the land where produced. The term "agricultural products" as used herein shall not
include cultured fish and other products raised or produced in fishponds, and those which have undergone the
process of manufacturing as defined in section one hundred ninety-four (x) of this Code.

After repeal of RA No. 1612 by RA No. 1856

(b) Agricultural products and the ordinary salt whether in their original form or not when sold, bartered, or
exchanged in this country by the producer or owner of the land where produced, as well as all kinds of fish and
its by-products when sold, bartered or exchanged by the fisherman or fishing operator whether in their original
state or not.

The majority of the Tax Court was of the view that before the passage of Republic Act No. 1612, copra making was not
taxable because the law then exempted agricultural products "whether in their original state or not" but that it became
taxable during the effectivity of the Republic Act No. 1612 because the agricultural products that were exempted under
it were those "in their original form", and said law excluded from the exemption "those which have undergone the
process of manufacturing as defined in section one hundred ninety-four (x) of this Code", that provides:

(x) "Manufacturer" includes every person (1) who by physical or chemical process alters the exterior texture or
form of 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
(2) 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 (3)
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 products
of such process of manufacture can be put to a special use or uses to which such raw material 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 for his own use or
consumption.

The majority of the Tax Court further held that because of the unhusking and halving of the coconut fruit, removal and
cutting into several pieces of its meat, and dehydrating by sun or kiln, the fruit in its original form underwent a process
of manufacturing, and, therefore, became taxable; but after the repeal of Republic Act 1612 by Republic Act 1856, the
exempt agricultural products included once more those products "whether in their original state or not". It decided,
therefore, that the taxability of copra making under Republic Act No. 1612 is in accordance with the legislative intent to
increase revenue by imposing taxes on "greater coverage of subjects of taxation", as expressed in the explanatory note
of the House Bill 5809, the source of Republic Act 1612; and that the said section being an exempting provision, the
same should be construed strictissimi juris against the party claiming exemption.

Contrary to the above views of the respondents, the petitioner would consider copra as the agricultural product in its
original form and the coconut fruit merely the crop of the producer and because copra is the only product that may be
produced from coconut lands while the process of manufacture involved in the conversion of the coconut fruit to copra
is a part of the genuine agricultural labor of the farmer. The petitioner adopted the dissenting opinion that the
enactment of Republic Act 1612 did not change anything; because the processes that constitute manufacturing under
Section 194 (x)have not been enlarged or extended, and that the ruling of the respondents would be a radical
departure from the time-honored policy of Congress to give preferential treatment to farmers; furthermore, the
respondents' interpretation would lead to absurd, illogical, and mischievous results, like the following: coconut planters,
abaca planters and rice farmers would be liable for 7% tax while operators of coconut oil mills and dessicated coconut
factories, rope factories, and rice mill operators are taxable only at 2% under Section 189 of the Code; likewise, the
coconut planter is not taxable for producing coconuts, but the moment he unhusks them he is obliged to pay 7% on
sales tax. The petitioner insists that the legislative intent in enacting Republic Act 1612 was to exclude copra making,
as shown in the explanatory note of House Bill 6094, a bill intended to amend Republic Act 1612, and that this intention
to exclude copra making is also reflected in the speeches and debates delivered in the floor of Congress in its session
on 30 January 1957 (Congressional Records, Vol. IV, No. 3).

The flaw in petitioner-appellant's argument is that it ignores the legislative change in the phraseology of the exemption
of agricultural products. The original statute excepted from the tax "Agricultural products xxx whether in
their original state or not", but under the shortlived R.A. No. 1612 it was altered and reduced to "agricultural products in
their original form" exclusively. The change in scope was further emphasized by the qualification in the same Act that
"agricultural products xxx shall not include cultured fish . . . and those which have undergone the process of
manufacturing . . . ." Plainly, R.A. No. 1612 was intended to restrict the exemption and broaden the subject of taxation,
in order to increase the state revenues; and this purpose becomes indubitable when we consider that ordinary salt and
fish were also originally exempt, but the exemption was not restated in R.A. No. 1612.

If, as contended by the petitioner, there was no intention to limit the exemption of agricultural products, then it may well
be wondered why the Legislature found it necessary to change at all the terms of the exemption; and even further, it
may be asked why, barely a year later, it was found proper to restore (by R.A. No. 1856) the primitive terms of the
exemption of agricultural products "whether in their original form or not". It is not to be presumed that the Legislature, in
making such changes, was indulging in mere semantic exercise. There must have been some purpose in making them,
and the rational explantion is that the coverage of the exemption was being broadened by R.A. No. 1612, as expressly
stated in the original House Bill No. 5819 that later became said Act; and that the policy change was later found
inadvisable, so that the statute was reworded by R.A. 1856 to corresponded to the original terminology so as to restore
the original exemption..

Stress is laid on the explanatory note to House Bill No. 6094 that it was "never the intention of Congress to impose
such heavy burden upon our agricultural producers"; but these statements did not go beyond a personal opinion of the
proponents of House Bill No. 6094, since the true source of Republic Act 1856 (repealing R.A. No. 1612)was not Bill
No. 6094, but House Bill No. 5819.

We find no weight in the argument that under the interpretation given to Republic Act 1612 the planters and farmers
would pay a higher tax than rice mills and coconut factories. The rule of uniform taxation does not deprive Congress of
the power to classify subjects of taxation, and only demands uniformity within the particular class.

The legislative intent to increase revenue by widening the coverage of taxable subjects is evident under Republic Act
1612, and by it the exempt agricultural products were only those that remain in their original form, and have not
undergone the process of manufacture. This Court has had occasion to observe that —

By the very nature of the changes made in the original statute, it is clear that the amendment is intended, not to
clarify the doubtful meaning of the former law, xxx, but to withdraw from the scope of the former exemption the
agricultural products that are no longer in their original form because they have undergone the process of
manufacture." (Philippine Packing Corporation vs. Collector of Internal Revenue, L-9040, Res. of Jan. 22,
1957).

WHEREFORE, the decision appealed from is affirmed, with costs against petitioner-appellant.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 72477 October 16, 1990

NATIONAL POWER CORPORATION, petitioner, vs. HON. PRESIDING JUDGE, REGIONAL TRIAL COURT, 10TH
JUDICIAL REGION BRANCH XXV, CAGAYAN DE ORO CITY, PROVINCE OF MISAMIS ORIENTAL,
MUNICIPALITY OF JASAAN, MISAMIS ORIENTAL AND BARANGAY APLAYA, JASAAN, MISAMIS
ORIENTAL, respondents.

FERNAN, C.J.:

In this Special Civil Action for Certiorari, petitioner National Power Corporation (NAPOCOR for brevity) questions the
jurisdiction of the Regional Trial Court of Cagayan de Oro City, Branch XXV to hear Civil Case No. 9901 filed by
respondents Province of Misamis Oriental and Municipality of Jasaan for the collection of real property tax and special
education fund tax from petitioner covering the years 1978 to 1984. The antecedent facts are as follows:

1
On October 10, 1984, the Province of Misamis Oriental filed a complaint with the Regional Trial Court of Cagayan de
Oro City, Branch XXV against NAPOCOR for the collection of real property tax and special education fund tax in the
amounts of P11,105,008.10 and P11,104,658.10, respectively, covering the period 1978 to 1984. Petitioner NAPOCOR
2
then defendant therein, filed a motion to dismiss dated January 12, 1985 on the grounds that the court has no
jurisdiction over the action or suit and that it is not the proper forum for the adjudication of the case. In support of this
motion NAPOCOR cited Presidential Decree No. 242 dated July 9, 1973 which provides that disputes between
agencies of the government including govemment-owned or controlled corporations shall be administratively settled or
adjudicated by the Secretary of Justice.

3
The court through Judge Pablito C. Pielago issued an order dated January 28, 1985 denying the motion to dismiss.
4
NAPOCOR filed a supplemental motion to dismiss on February 22, 1985 citing a resolution of the Fiscal Incentive
Review Board, No. 10-85 effective January 11, 1984, restoring the tax and duty exemption privileges of petitioner.

On March 27, 1985, NAPOCOR filed its answer to the complaint with counterclaim. Treating the same as a second
motion to dismiss and finding the affirmative defenses therein stated to be unmeritorious, the court a quoissued an
order on June 27, 1985, denying the second motion to dismiss and requiring both parties to appear before the court for
the purpose of submitting a stipulation of facts.

On July 23, 1985, Barangay Aplaya, Municipality of Jasaan, Misamis Oriental filed a complaint in
5
intervention contending that non-payment by NAPOCOR of real property taxes would adversely affect its interest since
under the law, ten percent (10%) of the real property tax collected on properties within its jurisdiction shall accrue to the
general fund of the barangay. Thereafter, the case was set for trial pursuant to the court's order dated August 20,
6
1985.

7
On October 30, 1985, petitioner NAPOCOR filed before this Court the present special civil action for certiorari setting
forth the following issues, to wit:

1) Respondent Court acted without or in excess of jurisdiction and with grave abuse of discretion when
it issued the orders dated January 28, 1985, June 27, 1985 and August 20, 1985, denying petitioner's
motions to have Civil Case No. 9901 dismissed on the grounds of lack of jurisdiction and/or improper
venue.

2) Petitioner is exempt from payment of real property taxes.

Relied upon by NAPOCOR in assailing the jurisdiction of the lower court and/or the venue of the action are Sections 2
and 3 of Presidential Decree No. 242, entitled "PRESCRIBING THE PROCEDURE FOR ADMINISTRATIVE
SETTLEMENT OR ADJUDICATION OF DISPUTES, CLAIMS AND CONTROVERSIES BETWEEN OR AMONG
GOVERNMENT OFFICES, AGENCIES AND INSTRUMENTALITIES, INCLUDING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS, AND FOR OTHER PURPOSES" dated on July 9, 1973. Sections 2 and 3 of this
Decree provide:

Section 2. In all cases involving only questions of law, the same shall be submitted to and settled or
adjudicated by the Secretary of Justice, as Attorney General and ex officio legal adviser of all
government-owned or controlled corporations and entities, in consonance with section 83 of the
Revised Administrative Code. His ruling or determination of the question in each case shall be
conclusive and binding upon all the parties concerned.

Section 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted
to and settled or adjudicated by:

(a) The Solicitor General, with respect to disputes or claims or controversies between or among the
departments, bureaus, offices and other agencies of the National Government;
 (b) The Govermnent Corporate Counsel, with respect to disputes or claims or controversies between
or among the government-owned or controlled corporations or entities being served by the office of the
Government Corporate Counsel and

(c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not
fall under the categories mentioned in paragraphs (a) and (b). (Emphasis supplied)

In upholding the lower court's jurisdiction, respondent municipal corporations, on the other hand, rely on Presidential
Decree No. 464, entitled "THE REAL PROPERTY TAX CODE" enacted on July 1, 1974, specifically Section 82 thereof
which provides:

Section 82. Collection of real property tax through the courts. — The delinquent real property tax shall
constitute a lawful indebtedness of the taxpayer to the province or city and collection of the tax may be
enforced by civil action in any court of competent jurisdiction. The civil action shall be filed by the
Provincial or City Fiscal within fifteen days after receipt of the statement of delinquency certified to by
the provincial or city treasurer. This remedy shall be in addition to all other remedies provided by law.

It is indeed desirable and beneficial to the Judiciary's ongoing program of decongesting court dockets that intra-
governmental disputes such as this be settled administratively. Unfortunately, our consideration of the legal provisions
involved leads us to a different conclusion. In reconciling these two conflicting provisions of P.D. 242 and P.D. 464 on
the matter of jurisdiction, we are guided by the basic rules on statutory construction.

An examination of these two decrees shows that P.D. 242 is a general law which deals with administrative settlement
or adjudication of disputes, claims and controversies between or among government offices, agencies and
instrumentalities, including government-owned or controlled corporations. The coverage is broad and sweeping,
encompassing all disputes, claims and controversies.

P.D. 464 on the other hand, governs the appraisal and assessment of real property for purposes of taxation by
provinces, cities and municipalities, as wen as the levy, collection and administration of real property tax. It is a special
law which deals specifically with real property taxes.

It is a basic tenet in statutory construction that between a general law and a special law, the special law prevails.
8
GENERALIA SPECIALIBUS NON DEROGANT.

Where a later special law on a particular subject is repugnant to, or inconsistent with, a prior general law on the same
subject, a partial repeal of the latter win be implied to the extent of the repugnancy or an exception grafted upon the
general law.

A special law must be intended to constitute an exception to the general law in the absence of special circumstances
9
forcing a contrary conclusion.

The conflict in the provisions on jurisdiction between P.D. 242 and P.D. 464 should be resolved in favor of the latter
law, since it is a special law and of later enactment. P.D. 242 must yield to P.D. 464 on the matter of who or which
tribunal or agency has jurisdiction over the enforcement and collection of real property taxes. Therefore, respondent
court has jurisdiction to hear and decide Civil Case No. 9901.

On the question of whether or not NAPOCOR is liable to pay real property taxes and special education fund taxes for
the years 1978 to 1984, we rule in the affirmative.

Presidential Decree No. 1177, entitled "REVISING THE BUDGET PROCESS IN ORDER TO INSTITUTIONALIZE THE
BUDGETARY INNOVATIONS OF THE NEW SOCIETY" was passed on July 30, 1977. Section 23 thereof provides:

Section 23. Tax and Duty Exemptions. — All units of govemment, including government-owned or
controlled corporations, shall pay income taxes, customs duties and other taxes and fees as are
imposed under revenue 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 shag 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. (Emphasis supplied)

Petitioner alleges that what has been withdrawn is its exemption from taxes, duties, and fees which are payable to the
national government while its exemption from taxes, duties and fees payable to government branches, agencies and
instrumentalities remains unaffected. Considering that real property taxes are payable to the local government,
NAPOCOR maintains that it is exempt therefrom.

We find the above argument untenable. It reads into the law a distinction that is not there. It is contrary to the clear
intent of the law to withdraw from all units of government, including government-owned or controlled corporations their
exemptions from all kinds of taxes. Had it been otherwise, then the law would have said so. Not having distinguished
as to the kinds of tax exemptions withdrawn, the plain meaning is that all tax exemptions are covered. There the law
does not distinguish, neither must we.
Moreover, Presidential Decree No. 1931 entitled "DIRECTING THE RATIONALIZATION OF DUTY AND TAX
EXEMPTION PRIVILEGES GRANTED TO GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS AND ALL
OTHER UNITS OF GOVERNMENT" which was passed on June 11, 1984, categorically states:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grunt of tax privileges to
any government-owned or controlled corporation and all other units of government. (Emphasis
supplied )

Thus, any dubiety on NAPOCOR'S liability to pay taxes, duties and fees should be considered unequivocably resolved
by the above provision.

10
In the case of National Power Corporation vs. The Province of Albay, et. al., herein petitioner was held liable for real
property taxes to the provincial government of Albay for the period June 11, 1984 to March 10, 1987, when it claims to
have been enjoying tax exemptions under Resolutions Nos. 10-85, 1-86 and 17-87 of the Fiscal Incentives Review
Board (FIRB). It must be noted that Resolution 10-85 was the same resolution cited by petitioner in its supplemental
11
motion to dismiss inCivil Case No. 9901. If the attempt (found ineffective for lack of authority in the above-cited case
ofNPC vs. The Province of Albay) to restore petitioner's tax exemptions began only in 1985 with the issuance of FIRB
Resolution No. 10-85, it stands to reason that prior thereto, i.e., from 1977 when P.D. 1177 was promulgated up to
1984, petitioner did not enjoy any tax privilege as would exempt it from the payment of the taxes under consideration.

12
In the same case of NPC vs. The Province of Albay, this Court had occasion to state:

Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of
real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the
Government in development and nation-building, particularly in the local government level.

xxx xxx xxx

To all intents and purposes, real property taxes are funds taken by the State with one hand and given
to the other. In no measure can the Government be said to have lost anything.

The proceeds of the real property tax are divided among the province, city or municipality where the property subject to
the tax is situated and shall be applied by the respective local government unit for its own use and benefit. Even the
barrio where the property is situated shares in the real property tax collections. Likewise, the entire proceeds of the
additional one per cent (1%) real property tax levied for the Special Education Fund created under R.A. 5447, are
divided among the province, city and municipalities where the property is situated.

WHEREFORE, the petition is DISMISSED. Petitioner having been found liable for the taxes being collected in Civil
Case No. 9901, the respondent court is hereby directed to proceed with deliberate dispatch in hearing the case for the
purpose of determining the exact liability of petitioner. No Costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO,
Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE,
Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated
June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V.
Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of
Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial
Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc.,
represented by Director Pedro Borgonia located at Bangued, Abra, is valid;

That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the
amount of P5,140.31 and back taxes and penalties from the promulgation of this decision;

That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated
to apply for the payment of the back taxes and for the redemption of the property in question, if the
amount is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who
represents the plaintiff herein;

That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be
returned to said Municipal Treasurer of Bangued, Abra;

And finally the case is hereby ordered dismissed with costs against the plaintiff.

SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and
Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare;
Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of
Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to
P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly
registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial
Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was
caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of
said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of
Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The certificate of sale was
correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the
complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal
Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-
100) to the complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31,
1972.

On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon.
Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the
respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale.
Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of
P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its
questioned decision. Said Stipulations reads:

STIPULATION OF FACTS
 COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the
following agreed stipulation of facts:

1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted;
but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is
actually holding the position of Provincial Treasurer of the Province of Abra;

2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon
located in Bangued, Abra under Original Certificate of Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be
served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school
under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting
to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public
auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to
defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his
favor was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this stipulation of facts will be the
subject of evidence by the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of
facts on the point agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd. Agripino Brillantes

Typ AGRIPINO BRILLANTES
Attorney for Plaintiff
Sgd. Loreto Roldan
Typ LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra
Sgd. Demetrio V. Pre
Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare (Rollo, pp. 17-18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized
by the government and is offering Primary, High School and College Courses, and has a school population of more
than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from
the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a
two-storey building across the street; (d) that the high school and college students are housed in the main building; (e)
that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the
school reaches more than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the
lot and building in question are used exclusively for educational purposes. (Rollo, p. 20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a
Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein
they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building
and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of
taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for
residential purposes. He thus ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per
Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for
review on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974
(Rollo, p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58).
Respondents were required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of error:

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND
BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER
ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE
PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER
ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY
TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE
COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."

Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use
thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution.
Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void.

On the other hand, private respondents maintain that the college lot and building in question which were subjected to
seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the
permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws
and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and
rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8"
(Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3,
Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries,
churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409,
otherwise known as the Assessment Law, provides:

The following are exempted from real property tax under the Assessment Law:

xxx xxx xxx

(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide,
norm and standard to determine tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it
may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still
these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious,
charitable and educational purposes, and as such, it is entitled to be exempted from taxation.

In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in
the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that
the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the
convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the
incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of
lodging place, also qualifies for exemption because this constitutes incidental use in religious functions.
The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs.
Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of
the Missionary District, 14 SCRA 991 [1965], thus —

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is
'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably necessary for the accomplishment of said
purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use
to provide housing facilities for interns, resident doctors, superintendents, and other members of the
hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such
as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2,
p. 1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic
Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school
building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the
second floor of the main building in the case at bar for residential purposes of the Director and his family, may find
justification under the concept of incidental use, which is complimentary to the main or primary purpose—educational,
the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be
considered incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That
the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof
was made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied
in the decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted
from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed
even after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal.
Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below,
still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The
Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot
where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family
for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only
a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school
involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject
to the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.
 EN BANC

[G.R. No. 144104. June 29, 2004]

LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon City, respondents.

DECISION
CALLEJO, SR., J.:

[1]
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision dated
July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central Board of
Assessment Appeals holding that the lot owned by the petitioner and its hospital building constructed thereon are
subject to assessment for purposes of real property tax.

The Antecedents

The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16,
[2]
1981 by virtue of Presidential Decree No. 1823. It is the registered owner of a parcel of land, particularly described as
Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon
City. The lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of
the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as
the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and
small store spaces, and to medical or professional practitioners who use the same as their private clinics for their
patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the
building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon
Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both
paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the
government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in
[3]
the amount of P4,554,860 by the City Assessor of Quezon City. Accordingly, Tax Declaration Nos. C-021-01226 (16-
[4]
2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building, respectively. On August 25,
[5]
1993, the petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its
claim that it is a charitable institution. The petitioners request was denied, and a petition was, thereafter, filed before the
Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City
Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt
from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients
and that the major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a
charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the
[6]
petition and holding the petitioner liable for real property taxes.
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of
[7]
Quezon City (CBAA, for brevity) which ruled that the petitioner was not a charitable institution and that its real
properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real
property tax exemption under the constitution and the law. The petitioner sought relief from the Court of Appeals, which
[8]
rendered judgment affirming the decision of the CBAA.
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX
EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF
ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE
PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER,
PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987
Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients
and renders medical services to them, leases portions of the land to private parties, and rents out portions of the
hospital to private medical practitioners from which it derives income to be used for operational expenses. The
petitioner points out that for the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospitals
282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it receives
subsidies from the government attests to its character as a charitable institution. It contends that the exclusivity
required in the Constitution does not necessarily mean solely. Hence, even if a portion of its real estate is leased out to
private individuals from whom it derives income, it does not lose its character as a charitable institution, and its
exemption from the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v. QC-
[9]
BAA to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it from the
payment of real estate taxes, it is not precluded from seeking tax exemption under the 1987 Constitution.
 In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The petitioners
real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and even under the 1987
Constitution because it failed to prove that it is a charitable institution and that the said property is actually, directly and
exclusively used for charitable purposes. The respondents noted that in a newspaper report, it appears that graft
charges were filed with the Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida
Rivera, the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13
square meters of the property in 1990 for only P20,000 a month, when the monthly rental should be P357,000 a month
as determined by the Commission on Audit; and that instead of complying with the directive of the COA for the
cancellation of the contract for being grossly prejudicial to the government, the petitioner renewed the same on March
13, 1995 for a monthly rental of only P24,000. They assert that the petitioner uses the subsidies granted by the
government for charity patients and uses the rest of its income from the property for the benefit of paying patients,
among other purposes. They aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients
and 170 beds in the hospital are reserved for indigent patients. The respondents further assert, thus:

13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That before a patient is
admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a certain amount as
deposit. That even if a patient is living below the poverty line, he is charged with high hospital bills. And, without these
bills being first settled, the poor patient cannot be allowed to leave the hospital or be discharged without first paying the
hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or person known only to the
Center; that even the remains of deceased poor patients suffered the same fate. Moreover, before a patient is admitted
for treatment as free or charity patient, one must undergo a series of interviews and must submit all the requirements
needed by the Center, usually accompanied by endorsement by an influential agency or person known only to the
Center. These facts were heard and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA
and Honorable CBAA. These are the reasons of indigent patients, instead of seeking treatment with the Center, they
[10]
prefer to be treated at the Quezon Institute. Can such practice by the Center be called charitable?

The Issues

The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and
(b) whether the real properties of the petitioner are exempt from real property taxes.

The Courts Ruling

The petition is partially granted.

On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987
Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be
considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods
of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of
[11]
the beneficiaries, and the use and occupation of the properties.
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the
benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or
[12]
religion, by assisting them to establish themselves in life or otherwise lessening the burden of government. It may be
applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the
[13]
improvement and promotion of the happiness of man. The word charitable is not restricted to relief of the poor or
[14]
sick. The test of a charity and a charitable organization are in law the same. The test whether an enterprise is
charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained
for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of
the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the
Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help
combat the high incidence of lung and pulmonary diseases in the Philippines. The raison detre for the creation of the
petitioner is stated in the decree, viz:

Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of illness and
death in the Philippines, comprising more than 45% of the total annual deaths from all causes, thus, exacting a
tremendous toll on human resources, which ailments are likely to increase and degenerate into serious lung diseases
on account of unabated pollution, industrialization and unchecked cigarette smoking in the country;

Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early and adequate
medical care, immunization and through prompt and intensive prevention and health education programs;

Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at preventing,
treating and rehabilitating people affected by lung diseases, and to undertake research and training on the cure and
prevention of lung diseases, through a Lung Center which will house and nurture the above and related activities and
provide tertiary-level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial support towards the
[15]
establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people.

The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:

SECOND: That the purposes for which such corporation is formed are as follows:

1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall
specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of the
government to assist and provide material and financial support in the establishment and maintenance of a lung center
primarily to benefit the people of the Philippines and in pursuance of the policy of the State to secure the well-being of
the people by providing them specialized health and medical services and by minimizing the incidence of lung diseases
in the country and elsewhere.

2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments and
the care of lung patients, including the holding of a series of relevant congresses, conventions, seminars and
conferences;

3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic, social,
economic, eugenic and physiological aspects of lung or pulmonary diseases and their control; and to collect and
publish the findings of such research for public consumption;

4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness,
and the development of fact-finding, information and reporting facilities for and in aid of the general purposes or objects
aforesaid, especially in human lung requirements, general health and physical fitness, and other relevant or related
fields;

5. To encourage the training of physicians, nurses, health officers, social workers and medical and technical personnel
in the practical and scientific implementation of services to lung patients;

6. To assist universities and research institutions in their studies about lung diseases, to encourage advanced training
in matters of the lung and related fields and to support educational programs of value to general health;

7. To encourage the formation of other organizations on the national, provincial and/or city and local levels; and to
coordinate their various efforts and activities for the purpose of achieving a more effective programmatic approach on
the common problems relative to the objectives enumerated herein;

8. To seek and obtain assistance in any form from both international and local foundations and organizations; and to
administer grants and funds that may be given to the organization;

9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote and protect
the health of the masses of our people, which has long been recognized as an economic asset and a social blessing;

10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and all
walks of life, including those who are poor and needy, all without regard to or discrimination, because of race, creed,
color or political belief of the persons helped; and to enable them to obtain treatment when such disorders occur;

11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the general health
of the community;

12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by purchase,
donation, or otherwise and to dispose of and distribute the same in such manner, and, on such basis as the Center
shall, from time to time, deem proper and best, under the particular circumstances, to serve its general and non-profit
purposes and objectives;

13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or
personal, for purposes herein mentioned; and

14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers herein
[16]
set forth and to do every other act and thing incidental thereto or connected therewith.

Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life
including those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor,
[17]
may fall sick or be injured or wounded and become a subject of charity.
As a general principle, a charitable institution does not lose its character as such and its exemption from taxes
simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted or used altogether to the charitable object
which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the
[18] [19]
institution. In Congregational Sunday School, etc. v. Board of Review, the State Supreme Court of Illinois held,
thus:
[A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the fact
that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the institution
and the amounts so received are applied in furthering its charitable purposes, and those benefits are refused to none
on account of inability to pay therefor. The fundamental ground upon which all exemptions in favor of charitable
institutions are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the
[20]
burden upon the state to care for and advance the interests of its citizens.

As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South Dakota v.
[21]
Baker:

[T]he fact that paying patients are taken, the profits derived from attendance upon these patients being exclusively
devoted to the maintenance of the charity, seems rather to enhance the usefulness of the institution to the poor; for it is
a matter of common observation amongst those who have gone about at all amongst the suffering classes, that the
deserving poor can with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects of
charity; and that their honest pride is much less wounded by being placed in an institution in which paying patients are
also received. The fact of receiving money from some of the patients does not, we think, at all impair the character of
the charity, so long as the money thus received is devoted altogether to the charitable object which the institution is
[22]
intended to further.

The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust
[23]
purposes and cannot be diverted to private profit or benefit.
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a
charitable institution simply because the gift or donation is in the form of subsidies granted by the government. As held
[24]
by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake County:

Second, the government subsidy payments are provided to the project. Thus, those payments are like a gift or donation
of any other kind except they come from the government. In both Intermountain Health Care and the present case, the
crux is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the government,
rather than a private benefactor, chose to make up the deficit resulting from the exchange between St. Marks Tower
and the tenants by making a contribution to the landlord, just as it would have been irrelevant inIntermountain Health
Care if the patients income supplements had come from private individuals rather than the government.

Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than
private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such
[25]
an exemption, as they do here.

In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the
government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991
and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions
of its real property that are leased to private entities are not exempt from real property taxes as these are not actually,
directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of
an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown
[26] [27]
and based on language in the law too plain to be mistaken. As held in Salvation Army v. Hoehn:

An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied
from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and
unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle
that, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be
construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a
[28]
claim of exemption from taxation .

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the petitioner
shall enjoy the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily to help
combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments
and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung
Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift
taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section
30, paragraph (h), of the National Internal Revenue Code, as amended.

The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the
Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for
[29]
the Lung Center.
 It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges for its
real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been
among the enumeration of tax exempt privileges under Section 2:

It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the
exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius.

The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is principle
that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by
its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other
matters.

...

The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are
based on the rules of logic and the natural workings of the human mind. They are predicated upon ones own voluntary
act and not upon that of others. They proceed from the premise that the legislature would not have made specified
enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly
[30]
mentioned.

The exemption must not be so enlarged by construction since the reasonable presumption is that the State has
granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the
[31]
statute the favor would be intended beyond what was meant.
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable or
[32]
educational purposes shall be exempt from taxation.

[33]
The tax exemption under this constitutional provision covers property taxes only. As Chief Justice Hilario G.
Davide, Jr., then a member of the 1986 Constitutional Commission, explained: . . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and
[34]
exclusively used for religious, charitable or educational purposes.
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise
known as the Local Government Code of 1991) as follows:

SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:

...

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or
[35]
educational purposes.

We note that under the 1935 Constitution, ... all lands, buildings, and improvements used exclusively for charitable
[36]
purposes shall be exempt from taxation. However, under the 1973 and the present Constitutions, for lands,
buildings, and improvements of the charitable institution to be considered exempt, the same should not only be
exclusively used for charitable purposes; it is required that such property be used actually and directly for such
[37]
purposes.
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera
v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and
[38] [39]
1987 Constitutions took effect. As this Court held in Province of Abra v. Hernando:

Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from
taxation. The present Constitution added charitable institutions, mosques, and non-profit cemeteries and required that
for the exemption of lands, buildings, and improvements, they should not only be exclusively but also actually and
directly used for religious or charitable purposes. The Constitution is worded differently. The change should not be
ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words
actually as well as directly not added. There must be proof therefore of the actual and direct use of the lands, buildings,
and improvements for religious or charitable purposes to be exempt from taxation.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real
properties areACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. Exclusive is defined as
possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and exclusively is defined,
[40]
in a manner to exclude; asenjoying a privilege exclusively. If real property is used for one or more commercial
[41]
purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words dominant use or
principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the
[42] [43]
law. Solely is synonymous with exclusively.
 What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It
is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt
[44]
purposes.
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and
exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to
private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for
her business enterprise under the business name Elliptical Orchids and Garden Center. Indeed, the petitioners
evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital
[45]
leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by
the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real
property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and the area thereof
which are leased to private persons, and to compute the real property taxes due thereon as provided for by law.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-69344 April 26, 1991

REPUBLIC OF THE PHILIPPINES, petitioner, vs. INTERMEDIATE APPELLATE COURT and SPOUSES ANTONIO
and CLARA PASTOR, respondents.

GRIÑO-AQUINO, J.:

The legal issue presented in this petition for review is whether or not the tax amnesty payments made by the private
respondents on October 23, 1973 bar an action for recovery of deficiency income taxes under P.D.'s Nos. 23, 213 and
370.

On April 15, 1980, the Republic of the Philippines, through the Bureau of Internal Revenue, commenced an action in
the Court of First Instance (now Regional Trial Court) of Manila, Branch XVI, to collect from the spouses Antonio Pastor
and Clara Reyes-Pastor deficiency income taxes for the years 1955 to 1959 in the amount of P17,117.08 with a 5%
surcharge and 1% monthly interest, and costs.

The Pastors filed a motion to dismiss the complaint, but the motion was denied.1âwphi1 On August 2, 1975, they filed
an answer admitting there was an assessment against them of P17,117.08 for income tax deficiency but denying
liability therefor. They contended that they had availed of the tax amnesty under P.D.'s Nos. 23, 213 and 370 and had
paid the corresponding amnesty taxes amounting to P10,400 or 10% of their reported untaxed income under P.D. 23,
P2,951.20 or 20% of the reported untaxed income under P.D. 213, and a final payment on October 26, 1973 under
P.D. 370 evidenced by the Government's Official Receipt No. 1052388. Consequently, the Government is in estoppel
to demand and compel further payment of income taxes by them.

The parties agreed that there were no issues of fact to be litigated, hence, the case was submitted for decision upon
the pleadings and memoranda on the lone legal question of: whether or not the payment of deficiency income tax
under the tax amnesty, P.D. 23, and its acceptance by the Government operated to divest the Government of the right
to further recover from the taxpayer, even if there was an existing assessment against the latter at the time he paid the
amnesty tax.

It is not disputed that as a result of an investigation made by the Bureau of Internal Revenue in 1963, it was found that
the private respondents owed the Government P1,283,621.63 as income taxes for the years 1955 to 1959, inclusive of
the 50% surcharge and 1% monthly interest. The defendants protested against the assessment. A reinvestigation was
conducted resulting in the drastic reduction of the assessment to only P17,117.08.

It appears that on April 27, 1978, the private respondents offered to pay the Bureau of Internal Revenue the sum of
P5,000 by way of compromise settlement of their income tax deficiency for the questioned years, but Assistant
Commissioner Bernardo Carpio, in a letter addressed to the Pastor spouses, rejected the offer stating that there was
no legal or factual justification for accepting it. The Government filed the action against the spouses in 1980, ten (10)
years after the assessment of the income tax deficiency was made.

On a motion for judgment on the pleadings filed by the Government, which the spouses did not oppose, the trial court
rendered a decision on February 28, 1980, holding that the defendants spouses had settled their income tax deficiency
for the years 1955 to 1959, not under P.D. 23 or P.D. 370, but under P.D. 213, as shown in the Amnesty Income Tax
Returns' Summary Statement and the tax Payment Acceptance Order for P2,951.20 with its corresponding official
receipt, which returns also contain the very assessment for the questioned years. By accepting the payment of the
amnesty income taxes, the Government, therefore, waived its right to further recover deficiency incomes taxes "from
the defendants under the existing assessment against them because:

1. the defendants' amnesty income tax returns' Summary Statement included therein the deficiency
assessment for the years 1955 to 1959;

2. tax amnesty payment was made by the defendants under Presidential Decree No. 213, hence, it had the
effect of remission of the income tax deficiency for the years 1955 to 1959;

3. P.D. No. 23 as well as P.D. No. 213 do not make any exceptions nor impose any conditions for their
application, hence, Revenue Regulation No. 7-73 which excludes certain taxpayers from the coverage of P.D.
No. 213 is null and void, and

4. the acceptance of tax amnesty payment by the plaintiff-appellant bars the recovery of deficiency taxes. (pp.
3-4, IAC Decision, pp. 031-032, Rollo.)

The Government appealed to the Intermediate Appellant Court (AC G.R. CV No. 68371 entitled, "Republic of the
Philippines vs. Antonio Pastor, et al."), alleging that the private respondents were not qualified to avail of the tax
amnesty under P.D. 213 for the benefits of that decree are available only to persons who had no pending assessment
for unpaid taxes, as provided in Revenue Regulations Nos. 8-72 and 7-73. Since the Pastors did in fact have a pending
assessment against them, they were precluded from availing of the amnesty granted in P.D.'s Nos. 23 and 213. The
Government further argued that "tax exemptions should be interpreted strictissimi jurisagainst the taxpayer."

The respondent spouses, on the other hand, alleged that P.D. 213 contains no exemptions from its coverage and that,
under Letter of Instruction LOI 129 dated September 18, 1973, the immunities granted by P.D. 213 include:

II-Immunities Granted.

Upon payment of the amounts specified in the Decree, the following shall be observed:

1. . . . .

2. The taxpayer shall not be subject to any investigation, whether civil, criminal or administrative, insofar as his
declarations in the income tax returns are concerned nor shall the same be used as evidence against, or to the
prejudice of the declarant in any proceeding before any court of law or body, whether judicial, quasi-judicial or
administrative, in which he is a defendant or respondent, and he shall be exempt from any liability arising from
or incident to his failure to file his income tax return and to pay the tax due thereon, as well as to any liability for
any other tax that may be due as a result of business transactions from which such income, now voluntarily
declared may have been derived. (Emphasis supplied; p. 040, Rollo.)

There is nothing in the LOI which can be construed as authority for the Bureau of Internal Revenue to introduce
exceptions and/or conditions to the coverage of the law.

On November 23, 1984, the Intermediate Appellate Court (now Court of Appeals) rendered a decision dismissing the
Government's appeal and holding that the payment of deficiency income taxes by the Pastors under PD. No. 213, and
the acceptance thereof by the Government, operated to divest the latter of its right to further recover deficiency income
taxes from the private respondents pursuant to the existing deficiency tax assessment against them. The appellate
court held that if Revenue Regulation No. 7-73 did provide an exception to the coverage of P.D. 213, such provision
was null and void for being contrary to, or restrictive of, the clear mandate of P.D. No. 213 which the regulation should
implement. Said revenue regulation may not prevail over the provisions of the decree, for it would then be an act of
administrative legislation, not mere implementation, by the Bureau of Internal Revenue.

On February 4, 1986, the Republic of the Philippines, through the Solicitor General, filed this petition for review of the
decision dated November 23, 1984 of the Intermediate Appellate Court affirming the dismissal, by the Court of First
Instance of Manila, of the Government's complaint against the respondent spouses.

The petition is devoid of merit.

Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct, since the
latter have already paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No. 213,
and were granted not merely an exemption, but an amnesty, for their past tax failings, the Government is estopped
from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty
tax.

A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute
forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this
sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance
to do so and thereby become a part of the new society with a clean slate (Commission of Internal Revenue vs.
Botelho Corp. and Shipping Co., Inc., 20 SCRA 487).

The finding of the appellate court that the deficiency income taxes were paid by the Pastors, and accepted by the
Government, under P.D. 213, granting amnesty to persons who are required by law to file income tax returns but who
failed to do so, is entitled to the highest respect and may not be disturbed except under exceptional circumstances
which have already become familiar (Rule 45, Sec. 4, Rules of Court; e.g., where: (1) the conclusion is a finding
grounded entirely on speculation, surmise and conjecture; (2) the inference made is manifestly mistaken; (3) there is
grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the Court of Appeals went
beyond the issues of the case and its findings are contrary to the admissions of both the appellant and the appellee; (6)
the findings of fact of the Court of Appeals are contrary to those of the trial court; (7) said findings of fact are
conclusions without citation of specific evidence in which they are based; (8) the facts set forth in the petition as well as
in the petitioner's main and reply briefs are not disputed by the respondents; and (9) when the finding of fact of the
Court of Appeals is premised on the absense of evidence and is contradicted by the evidence on record (Thelma
Fernan vs. CA, et al., 181 SCRA 546, citing Tolentino vs. de Jesus, 56 SCRA 67; People vs. Traya, 147 SCRA 381),
none of which is present in this case.

The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor
of the taxpayer, for taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case P.D.
213) expressly and clearly declares (Commission of Internal Revenue vs. La Tondena, Inc. and CTA, 5 SCRA
665, citing Manila Railroad Company vs. Collector of Customs, 52 Phil, 950).

WHEREFORE, the petition for review is denied. No costs. SO ORDERED.

 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. L-46881 September 15, 1988

PEOPLE OF THE PHILIPPINES, petitioner, vs. HON. MARIANO CASTAÑEDA JR., Judge of the Court of First
Instance of Pampanga, Branch III, VICENTE LEE TENG, PRISCILLA CASTILLO VDA. DE CURA and
FRANCISCO VALENCIA, respondents.

FELICIANO, J.:

In this Petition for certiorari and mandamus, the People seek the annulment of the Orders of respondent Judge
quashing criminal informations against the accused upon the grounds that: (a) accused Francisco Valencia was entitled
to tax amnesty under Presidential Decree No. 370; and (b) that the dismissal of the criminal cases against accused
Valencia inured to the benefit of his co-accused Vicente Lee Teng and Priscilla Castillo de Cura, and denying the
People's Motion for Reconsideration of said Orders.

Sometime in 1971, two (2) informants submitted sworn information under Republic Act No. 2338 (entitled "An Act to
Provide for Reward to Informers of Violations of the Internal Revenue and Customs Laws," effective June 19, 1959) to
the Bureau of Internal Revenue ("BIR"), concerning alleged violations of provisions of the Internal Revenue Code
committed by the private respondents, The record of this case includes an affidavit executed on 27 December 1971 by
1
Mr. William Chan, one of the said informers, describing the details of alleged violations of the tax code. After
conducting an investigation, the BIR applied for and obtained search warrants from Executive Judge Malcolm
Sarmiento. Following investigation and examination by the BIR of the materials and documents yielded by service of
such search warrants, criminal informations were filed in court against the private respondents.

In July 1973, State Prosecutor Estanislao L. Granados Department of Justice, filed with the Court of First Instance of
Pampanga an information docketed as Criminal Case No. 439 for violation of Sec. 170 (2) of the National Internal
Revenue Code, as amended, against Francisco Valencia, Apolonio G. Erespe y Comia and Priscilla Castillo de Cura,
committed as follows:

That on or about the 19th day of January, 1972, in the premises of Valencia Distillery located at del
Pilar Street, San Fernando, Pampanga, Philippines, and within the jurisdiction of the abovenamed
Court, the accused FRANCISCO VALENCIA, APOLONIO ERESPE Y COMIA and PRISCILLA
QUIAZON OR "QUIAPO" alias "MARY JO," conspiring and confederating with one another, did then
and there willfully, unlawfully, and feloniously have in their possession, custody and control, false and
counterfeit or fake internal revenue labels consisting of five (5) sheets containing ten (10) labels each
purporting to be regular labels of the Tanduay Distillery, Inc. bearing Serial Nos. 2571891 to 2571901
to 2571910, 2571911 to 2571920, 05381 to 05390 and 05391 to 05400.

CONTRARY to the provisions of Section 170, paragraph 2 of the National Internal Revenue Code, as
2
amended.

On the same date, another criminal information docketed as Criminal Case No. 440 was filed by the same State
Prosecutor in the same court for violation of Section 174 (3) of the National Internal Revenue Code, as amended
against the same persons, charging them as follows:

That on or about the 19th day of January 1972 in the premises of Valencia Distillery located at del Pilar
Street, San Fernando, Pampanga, Philippines and within the jurisdiction of this Honorable Court, the
accused FRANCISCO VALENCIA, APOLONIO G. ERESPE y COMIA and PRISCILLA QUIAZON or
QUIANO alias MARY JO, conspiring and confederating together, did then and there wilfully, unlawfully
and feloniously, have in their possession, custody and control, locally manufactured articles subject to
specific tax, the tax on which has not been paid in accordance with law, THIRTY THREE (33) boxes of
24 bottles each of alleged Anejo Rum, 375 cc., NINE (9) BOXES of alleged Tanduay Rum of TWELVE
(12) BOTTLES each, 750 cc., TWENTY (20) BOXES of alleged Ginebra San Miguel Gin of TWENTY
FOUR (24) BOTTLES each, 375 cc., THREE (3) BOXES OF TWENTY FOUR (24) BOTTLES each,
375 cc., of Ginebra San Miguel Gin, ONE (1) GALLON bottle of wine improver, NINE lbs. net with
actual contents of 1/5 of the bottle, ONE (1) SMALL BOTTLE, 1 Ib, net, of Rum Jamaica, half-full, ONE
(1) BOTTLE, 1 Ib. net of the wine improvers (full), TWELVE (12) BOTTLES of alleged Tanduay Rum,
750 cc., pale, FOUR (4) BOTTLES of Ginebra San Miguel (alleged) 350 cc. and TWO (2) BOTTLES of
Tanduay Rum, 375 cc. the total specific tax due on which is P160.01.

3
CONTRARY to Section 174 of the National Internal Revenue Code, as amended.

As a result of further investigation of the sworn complaints filed by the informers with the BIR, on 14 March 1974, six (6)
more criminal informations docketed as Criminal Cases Nos., 538-543 were filed in the Pampanga Court of First
Instance against Vicente Lee Teng alias "Vicente Lee," alias "Lee Teng," and Francisco Valencia. These informations
charged the two (2) with violations of Section 178, in relation to Sections 182 (A) (1) (3c) and 208 of the National
Internal Revenue Code, as amended based on their failure to pay annual privilege taxes for each of the six (6) years
from 1966 to 1972. The six (6) informations uniformly charged the accused as follows:
 The undersigned State Prosecutor accuses VICENTE LEE TENG alias VICENTE LEE alias LEE
TENG, and FRANCISCO VALENCIA of the crime of Violation of Sec. 178 in relation with Sec. 182 (A)
(1) 3c and Sec. 208 of the National Internal Revenue Code as amended, committed as follows:

That on or about the 19th of January 1972, [also during the years 1967, 1968, 1969, 1970 and 1971] in
the premises of Valencia Distillery located at del Pilar Street, San Fernando, Pampanga, Philippines
and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and
confederating together and mutually helping one another, did then and there willfully, unlawfully and
feloniously distill, rectify, repair compound or manufacture alcoholic products subject to specific tax
4
without having paid the privilege tax therefor. CONTRARY TO LAW.

On 22 April 1974, after arraignment, accused Valencia filed a Motion to Quash Criminal Cases Nos. 538-543 inclusive,
upon the grounds that the six (6) informations had been filed without conducting the necessary preliminary investigation
and that he was entitled to the benefits of the tax amnesty provided by P.D. No. 370. The State Prosecutor opposed
the Motion to Quash arguing that the necessary preliminary investigation in the six (6) criminal cases had in fact been
conducted and that in any case, failure to hold the preliminary investigation was not a ground for a motion to quash.
The State Prosecutor further argued that the accused Valencia was not entitled to avail himself of the benefits of P.D.
No. 370 since his tax cases were the subject of valid information submitted under R.A. No. 2338 as of 31 December
1973.

The respondent Judge granted the Motion to Quash and issued an Order, dated 15 July 1974, dismissing not only
Criminal Cases Nos. 538-543 but also Criminal Cases Nos. 439 and 440 insofar as accused Francisco Valencia was
concerned. A Motion for Reconsideration by the People was similarly denied by respondent Judge.

On 14 December 1975, the remaining accused Vicente Lee Teng and Priscilla Castillo de Cura, having been arraigned,
filed Motions to Quash Criminal Cases Nos. 538-543 and 439 and 440, upon the common ground that the dismissal of
said cases insofar as accused Francisco Valencia was concerned, inured to their benefit. The People opposed the
Motions to Quash upon the ground that the accused were not entitled to the benefits of the tax amnesty under P.D. No.
370 and that, assuming the dismissal of said criminal cases was valid insofar as accused Valencia was concerned, the
resulting immunity from criminal prosecution was personal to accused Valencia.

The respondent Judge granted the Motions to Quash by Vicente Lee Teng and Priscilla Castillo de Cura, and denied
the People's Motion for Reconsideration.

There are two (2) preliminary issues which need to be addressed before dealing with the questions of substantive law
posed by this case. The first preliminary issue-whether or not the People of the Philippines are guilty of laches-was
5
raised by private respondents in their Answer. The respondent Judge denied the People's Motion for Reconsideration
of his Order granting Francisco Valencia's Motion to Quash the eight (8) criminal cases, on 18 November 1974. Vicente
Lee Teng and Priscilla Castillo de Cura filed their respective Motions to Quash on 14 December 1975; respondent
Judge granted their Motions to Quash on 31 March 1976. The People filed a Motion for Reconsideration which was
denied on 17 February 1977. Approximately seven (7) months later, on 12 September 1977, the present Petition
for certiorari and mandamus was filed by the People. Initially, the Court resolved to dismiss this Petition in a Resolution
dated 5 July 1978. The People, however, filed a Motion for Reconsideration of that Order and the Court, in its
Resolution of 1 October 1979, set aside its Resolution of dismissal and considered this case as submitted for decision.

Ordinarily, perhaps, a Petition for certiorari brought seven (7) months after rendition of the last order sought to be set
aside might be regarded as barred by laches. In the case at bar, however, the Court believes that the equitable
principle of laches should not be applied to bar this Petition for certiorari and Mandamus. The effect of such application
would not be the avoidance of an inequitable situation (the very raison d'etre of the laches principle), but rather the
perpetuation of the state of facts brought about by the orders of the respondent Judge, a state of facts which, as will be
seen later, is marked by a gross disregard of the legal rights of the People. The Court, in other words, is compelled to
take into account both the importance of the substantive issues raised in this case and the nature of the result brought
about by the respondent Judge's orders. Moreover, on a more practical level, the dismissal of the cases was resisted
vigorously by the prosecution which filed both oppositions to the Motion to Dismiss and Motions for Reconsideration of
the Orders granting the Motions to Quash. The private respondents, in other words, were under no illusion as to the
position taken and urged by the People in this Case. We hold that, in the circumstances of this case, the Petition
for certiorari and mandamus is not barred by laches.

The second preliminary issue was also raised by private respondents in their Answer, that is, whether or not the
defense of double jeopardy became available to them with the dismissal by respondent Judge of the eight (8) criminal
cases. This defense need not detain us for long for it is clearly premature in the present certiorari proceeding. In the
certiorari petition at bar, the validity and legal effect of the orders of dismissal issued by the respondent Judge of the
eight (8) criminal cases are precisely in issue. Should the Court uphold these dismissal orders as valid and effective
and should a second prosecution be brought against the accused respondents, that second prosecution may be
defended against with the plea of double jeopardy. If, upon the other hand, the Court finds the dismissal orders to be
invalid and of no legal effect, the legal consequence would follow that the first jeopardy commenced by the eight (8)
informations against the accused has not yet been terminated and accordingly a plea of second jeopardy must be
rejected both here and in the continuation of the criminal proceedings against the respondents-accused.

We turn, therefore, to the first substantive issue that needs to be resolved: whether or not the accused Valencia, Lee
Teng and de Cura are entitled to the benefits available under P.D. No. 370.
The scope of application of the tax amnesty declared by P.D. No. 370 is marked out in the following broad terms:

1. A tax amnesty is hereby granted to any person, natural or juridical, who for any reason whatsoever
failed to avail of Presidential Decree No. 23 and Presidential Decree No. 157; or, in so availing of the
said Presidential Decrees failed to include all that were required to be declared therein if he now
voluntarily discloses under this decree all his previously untaxed income and/or wealth such as
earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever which are or
were previously taxable under the National Internal Revenue Code, realized here or abroad by
condoning all internal revenue taxes including the increments or penalties on account of non-payment
as well as all civil, criminal or administrative liabilities, under the National Internal Revenue Code, the
Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative Code, the
Civil Service Laws and Regulations, laws and regulations on Immigration and Deportation, or any other
applicable law or proclamation, as it is hereby condoned, provided a tax of fifteen (15%) per centum on
such previously untaxed income and/or wealth is imposed subject to the following conditions:

a. Such previously untaxed income and/or wealth must have been earned or realized prior to 1973,
except the following:

b. Capital gains transactions where the taxpayer has availed of Presidential Decree No. 16, as
amended, but has not complied with the conditions thereof;

c. Tax liabilities with or without assessments, on withholding tax at source provided under Sections 53
and 54 of the National Internal Revenue Code, as amended;

d. Tax liabilities with assessment notices issued as of December 31, 1 973;

e. Tax cases which are the subject of a valid information under Republic Act No. 2338 as of December
31, 1973; and

f. Property transferred by reason of death or by donation during the year 1972.

xxx xxx xxx

The first point that should be made in respect of P.D. No. 370 is that compliance with all the requirements of availment
of tax amnesty under P.D. No. 370 would have the effect of condoning not just income tax liabilities but also "all internal
revenue taxes including the increments or penalties on account of non-payment as well as all civil, criminal or
administrative liabilities, under the Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt
Practices Act, the Revised Administrative Code, the Civil Service Laws and Regulations, laws and regulations on
Immigration and Deportation, or any other applicable law or proclamation." Thus, entitlement to benefits of P.D. No.
370 would have the effect of condoning or extinguishing the liabilities consequent upon possession of false and
counterfeit internal revenue labels; the manufacture of alcoholic products subject to specific tax without having paid the
annual privilege tax therefor, and the possession, custody and control of locally manufactured articles subject to
specific tax on which the taxes had not been paid in accordance with law, in other words, the criminal liabilities sought
to be imposed upon the accused respondents by the several informations quoted above.

It should be underscored, secondly, that to be entitled to the extinction of liability provided by P.D. No. 370, the
claimant must have voluntarily disclosed his previously untaxed income or wealth and paid the required fifteen percent
6
(15%) tax on such previously untaxed income or wealth imposed by P.D. No.370. Where the disclosure of such
previously untaxed income or wealth was not voluntary but rather the accompaniment or result of tax cases or tax
assessments already pending as of 31 December 1973, the claimant is not entitled to the benefits of P.D. No. 370.
Section 1 (a) (4) of P.D. No. 370, expressly excluded from the coverage of P.D. No. 370: "tax cases which are the
7
subject of a valid information under R.A. No. 2338 as of December 31, 1973." In the instant case, the violations of the
National Internal Revenue Code with which the respondent accused were charged, had already been discovered by
the BIR when P.D. No. 370 took effect on 9 January 1974, by reason of the sworn information or affidavit-complaints
filed by informers with the BIR under Republic Act No. 2338 prior to 31 December 1973.

It is necessary to note that the "valid information under Republic Act No. 2338" referred to in Section 1 (a) (4) of P.D.
No. 370, refers not to a criminal information filed in court by a fiscal or special prosecutor, but rather to the sworn
information or complaint filed by an informer with the BIR under R.A. No. 2338 in the hope of earning an informer's
reward. The sworn information or complaint filed with the BIR under R.A. No. 2338 may be considered "valid" where
the following conditions are complied with:

(1) that the information was submitted by a person other than an internal revenue or customs official or
employee or other public official, or a relative of such official or employee within the sixth degree of
consanguinity;

(2) that the information must be definite and sworn to and must state the facts constituting the grounds
for such information; and

(3) that such information was not yet in the possession of the BIR or the Bureau of Customs and does
not refer to "a case already pending or previously investigated or examined by the Commissioner of
 Internal Revenue or the Commissioner of Customs, or any of their deputies, agents or examiners, as
8
the case may be, or the Secretary of Finance or any of his deputies or agents.

In the instant case, not one but two (2) "informations' or affidavit-complaints concerning private respondents' operations
said to be in violation of certain provisions of the National Internal Revenue Code, had been filed with the BIR as of 31
December 1973. In fact, those two (2) affidavit-complaints had matured into two (2) criminal informations in court -
Criminal Cases Nos. 439 and 440 against the respondent accused, by 31 December 1973. The six (6) informations
docketed as Criminal Cases Nos. 538-543, while filed in court only on 14 March 1974, had been based upon the sworn
information previously submitted as of 31 December 1973 to the BIR.

It follows that, even assuming respondent accused Francisco Valencia was otherwise entitled to the benefits of P.D.
No. 370, none of the informations filed against him could have been condoned under the express provisions of the tax
amnesty statute.

Accused Valencia argued that the People were estopped from questioning his entitlement to the benefits of the tax
amnesty, considering that agents of the BIR had already accepted his application for tax amnesty and his payment of
the required fifteen percent (15%) special tax.

This contention does not persuade. At the time he paid the special fifteen percent (15%) tax under P.D. No. 370,
accused Francisco Valencia had in fact already been subjected by the BIR to extensive investigation such that the
criminal charges against him could not be condoned under the provisions of the amnesty statute. Further, acceptance
by the BIR agents of accused Valencia's application for tax amnesty and payment of the fifteen percent (15%) special
tax was no more than a ministerial duty on the part of such agents. Accused Valencia does not pretend that the BIR
had actually ruled that he was entitled to the benefits of the tax amnesty statute. In any case, even assuming, though
only arguendo, that the BIR had so ruled, there is the long familiar rule that "erroneous application and enforcement of
the law by public officers do not block, subsequent correct application of the statute and that the government is never
9
estopped by mistake or error on the part of its agent." which finds application in the case at bar. Still further, a tax
amnesty, much like to a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the
amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing
10
authority. Valencia's payment of the special fifteen percent (15%) tax must be regarded as legally ineffective.

We turn to the second substantive issue which is whether or not the dismissal by the respondent court of the criminal
informations against accused Valencia, inured to the benefit of Valencia's co-accused. Because of the conclusion
reached above, that is, that accused Francisco Valencia was not legally entitled to the benefits of P.D. No. 370 and that
the dismissal of the criminal information as against him was serious error on the part of the respondent Judge, it may
not be strictly necessary to deal with this second issue. There was in fact nothing that could have inured to the benefit
of Valencia's co-accused. It seems appropriate to stress, nonetheless, that co-accused and co-respondents Lee Teng
and Priscilla Castillo de Cura, in order to enjoy the benefits of the tax amnesty statute here involved, must show that
11
they have individually complied with and come within the terms of that statute. The fact that conspiracy had been
alleged in each of the criminal informations here involved certainly could not result in an automatic exemption of Lee
Teng and Priscilla Castillo de Cura from compliance with the requirements of the tax amnesty statute. In the second
place, assuming, for present purposes only, that accused Francisco Valencia was (and he was not) legally entitled to
the benefits of P.D. No. 370 the defense of amnesty which (hypothetically) became available to Valencia was personal
to him. Once more, the allegation of conspiracy made in the several criminal informations here involved, did not have
the effect of making a defense available to one co-conspirator automatically available to the other co-conspirators. The
defense of the tax amnesty under P.D. No. 370 is, like insanity, a personal defense; for that defense relates to the
circumstances of a particular accused and not to the character of the acts charged in the criminal information. The
statute makes the defense of extinguishment of liability available only under very specific circumstances and on the
basis of reciprocity, as it were: the claimant must disclose his previously untaxed income or wealth (which then may be
effectively subjected to future taxation) and surrender to the Government fifteen percent (15%) of such income or
wealth; then, and only then, would the claimant's liability be extinguished. Lee Teng and Pricilla Castillo de Cura never
pretended that they had complied with the requirements of PD No. 370, including that of reciprocity.

We conclude that the respondent Judge's error in respect of the first and second substantive issues considered above
is so gross and palpable as to amount to arbitrary and capricious action and to grave abuse of discretion. Those orders
effectively prevented the People from prosecuting and presenting evidence against the accused-respondents; they
denied the People its day in court. It is well-settled that:

[a] purely capricious dismissal of an information as herein involved, moreover, deprives the State of fair
opportunity to prosecute and convict. It denies the prosecution its day in court. Accordingly, it is a
dismissal without due process and, therefore, null and void. A dismissal invalid for lack of a
fundamental requisite, such as due process, will not constitute a proper basis for the claim of double
12
jeopardy.

WHEREFORE, the Orders of respondent Judge dated 15 July 1974, 18 November 1974, 31 March 1976 and 17
February 1977 are hereby SET ASIDE. Respondent Judge no longer being with the Judiciary, the branch of the
Regional Trial Court of Pampanga seized of Criminal Cases Nos. 439 and 440, and 538-543 inclusive, against the
surviving respondent accused, 13 is hereby ORDERED to proceed with the trial of these criminal cases. Costs against
private respondents.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs. THE COMMISSIONER OF INTERNAL
REVENUE and COURT OF TAX APPEALS, respondents.

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the
issue in this petition.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966,
they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in
1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and
Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of
P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains
taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed
and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968
and 1970.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax amnesties
way back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a
corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the
1
National Internal Revenue Code that the unregistered partnership was subject to corporate income tax as
distinguished from profits derived from the partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income
tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In due
2
course, the respondent court by a majority decision of March 30, 1987, affirmed the decision and action taken by
respondent commissioner with costs against petitioners.

3
It ruled that on the basis of the principle enunciated in Evangelista an unregistered partnership was in fact formed by
petitioners which like a corporation was subject to corporate income tax distinct from that imposed on the partners.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this
case, although there might in fact be a co-ownership between the petitioners, there was no adequate basis for the
conclusion that they thereby formed an unregistered partnership which made "hem liable for corporate income tax
under the Tax Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT

COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT

AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID
DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT
OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)

The petition is meritorious.

4
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista.
In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds
they used in buying several real properties. They appointed their brother to manage their properties with full power to
lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various tenants for several
years and they gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others, from them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as
well as to the residence tax for corporations and the real estate dealers' fixed tax. With respect to the
tax on corporations, the issue hinges on the meaning of the terms corporation and partnership as used
in sections 24 and 84 of said Code, the pertinent parts of which read:

Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships (companies collectives), a tax upon
such income equal to the sum of the following: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participation), associations or insurance companies, but
does not include duly registered general co-partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.

Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the
issue narrows down to their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not a property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. On February
2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00.
This was soon followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00.
Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transcations undertaken, as well as the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property acquired by
petitioners in February, 1943. In other words, one cannot but perceive a character of habituality
peculiar to business transactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners
herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive,
paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization thereof.

4. Since August, 1945, the properties have been under the management of one person, namely,
Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business enterprise
operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15)
years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelists
became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set
up already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
 existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances
5
were present in the cases cited by petitioners herein, and, hence, those cases are not in point.

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner
and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners
purchased certain parcels of land and became co-owners thereof.

In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by
them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when
they sold the two (2) parcels of land after which they did not make any additional or new purchase. The remaining three
(3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to business
transactions for the purpose of gain was not present.

In Evangelista, the properties were leased out to tenants for several years. The business was under the management
of one of the partners. Such condition existed for over fifteen (15) years. None of the circumstances are present in the
case at bar. The co-ownership started only in 1965 and ended in 1970.

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:

I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule
for determining when a transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are
derived;

From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the property. This only means
that, aside from the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a juridical personality
different from that of the individual partners, and the freedom to transfer or assign any interest in the
property by one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I,
1953 ed., pp. 635-636)

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross
returns of that enterprise in proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no common stock or capital, and
no community of interest as principal proprietors in the business itself which the proceeds derived.
(Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being
entitled to share in plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass.
341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b)
generally participating in both profits and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract, manage the business, and dispose of
the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
 The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree
among themselves as to the management, and use of such property and the application of the
6
proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.)

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint
or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a
juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole
property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to
support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby
they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared
in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty
thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since
there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for
said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid
7
obligation of the partnership p. However, as petitioners have availed of the benefits of tax amnesty as individual
taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March 30,
1987 is hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the
corporate income tax liability in this case, without pronouncement as to costs.

SO ORDERED.
 FIRST DIVISION
[ G.R. No. 137377, December 18, 2001 ]

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. MARUBENI CORPORATION, RESPONDENT.

DECISION
PUNO, J.:

In this petition for review, the Commissioner of Internal Revenue assails the decision dated January 15, 1999 of the
Court of Appeals in CA-G.R. SP No. 42518 which affirmed the decision dated July 29, 1996 of the Court of Tax
Appeals in CTA Case No. 4109. The tax court ordered the Commissioner of Internal Revenue to desist from collecting
the 1985 deficiency income, branch profit remittance and contractor's taxes from Marubeni Corporation after finding the
latter to have properly availed of the tax amnesty under Executive Orders Nos. 41 and 64, as amended.

Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It is
engaged in general import and export trading, financing and the construction business. It is duly registered to engage in
such business in the Philippines and maintains a branch office in Manila.

Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine the
books of accounts of the Manila branch office of respondent corporation for the fiscal year ending March 1985. In the
course of the examination, petitioner found respondent to have undeclared income from two (2) contracts in the
Philippines, both of which were completed in 1984. One of the contracts was with the National Development Company
(NDC) in connection with the construction and installation of a wharf/port complex at the Leyte Industrial Development
Estate in the municipality of Isabel, province of Leyte. The other contract was with the Philippine Phosphate Fertilizer
Corporation (Philphos) for the construction of an ammonia storage complex also at the Leyte Industrial Development
Estate.

On March 1, 1986, petitioner's revenue examiners recommended an assessment for deficiency income, branch profit
remittance, contractor's and commercial broker's taxes. Respondent questioned this assessment in a letter dated June
5, 1986.

On August 27, 1986, respondent corporation received a letter dated August 15, 1986 from petitioner assessing
respondent several deficiency taxes. The assessed deficiency internal revenue taxes, inclusive of surcharge and
interest, were as follows:
I. DEFICIENCY INCOME TAX

FY ended March 31, 1985

Undeclared gross income (Philphos and and NDC construction projects). . . . . . . . P 967,269,811.14

Less: Cost and expenses (50%) . . . . . . . . . . . . . . . 483,634,905.57

Net undeclared income . . . . . . . . . . . . . . . . . . . . . . . 483,634,905.57

Income tax due thereon . . . . . . . . . . . . . . . . . . . . . . . 169,272,217.00

Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . . 84,636,108.50

20% int. p.a. fr. 7-15-85 to

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 36,675,646.90

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 290,583,972.40

II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX

FY ended March 31, 1985

Undeclared net income from Philphos and NDC construction projects . . . . . P 483,634,905.57

Less: Income tax thereon . . . . . . . . . . . . . . . . . . . . . 169,272,217.00

Amount subject to Tax . . . . . . . . . . . . . . . . . . . . . . . 314,362,688.57

Tax due thereon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,154,403.00

Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . 23,577,201.50

20% int. p.a. fr. 4-26-85

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 12,305,360.66

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 83,036,965.16

III. DEFICIENCY CONTRACTOR'S TAX

FY ended March 31, 1985

Undeclared gross receipts/ gross income from Philphos and NDC construction
projects . . P 967,269,811.14
Contractor's tax due thereon (4%). . . . . . . . . . . . . . . 38,690,792.00

Add: 50% surcharge for non-declaration. . . . . . 19,345,396.00

25% surcharge for late payment . . . . . . . . . 9,672,698.00

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,708,886.00

Add: 20% int. p.a. fr. 4-21-85 to

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 17,854,739.46

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 85,563,625.46

IV. DEFICIENCY COMMERCIAL BROKER'S TAX

FY ended March 31, 1985

Undeclared share from commission income (denominated as "subsidy from Home

Office"). . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,683,114.50
Tax due thereon . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1,628,569.00

Add: 50% surcharge for non-declaration. . . . . . . 814,284.50

25% surcharge for late payment . . . . . . . . . 407,142.25

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,849,995.75

Add: 20% int. p.a. fr. 4-21-85

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 751,539.98

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . P 3,600,535.68

The 50% surcharge was imposed for your client's failure to report for tax purposes the aforesaid taxable revenues while
the 25% surcharge was imposed because of your client's failure to pay on time the above deficiency percentage taxes.
[1]
xxx xxx x x x."
Petitioner found that the NDC and Philphos contracts were made on a "turn-key" basis and that the gross income from
the two projects amounted to P967,269,811.14. Each contract was for a piece of work and since the projects called for
the construction and installation of facilities in the Philippines, the entire income therefrom constituted income from
Philippine sources, hence, subject to internal revenue taxes. The assessment letter further stated that the same was
petitioner's final decision and that if respondent disagreed with it, respondent may file an appeal with the Court of Tax
Appeals within thirty (30) days from receipt of the assessment.
On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals. The first petition,
CTA Case No. 4109, questioned the deficiency income, branch profit remittance and contractor's tax assessments in
petitioner's assessment letter. The second, CTA Case No. 4110, questioned the deficiency commercial broker's
assessment in the same letter.
[2]
Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 declaring a one-time amnesty covering unpaid income
taxes for the years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of the income tax
amnesty should, on or before October 31, 1986: (a) file a sworn statement declaring his net worth as of December 31,
1985; (b) file a certified true copy of his statement declaring his net worth as of December 31, 1980 on record with the
Bureau of Internal Revenue (BIR), or if no such record exists, file a statement of said net worth subject to verification by
the BIR; and (c) file a return and pay a tax equivalent to ten per cent (10%) of the increase in net worth from December
31, 1980 to December 31, 1985.

In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986 and
attached thereto its sworn statement of assets and liabilities and net worth as of Fiscal Year (FY) 1981 and FY 1986.
The return was received by the BIR on November 3, 1986 and respondent paid the amount of P2,891,273.00
equivalent to ten percent (10%) of its net worth increase between 1981 and 1986.

The period of the amnesty in E.O. No. 41 was later extended from October 31, 1986 to December 5, 1986 by E.O. No.
54 dated November 4, 1986.

On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64. In
[3]
addition to the income tax amnesty granted by E.O. No. 41 for the years 1981 to 1985, E.O. No. 64 included estate
and donor's taxes under Title III and the tax on business under Chapter II, Title V of the National Internal Revenue
Code, also covering the years 1981 to 1985. E.O. No. 64 further provided that the immunities and privileges under E.O.
No. 41 were extended to the foregoing tax liabilities, and the period within which the taxpayer could avail of the
amnesty was extended to December 15, 1986. Those taxpayers who already filed their amnesty return under E.O. No.
41, as amended, could avail themselves of the benefits, immunities and privileges under the new E.O. by filing an
amended return and paying an additional 5% on the increase in net worth to cover business, estate and donor's tax
liabilities.

The period of amnesty under E.O. No. 64 was extended to January 31, 1987 by E.O No. 95 dated December 17, 1986.

On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64 and paid
a further amount of P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase of its net worth between
1981 and 1986.

On July 29, 1996, almost ten (10) years after filing of the case, the Court of Tax Appeals rendered a decision in CTA
Case No. 4109. The tax court found that respondent had properly availed of the tax amnesty under E.O. Nos. 41 and
64 and declared the deficiency taxes subject of said case as deemed cancelled and withdrawn. The Court of Tax
Appeals disposed of as follows:
"WHEREFORE, the respondent Commissioner of Internal Revenue is hereby ORDERED to DESIST from collecting the
1985 deficiency taxes it had assessed against petitioner and the same are deemed considered [sic] CANCELLED and
WITHDRAWN by reason of the proper availment by petitioner of the amnesty under Executive Order No. 41, as
[4]
amended."
Petitioner challenged the decision of the tax court by filing CA-G.R. SP No. 42518 with the Court of Appeals.

On January 15, 1999, the Court of Appeals dismissed the petition and affirmed the decision of the Court of Tax
Appeals. Hence, this recourse.

Before us, petitioner raises the following issues:

"(1) Whether or not the Court of Appeals erred in affirming the Decision of the Court of Tax Appeals which ruled that
herein respondent's deficiency tax liabilities were extinguished upon respondent's availment of tax amnesty under
Executive Orders Nos. 41 and 64.

(2) Whether or not respondent is liable to pay the income, branch profit remittance, and contractor's taxes assessed by
[5]
petitioner."
The main controversy in this case lies in the interpretation of the exception to the amnesty coverage of E.O. Nos. 41
and 64. There are three (3) types of taxes involved herein-- income tax, branch profit remittance tax and contractor's
tax. These taxes are covered by the amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however, that
respondent is disqualified from availing of the said amnesties because the latter falls under the exception in Section 4
(b) of E.O. No. 41.

Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted thereunder, viz:
"Sec. 4. Exceptions.--The following taxpayers may not avail themselves of the amnesty herein granted:

a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;

b) Those with income tax cases already filed in Court as of the effectivity hereof;
c) Those with criminal cases involving violations of the income tax law already filed in court as of the effectivity
hereof;

d) Those that have withholding tax liabilities under the National Internal Revenue Code, as amended, insofar as the
said liabilities are concerned;

e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a
result of information furnished under Section 316 of the National Internal Revenue Code, as amended;

f) Those with pending cases involving unexplained or unlawfully acquired wealth before the Sandiganbayan;

g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and Transactions) and Chapter Four
(Malversation of Public Funds and Property) of the Revised Penal Code, as amended."
Petitioner argues that at the time respondent filed for income tax amnesty on October 30, 1986, CTA Case No. 4109
had already been filed and was pending before the Court of Tax Appeals. Respondent therefore fell under the
exception in Section 4 (b) of E.O. No. 41.

Petitioner's claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from
income tax amnesty those taxpayers "with income tax cases already filed in court as of the effectivity hereof." The point
of reference is the date of effectivity of E.O. No. 41. The filing of income tax cases in court must have been made
before and as of the date of effectivity of E.O. No. 41. Thus, for a taxpayer not to be disqualified under Section 4 (b)
there must have been no income tax cases filed in court against him when E.O. No. 41 took effect. This is regardless of
when the taxpayer filed for income tax amnesty, provided of course he files it on or before the deadline for filing.

E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency income, branch profit
remittance and contractor's tax assessments was filed by respondent with the Court of Tax Appeals on September 26,
1986. When E.O. No. 41 became effective on August 22, 1986, CTA Case No. 4109 had not yet been filed in court.
Respondent corporation did not fall under the said exception in Section 4 (b), hence, respondent was not disqualified
from availing of the amnesty for income tax under E.O. No. 41.

The same ruling also applies to the deficiency branch profit remittance tax assessment. A branch profit remittance tax
[6]
is defined and imposed in Section 24 (b) (2) (ii), Title II, Chapter III of the National Internal Revenue Code. In the tax
code, this tax falls under Title II on Income Tax. It is a tax on income. Respondent therefore did not fall under the
exception in Section 4 (b) when it filed for amnesty of its deficiency branch profit remittance tax assessment.

The difficulty herein is with respect to the contractor's tax assessment and respondent's availment of the amnesty
under E.O. No. 64. E.O. No. 64 expanded the coverage of E.O. No. 41 by including estate and donor's taxes and tax
on business. Estate and donor's taxes fall under Title III of the Tax Code while business taxes fall under Chapter II,
Title V of the same. The contractor's tax is provided in Section 205, Chapter II, Title V of the Tax Code; it is defined and
[7]
imposed under the title on business taxes, and is therefore a tax on business.

When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to the coverage of the amnesty
for business, estate and donor's taxes. Instead, Section 8 of E.O. No. 64 provided that:
"Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or inconsistent with this
amendatory Executive Order shall remain in full force and effect."
By virtue of Section 8 as afore-quoted, the provisions of E.O. No. 41 not contrary to or inconsistent with the amendatory
act were reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the exceptions to amnesty coverage also applied
to E.O. No. 64. With respect to Section 4 (b) in particular, this provision excepts from tax amnesty coverage a taxpayer
who has "income tax cases already filed in court as of the effectivity hereof." As to what Executive Order the exception
[8]
refers to, respondent argues that because of the words "income" and "hereof," they refer to Executive Order No. 41.

In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to E.O. No. 41 and its
[9]
date of effectivity. The general rule is that an amendatory act operates prospectively. While an amendment is
[10]
generally construed as becoming a part of the original act as if it had always been contained therein, it may not be
given a retroactive effect unless it is so provided expressly or by necessary implication and no vested right or
[11]
obligations of contract are thereby impaired.

There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original
issuance. Neither is it necessarily implied from E.O. No. 64 that it or any of its provisions should apply
retroactively. Executive Order No. 64 is a substantive amendment of E.O. No. 41. It does not merely change
[12]
provisions in E.O. No. 41. It supplements the original act by adding other taxes not covered in the first. It has been
held that where a statute amending a tax law is silent as to whether it operates retroactively, the amendment will not be
[13]
given a retroactive effect so as to subject to tax past transactions not subject to tax under the original act. In an
[14]
amendatory act, every case of doubt must be resolved against its retroactive effect.

Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or intentional
overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a
[15]
revenue or tax law. It partakes of an absolute forgiveness or waiver by the government of its right to collect what is
[16]
due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax
[17]
exemption, is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption,
 [18]
must be construed strictly against the taxpayer and liberally in favor of the taxing authority. For the right of taxation is
inherent in government. The State cannot strip itself of the most essential power of taxation by doubtful words. He who
claims an exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic or
state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to the intent of the legislature, that
[19]
doubt must be resolved in favor of the state.

In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore be construed strictly
against the taxpayer. The term "income tax cases" should be read as to refer to estate and donor's taxes and taxes on
business while the word "hereof," to E.O. No. 64. Since Executive Order No. 64 took effect on November 17, 1986,
consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivity referred to in Section 4 (b) of
E.O. No. 41 should be November 17, 1986.

Respondent filed CTA Case No. 4109 on September 26, 1986. When E.O. No. 64 took effect on November 17, 1986,
CTA Case No. 4109 was already filed and pending in court. By the time respondent filed its supplementary tax amnesty
return on December 15, 1986, respondent already fell under the exception in Section 4 (b) of E.O. Nos. 41 and 64 and
was disqualified from availing of the business tax amnesty granted therein.

It is respondent's other argument that assuming it did not validly avail of the amnesty under the two Executive Orders, it
is still not liable for the deficiency contractor's tax because the income from the projects came from the "Offshore
Portion" of the contracts. The two contracts were divided into two parts, i.e., the Onshore Portion and the Offshore
Portion. All materials and equipment in the contract under the "Offshore Portion" were manufactured and completed in
Japan, not in the Philippines, and are therefore not subject to Philippine taxes.

Before going into respondent's arguments, it is necessary to discuss the background of the two contracts, examine
their pertinent provisions and implementation.

The NDC and Philphos are two government corporations. In 1980, the NDC, as the corporate investment arm of the
Philippine Government, established the Philphos to engage in the large-scale manufacture of phosphatic fertilizer for
[20]
the local and foreign markets. The Philphos plant complex which was envisioned to be the largest phosphatic
fertilizer operation in Asia, and among the largest in the world, covered an area of 180 hectares within the 435-hectare
Leyte Industrial Development Estate in the municipality of Isabel, province of Leyte.

In 1982, the NDC opened for public bidding a project to construct and install a modern, reliable, efficient and integrated
wharf/port complex at the Leyte Industrial Development Estate. The wharf/ port complex was intended to be one of the
major facilities for the industrial plants at the Leyte Industrial Development Estate. It was to be specifically adapted to
the site for the handling of phosphate rock, bagged or bulk fertilizer products, liquid materials and other products of
[21]
Philphos, the Philippine Associated Smelting and Refining Corporation (Pasar), and other industrial plants within the
Estate. The bidding was participated in by Marubeni Head Office in Japan.

Marubeni, Japan pre-qualified and on March 22, 1982, the NDC and respondent entered into an agreement entitled
"Turn-Key Contract for Leyte Industrial Estate Port Development Project Between National Development Company and
[22]
Marubeni Corporation." The Port Development Project would consist of a wharf, berths, causeways, mechanical and
liquids unloading and loading systems, fuel oil depot, utilities systems, storage and service buildings, offsite facilities,
harbor service vessels, navigational aid system, fire-fighting system, area lighting, mobile equipment, spare parts and
[23]
other related facilities. The scope of the works under the contract covered turn-key supply, which included grants of
[24]
licenses and the transfer of technology and know-how, and:
"x x x the design and engineering, supply and delivery, construction, erection and installation, supervision, direction
and control of testing and commissioning of the Wharf-Port Complex as set forth in Annex I of this Contract, as well as
the coordination of tie-ins at boundaries and schedule of the use of a part or the whole of the Wharf/Port Complex
through the Owner, with the design and construction of other facilities around the site. The scope of works shall also
include any activity, work and supply necessary for, incidental to or appropriate under present international industrial
port practice, for the timely and successful implementation of the object of this Contract, whether or not expressly
[25]
referred to in the abovementioned Annex I."
The contract price for the wharf/ port complex was Y12,790,389,000.00 and P44,327,940.00. In the contract, the price
in Japanese currency was broken down into two portions: (1) the Japanese Yen Portion I; (2) the Japanese Yen
Portion II, while the price in Philippine currency was referred to as the Philippine Pesos Portion. The Japanese Yen
Portions I and II were financed in two (2) ways: (a) by yen credit loan provided by the Overseas Economic Cooperation
Fund (OECF); and (b) by supplier's credit in favor of Marubeni from the Export-Import Bank of Japan. The OECF is a
Fund under the Ministry of Finance of Japan extended by the Japanese government as assistance to foreign
[26]
governments to promote economic development. The OECF extended to the Philippine Government a loan of
Y7,560,000,000.00 for the Leyte Industrial Estate Port Development Project and authorized the NDC to implement the
[27]
same. The other type of financing is an indirect type where the supplier, i.e., Marubeni, obtained a loan from the
[28]
Export-Import Bank of Japan to advance payment to its sub-contractors.

Under the financing schemes, the Japanese Yen Portions I and II and the Philippine Pesos Portion were further broken
down and subdivided according to the materials, equipment and services rendered on the project. The price breakdown
and the corresponding materials, equipment and services were contained in a list attached as Annex III to the
[29]
contract.

A few months after execution of the NDC contract, Philphos opened for public bidding a project to construct and install
two ammonia storage tanks in Isabel. Like the NDC contract, it was Marubeni Head Office in Japan that participated in
and won the bidding. Thus, on May 2, 1982, Philphos and respondent corporation entered into an agreement entitled
"Turn-Key Contract for Ammonia Storage Complex Between Philippine Phosphate Fertilizer Corporation and Marubeni
[30]
Corporation." The object of the contract was to establish and place in operating condition a modern, reliable, efficient
and integrated ammonia storage complex adapted to the site for the receipt and storage of liquid anhydrous
 [31]
ammonia and for the delivery of ammonia to an integrated fertilizer plant adjacent to the storage complex and to
[32]
vessels at the dock. The storage complex was to consist of ammonia storage tanks, refrigeration system, ship
unloading system, transfer pumps, ammonia heating system, fire-fighting system, area lighting, spare parts, and other
[33]
related facilities. The scope of the works required for the completion of the ammonia storage complex covered the
[34]
supply, including grants of licenses and transfer of technology and know-how, and:
"x x x the design and engineering, supply and delivery, construction, erection and installation, supervision, direction
and control of testing and commissioning of the Ammonia Storage Complex as set forth in Annex I of this Contract, as
well as the coordination of tie-ins at boundaries and schedule of the use of a part or the whole of the Ammonia Storage
Complex through the Owner with the design and construction of other facilities at and around the Site. The scope of
works shall also include any activity, work and supply necessary for, incidental to or appropriate under present
international industrial practice, for the timely and successful implementation of the object of this Contract, whether or
[35]
not expressly referred to in the abovementioned Annex I."
The contract price for the project was Y3,255,751,000.00 and P17,406,000.00. Like the NDC contract, the price was
divided into three portions. The price in Japanese currency was broken down into the Japanese Yen Portion I and
Japanese Yen Portion II while the price in Philippine currency was classified as the Philippine Pesos Portion. Both
Japanese Yen Portions I and II were financed by supplier's credit from the Export-Import Bank of Japan. The
pricestated in the three portions were further broken down into the corresponding materials, equipment and services
required for the project and their individual prices. Like the NDC contract, the breakdown in the Philphos contract is
[36]
contained in a list attached to the latter as Annex III.

The division of the price into Japanese Yen Portions I and II and the Philippine Pesos Portion under the two contracts
corresponds to the two parts into which the contracts were classified--the Foreign Offshore Portion and the Philippine
Onshore Portion. In both contracts, the Japanese Yen Portion I corresponds to the Foreign Offshore
[37] [38]
Portion. Japanese Yen Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.

Under the Philippine Onshore Portion, respondent does not deny its liability for the contractor's tax on the income from
the two projects. In fact respondent claims, which petitioner has not denied, that the income it derived from the
Onshore Portion of the two projects had been declared for tax purposes and the taxes thereon already paid to the
[39]
Philippine government. It is with regard to the gross receipts from the Foreign Offshore Portion of the two contracts
that the liabilities involved in the assessments subject of this case arose. Petitioner argues that since the two
[40]
agreements are turn-key, they call for the supply of both materials and services to the client, they are contracts for a
piece of work and are indivisible. The situs of the two projects is in the Philippines, and the materials provided and
[41]
services rendered were all done and completed within the territorial jurisdiction of the Philippines. Accordingly,
respondent's entire receipts from the contracts, including its receipts from the Offshore Portion, constitute income from
Philippine sources. The total gross receipts covering both labor and materials should be subjected to contractor's tax in
[42]
accordance with the ruling in Commissioner of Internal Revenue v. Engineering Equipment & Supply Co.

A contractor's tax is imposed in the National Internal Revenue Code (NIRC) as follows:
"Sec. 205. Contractors, proprietors or operators of dockyards, and others.--A contractor's tax of four percent of the
gross receipts is hereby imposed on proprietors or operators of the following business establishments and/or persons
engaged in the business of selling or rendering the following services for a fee or compensation:
(a) General engineering, general building and specialty contractors, as defined in Republic Act No. 4566;

xxx xxx xxx

(q) Other independent contractors. The term "independent contractors" includes persons (juridical or natural) not
enumerated above (but not including individuals subject to the occupation tax under the Local Tax Code) whose activity
consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the
service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. It does
not include regional or area headquarters established in the Philippines by multinational corporations, including their
alien executives, and which headquarters do not earn or derive income from the Philippines and which act as
supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
Region.
[43]
xxx xxx x x x."
Under the afore-quoted provision, an independent contractor is a person whose activity consists essentially of the sale
of all kinds of services for a fee, regardless of whether or not the performance of the service calls for the exercise or
use of the physical or mental faculties of such contractors or their employees. The word "contractor" refers to a person
who, in the pursuit of independent business, undertakes to do a specific job or piece of work for other persons, using
[44]
his own means and methods without submitting himself to control as to the petty details.
[45]
A contractor's tax is a tax imposed upon the privilege of engaging in business. It is generally in the nature of an
[46]
excise tax on the exercise of a privilege of selling services or labor rather than a sale on products; and is directly
[47]
collectible from the person exercising the privilege. Being an excise tax, it can be levied by the taxing authority only
[48]
when the acts, privileges or business are done or performed within the jurisdiction of said authority. Like property
[49]
taxes, it cannot be imposed on an occupation or privilege outside the taxing district.

In the case at bar, it is undisputed that respondent was an independent contractor under the terms of the two subject
contracts. Respondent, however, argues that the work therein were not all performed in the Philippines because some
of them were completed in Japan in accordance with the provisions of the contracts.

An examination of Annex III to the two contracts reveals that the materials and equipment to be made and the works
and services to be performed by respondent are indeed classified into two. The first part, entitled "Breakdown of
Japanese Yen Portion I" provides:
"Japanese Yen Portion I of the Contract Price has been subdivided according to discrete portions of materials and
equipment which will be shipped to Leyte as units and lots. This subdivision of price is to be used by owner to
verify invoice for Progress Payments under Article 19.2.1 of the Contract. The agreed subdivision of Japanese Yen
Portion I is as follows:
[50]
xxx xxx x x x."
The subdivision of Japanese Yen Portion I covers materials and equipment while Japanese Yen Portion II and the
Philippine Pesos Portion enumerate other materials and equipment and the construction and installation work on the
project. In other words, the supplies for the project are listed under Portion I while labor and other supplies are listed
under Portion II and the Philippine Pesos Portion. Mr. Takeshi Hojo, then General Manager of the Industrial Plant
Section II of the Industrial Plant Department of Marubeni Corporation in Japan who supervised the implementation of
the two projects, testified that all the machines and equipment listed under Japanese Yen Portion I in Annex III were
[51]
manufactured in Japan. The machines and equipment were designed, engineered and fabricated by Japanese firms
[52]
sub-contracted by Marubeni from the list of sub-contractors in the technical appendices to each contract. Marubeni
sub-contracted a majority of the equipment and supplies to Kawasaki Steel Corporation which did the design,
[53]
fabrication, engineering and manufacture thereof; Yashima & Co. Ltd. which manufactured the mobile equipment;
[54]
Bridgestone which provided the rubber fenders of the mobile equipment; and B.S. Japan for the supply of radio
[55]
equipment. The engineering and design works made by Kawasaki Steel Corporation included the lay-out of the plant
[56]
facility and calculation of the design in accordance with the specifications given by respondent. All sub-contractors
and manufacturers are Japanese corporations and are based in Japan and all engineering and design works were
[57]
performed in that country.

The materials and equipment under Portion I of the NDC Port Project is primarily composed of two (2) sets of ship
[58]
unloader and loader; several boats and mobile equipment. The ship unloader unloads bags or bulk products from the
ship to the port while the ship loader loads products from the port to the ship. The unloader and loader are big steel
structures on top of each is a large crane and a compartment for operation of the crane. Two sets of these equipment
were completely manufactured in Japan according to the specifications of the project. After manufacture, they were
[59]
rolled on to a barge and transported to Isabel, Leyte. Upon reaching Isabel, the unloader and loader were rolled off
[60]
the barge and pulled to the pier to the spot where they were installed. Their installation simply consisted of bolting
[61]
them onto the pier.

Like the ship unloader and loader, the three tugboats and a line boat were completely manufactured in Japan. The
boats sailed to Isabel on their own power. The mobile equipment, consisting of three to four sets of tractors, cranes and
dozers, trailers and forklifts, were also manufactured and completed in Japan. They were loaded on to a shipping
vessel and unloaded at the Isabel Port. These pieces of equipment were all on wheels and self-propelled. Once
[62]
unloaded at the port, they were ready to be driven and perform what they were designed to do.

In addition to the foregoing, there are other items listed in Japanese Yen Portion I in Annex III to the NDC contract.
These other items consist of supplies and materials for five (5) berths, two (2) roads, a causeway, a warehouse, a
transit shed, an administration building and a security building. Most of the materials consist of steel sheets, steel
pipes, channels and beams and other steel structures, navigational and communication as well as electrical
[63]
equipment.

In connection with the Philphos contract, the major pieces of equipment supplied by respondent were the ammonia
[64]
storage tanks and refrigeration units. The steel plates for the tank were manufactured and cut in Japan according to
drawings and specifications and then shipped to Isabel. Once there, respondent's employees put the steel plates
together to form the storage tank. As to the refrigeration units, they were completed and assembled in Japan and
[65]
thereafter shipped to Isabel. The units were simply installed there. Annex III to the Philphos contract lists down under
the Japanese Yen Portion I the materials for the ammonia storage tank, incidental equipment, piping facilities, electrical
and instrumental apparatus, foundation material and spare parts.

All the materials and equipment transported to the Philippines were inspected and tested in Japan prior to shipment in
[66]
accordance with the terms of the contracts. The inspection was made by representatives of respondent corporation,
of NDC and Philphos. NDC, in fact, contracted the services of a private consultancy firm to verify the correctness of the
[67]
tests on the machines and equipment while Philphos sent a representative to Japan to inspect the storage
[68]
equipment.

The sub-contractors of the materials and equipment under Japanese Yen Portion I were all paid by respondent in
Japan. In his deposition upon oral examination, Kenjiro Yamakawa, formerly the Assistant General Manager and
Manager of the Steel Plant Marketing Department, Engineering & Construction Division, Kawasaki Steel Corporation,
testified that the equipment and supplies for the two projects provided by Kawasaki under Japanese Yen Portion I were
paid by Marubeni in Japan. Receipts for such payments were duly issued by Kawasaki in Japanese and
[69] [70]
English. Yashima & Co. Ltd. and B.S. Japan were likewise paid by Marubeni in Japan.

Between Marubeni and the two Philippine corporations, payments for all materials and equipment under Japanese Yen
Portion I were made to Marubeni by NDC and Philphos also in Japan. The NDC, through the Philippine National Bank,
established letters of credit in favor of respondent through the Bank of Tokyo. The letters of credit were financed by
letters of commitment issued by the OECF with the Bank of Tokyo. The Bank of Tokyo, upon respondent's submission
of pertinent documents, released the amount in the letters of credit in favor of respondent and credited the amount
[71]
therein to respondent's account within the same bank.

Clearly, the service of "design and engineering, supply and delivery, construction, erection and installation, supervision,
[72]
direction and control of testing and commissioning, coordination..." of the two projects involved two taxing
jurisdictions. These acts occurred in two countries - Japan and the Philippines. While the construction and installation
work were completed within the Philippines, the evidence is clear that some pieces of equipment and supplies were
completely designed and engineered in Japan. The two sets of ship unloader and loader, the boats and mobile
equipment for the NDC project and the ammonia storage tanks and refrigeration units were made and completed in
Japan. They were already finished products when shipped to the Philippines. The other construction supplies listed
under the Offshore Portion such as the steel sheets, pipes and structures, electrical and instrumental apparatus, these
were not finished products when shipped to the Philippines. They, however, were likewise fabricated and manufactured
by the sub-contractors in Japan. All services for the design, fabrication, engineering and manufacture of the materials
and equipment under Japanese Yen Portion I were made and completed in Japan. These services were rendered
outside the taxing jurisdiction of the Philippines and are therefore not subject to contractor's tax.

Contrary to petitioner's claim, the case of Commissioner of Internal Revenue v. Engineering Equipment & Supply
[73]
Co is not in point. In that case, the Court found that Engineering Equipment, although an independent contractor,
was not engaged in the manufacture of air conditioning units in the Philippines. Engineering Equipment designed,
supplied and installed centralized air-conditioning systems for clients who contracted its services. Engineering,
however, did not manufacture all the materials for the air-conditioning system. It imported some items for the system it
[74]
designed and installed. The issues in that case dealt with services performed within the local taxing jurisdiction.
There was no foreign element involved in the supply of materials and services.

With the foregoing discussion, it is unnecessary to discuss the other issues raised by the parties.

IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R. SP No. 42518 is affirmed.

SO ORDERED.
 THIRD DIVISION
[ G.R. No. 115349, April 18, 1997 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. THE COURT OF APPEALS, THE COURT OF TAX
APPEALS AND ATENEO DE MANILA UNIVERSITY, RESPONDENTS.

DECISION
PANGANIBAN, J.:

In conducting researches and studies of social organizations and cultural values thru its Institute of Philippine Culture,
is the Ateneo de Manila University performing the work of an independent contractor and thus taxable within the
purview of then Section 205 of the National Internal Revenue Code levying a three percent contractor‘s tax? This
[1]
question is answered by the Court in the negative as it resolves this petition assailing the Decision of the Respondent
[2]
Court of Appeals in CA-G.R. SP No. 31790 promulgated on April 27, 1994 affirming that of the Court of Tax
[3]
Appeals.

The Antecedent Facts

The antecedents as found by the Court of Appeals are reproduced hereinbelow, the same being largely undisputed by
the parties.

―Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches all over the
Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal personality separate
and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine
society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations,
private foundations and government agencies.

On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated
June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor‘s tax, and an
assessment dated June 27, 1983 in the sum of P1,141,837 for alleged deficiency income tax, both for the fiscal year
ended March 31, 1978. Denying said tax liabilities, private respondent sent petitioner a letter-protest and subsequently
filed with the latter a memorandum contesting the validity of the assessments.

On March 17, 1988, petitioner rendered a letter-decision canceling the assessment for deficiency income tax but
modifying the assessment for deficiency contractor‘s tax by increasing the amount due to P193,475.55. Unsatisfied,
private respondent requested for a reconsideration or reinvestigation of the modified assessment. At the same time, it
filed in the respondent court a petition for review of the said letter-decision of the petitioner. While the petition was
pending before the respondent court, petitioner issued a final decision dated August 3, 1988 reducing the assessment
for deficiency contractor‘s tax from P193,475.55 to P46,516.41, exclusive of surcharge and interest.

On July 12, 1993, the respondent court rendered the questioned decision which dispositively reads:
‗WHEREFORE, in view of the foregoing, respondent‘s decision is SET ASIDE. The deficiency contractor‘s tax
assessment in the amount of P46,516.41 exclusive of surcharge and interest for the fiscal year ended March 31, 1978
is hereby CANCELED. No pronouncement as to cost.

SO ORDERED.‘
Not in accord with said decision, petitioner has come to this Court via the present petition for review raising the
following issues:

‗1)WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER THE PURVIEW OF INDEPENDENT

CONTRACTOR PURSUANT TO SECTION 205 OF THE TAX CODE; and

2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO 3% CONTRACTOR‘S TAX UNDER SECTION 205
OF THE TAX CODE‘.
The pertinent portions of Section 205 of the National Internal Revenue Code, as amended, provide:
‗Sec. 205. Contractor, proprietors or operators of dockyards, and others. - A contractor‘s tax of three per centum of the
gross receipts is hereby imposed on the following:

xxx xxx xxx

(16) Business agents and other independent contractors except persons, associations and corporations under
contract for embroidery and apparel for export, as well as their agents and contractors and except gross receipts of or
from a pioneer industry registered with the Board of Investments under Republic Act No. 5186:

xxx xxx xxx

The term ‗independent contractors‘ include persons (juridical or natural) not enumerated above (but not including
individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of
the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the
exercise or use of the physical or mental faculties of such contractors or their employees.

xxx xxx xxx

 Petitioner contends that the respondent court erred in holding that private respondent is not an ―independent
contractor‖ within the purview of Section 205 of the Tax Code. To petitioner, the term ―independent contractor‖, as
defined by the Code, encompasses all kinds of services rendered for a fee and that the only exceptions are the
following:

‗a. Persons, association and corporations under contract for embroidery and apparel for export and gross
receipts of or from pioneer industry registered with the Board of Investment under R.A. No. 5186;

b. Individuals occupation tax under Section 12 of the Local Tax Code (under the old Section 182 [b] of the Tax
Code); and

c. Regional or area headquarters established in the Philippines by multinational corporations, including their
alien executives, and which headquarters do not earn or derive income from the Philippines and which act as
supervisory, communication and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific
Region (Section 205 of the Tax Code).‘
Petitioner thus submits that since private respondent falls under the definition of an ―independent contractor‖ and is not
among the aforementioned exceptions, private respondent is therefore subject to the 3% contractor‘s tax imposed
[4]
under the same Code.‖
The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue and affirmed the assailed
decision of the Court of Tax Appeals. Unfazed, petitioner now asks us to reverse the CA through this petition for
review.

The Issues
Petitioner submits before us the following issues:

―1) Whether or not private respondent falls under the purview of independent contractor pursuant to Section 205
of the Tax Code
[5]
2) Whether or not private respondent is subject to 3% contractor‘s tax under Section 205 of the Tax Code.‖

In fine, these may be reduced to a single issue: Is Ateneo de Manila University, through its auxiliary unit or branch --
the Institute of Philippine Culture -- performing the work of an independent contractor and, thus, subject to the three
percent contractor‘s tax levied by then Section 205 of the National Internal Revenue Code?

The Court’s Ruling

The petition is unmeritorious.

Interpretation of Tax Laws

The parts of then Section 205 of the National Internal Revenue Code germane to the case before us read:

―SEC. 205. Contractors, proprietors or operators of dockyards, and others. -- A contractor‘s tax of three per centum
of the gross receipts is hereby imposed on the following:

xxx xxx xxx

(16) Business agents and other independent contractors, except persons, associations and corporations under
contract for embroidery and apparel for export, as well as their agents and contractors, and except gross receipts of or
from a pioneer industry registered with the Board of Investments under the provisions of Republic Act No. 5186;

xxx xxx xxx

The term ‗independent contractors‘ include persons (juridical or natural) not enumerated above (but not including
individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of
the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the
exercise or use of the physical or mental faculties of such contractors or their employees.

The term ‗independent contractor‘ shall not include regional or area headquarters established in the Philippines by
multinational corporations, including their alien executives, and which headquarters do not earn or derive income from
the Philippines and which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries
or branches in the Asia-Pacific Region.

The term ‗gross receipts‘ means all amounts received by the prime or principal contractor as the total contract price,
undiminished by amount paid to the subcontractor, shall be excluded from the taxable gross receipts of the
subcontractor.‖

Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila University ―falls
within the definition‖ of an independent contractor and ―is not one of those mentioned as excepted‖; hence, it is properly
[6]
a subject of the three percent contractor‘s tax levied by the foregoing provision of law. Petitioner states that the ―term
‗independent contractor‘ is not specifically defined so as to delimit the scope thereof, so much so that any person who x
x x renders physical and mental service for a fee, is now indubitably considered an independent contractor liable to 3%
[7]
contractor‘s tax.‖ according to petitioner, Ateneo has the burden of proof to show its exemption from the coverage of
the law.
We disagree. Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without
first applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is obviously both illogical and
impractical to determine who are exempted without first determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private respondent was covered by Section 205, applying the rule of strict
interpretation of laws imposing taxes and other burdens on the populace, before asking Ateneo to prove its exemption
therefrom. The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws that ―(a)
statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. x x x (A) tax
cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing
[8]
act are not to be extended by implication.‖ Parenthetically, in answering the question of who is subject to tax statutes,
it is basic that ―in case of doubt, such statutes are to be construed most strongly against the government and in favor of
the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes
[9]
expressly and clearly import.‖

To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent contractor
be engaged in the business of selling its services. Hence, to impose the three percent contractor‘s tax on Ateneo‘s
Institute of Philippine Culture, it should be sufficiently proven that the private respondent is indeed selling its services
for a fee in pursuit of an independent business. And it is only after private respondent has been found clearly to be
subject to the provisions of Sec. 205 that the question of exemption therefrom would arise. Only after such coverage is
shown does the rule of construction -- that tax exemptions are to be strictly construed against the taxpayer -- come into
play, contrary to petitioner‘s position. This is the main line of reasoning of the Court of Tax Appeals in its
[10]
decision, which was affirmed by the CA.

The Ateneo de Manila University Did Not Contract for the Sale of the Services of its Institute of Philippine Culture

After reviewing the records of this case, we find no evidence that Ateneo‘s Institute of Philippine Culture ever sold its
services for a fee to anyone or was ever engaged in a business apart from and independently of the academic
purposes of the university.

Stressing that ―it is not the Ateneo de Manila University per se which is being taxed,‖ Petitioner Commissioner of
Internal Revenue contends that ―the tax is due on its activity of conducting researches for a fee. The tax is due on the
gross receipts made in favor of IPC pursuant to the contracts the latter entered to conduct researches for the benefit
primarily of its clients. The tax is imposed on the exercise of a taxable activity. x x x [T]he sale of services of private
respondent is made under a contract and the various contracts entered into between private respondent and its clients
[11]
are almost of the same terms, showing, among others, the compensation and terms of payment.‖ (Underscoring
supplied.)

In theory, the Commissioner of Internal Revenue may be correct. However, the records do not show that Ateneo‘s IPC
in fact contracted to sell its research services for a fee. Clearly then, as found by the Court of Appeals and the Court of
Tax Appeals, petitioner‘s theory is inapplicable to the established factual milieu obtaining in the instant case.

In the first place, the petitioner has presented no evidence to prove its bare contention that, indeed, contracts for sale
of services were ever entered into by the private respondent. As appropriately pointed out by the latter:
―An examination of the Commissioner‘s Written Formal Offer of Evidence in the Court of Tax Appeals shows that only
the following documentary evidence was presented:
Exhibit 1 BIR letter of authority no. 331844

2 Examiner‘s Field Audit Report

3 Adjustments to Sales/Receipts

4 Letter-decision of BIR Commissioner

Bienvenido A. Tan Jr.

None of the foregoing evidence even comes close to purport to be contracts between private respondent and third
[12]
parties.‖

Moreover, the Court of Tax Appeals accurately and correctly declared that the ―funds received by the Ateneo de Manila
University are technically not a fee. They may however fall as gifts or donations which are tax-exempt‖ as shown by
private respondent‘s compliance with the requirement of Section 123 of the National Internal Revenue Code providing
[13]
for the exemption of such gifts to an educational institution.

Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals:
―To our mind, private respondent hardly fits into the definition of an ‗independent contractor‘.

For one, the established facts show that IPC, as a unit of the private respondent, is not engaged in business.
Undisputedly, private respondent is mandated by law to undertake research activities to maintain its university status.
In fact, the research activities being carried out by the IPC is focused not on business or profit but on social sciences
studies of Philippine society and culture. Since it can only finance a limited number of IPC’s research projects, private
respondent occasionally accepts sponsorship for unfunded IPC research projects from international organizations,
private foundations and governmental agencies. However, such sponsorships are subject to private respondent’s terms
and conditions, among which are, that the research is confined to topics consistent with the private respondent’s
academic agenda; that no proprietary or commercial purpose research is done; and that private respondent retains not
only the absolute right to publish but also the ownership of the results of the research conducted by the IPC. Quite
clearly, the aforementioned terms and conditions belie the allegation that private respondent is a contractor or is
engaged in business.

For another, it bears stressing that private respondent is a non-stock, non-profit educational corporation. The fact that it
accepted sponsorship for IPC‘s unfunded projects is merely incidental. For, the main function of the IPC is to undertake
research projects under the academic agenda of the private respondent. Moreover, the records do not show that in
accepting sponsorship of research work, IPC realized profits from such work. On the contrary, the evidence shows that
for about 30 years, IPC had continuously operated at a loss, which means that sponsored funds are less than actual
expenses for its research projects. That IPC has been operating at a loss loudly bespeaks of the fact that education
and not profit is the motive for undertaking the research projects.

Then, too, granting arguendo that IPC made profits from the sponsored research projects, the fact still remains that
there is no proof that part of such earnings or profits was ever distributed as dividends to any stockholder, as in fact
none was so distributed because they accrued to the benefit of the private respondent which is a non-profit educational
[14]
institution.‖
Therefore, it is clear that the funds received by Ateneo‘s Institute of Philippine Culture are not given in the concept of a
fee or price in exchange for the performance of a service or delivery of an object. Rather, the amounts are in the nature
of an endowment or donation given by IPC‘s benefactors solely for the purpose of sponsoring or funding the research
with no strings attached. As found by the two courts below, such sponsorships are subject to IPC‘s terms and
conditions. No proprietary or commercial research is done, and IPC retains the ownership of the results of the
research, including the absolute right to publish the same. The copyrights over the results of the research are owned by
[15]
Ateneo and, consequently, no portion thereof may be reproduced without its permission. The amounts given to IPC,
therefore, may not be deemed, it bears stressing, as fees or gross receipts that can be subjected to the three percent
contractor‘s tax.

It is also well to stress that the questioned transactions of Ateneo‘s Institute of Philippine Culture cannot be deemed
either as a contract of sale or a contract for a piece of work. ―By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price
[16]
certain in money or its equivalent.‖ By its very nature, a contract of sale requires a transfer of ownership. Thus,
Article 1458 of the Civil Code ―expressly makes the obligation to transfer ownership as an essential element of the
contract of sale, following modern codes, such as the German and the Swiss. Even in the absence of this express
requirement, however, most writers, including Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have
considered such transfer of ownership as the primary purpose of sale. Perez and Alguer follow the same view, stating
that the delivery of the thing does not mean a mere physical transfer, but is a means of transmitting ownership.
[17]
Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale.‖ In the
case of a contract for a piece of work, ―the contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. x x x If the contractor agrees to produce the work from materials
furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. x x
[18]
x.‖ Ineludably, whether the contract be one of sale or one for a piece of work, a transfer of ownership is involved and
[19]
a party necessarily walks away with an object. In the case at bench, it is clear from the evidence on record that there
was no sale either of objects or services because, as adverted to earlier, there was no transfer of ownership over the
research data obtained or the results of research projects undertaken by the Institute of Philippine Culture.

Furthermore, it is clear that the research activity of the Institute of Philippine Culture is done in pursuance of
maintaining Ateneo‘s university status and not in the course of an independent business of selling such research with
profit in mind. This is clear from a reading of the regulations governing universities:

‗31.In addition to the legal requisites an institution must meet, among others, the following requirements before an
application for university status shall be considered:
xxx xxx xxx

(e) The institution must undertake research and operate with a competent qualified staff at least three graduate
departments in accordance with the rules and standards for graduate education. One of the departments shall be
science and technology. The competence of the staff shall be judged by their effective teaching, scholarly publications
and research activities published in its school journal as well as their leadership activities in the profession.

(f) The institution must show evidence of adequate and stable financial resources and support, a reasonable
portion of which should be devoted to institutional development and research. (underscoring supplied)

xxx xxx x x x‘

‗32. University status may be withdrawn, after due notice and hearing, for failure to maintain satisfactorily the
[20]
standards and requirements therefor.‖

Petitioner‘s contention that it is the Institute of Philippine Culture that is being taxed and not the Ateneo is patently
erroneous because the former is not an independent juridical entity that is separate and distinct from the latter.

Factual Findings and Conclusions of the Court of Tax Appeals Affirmed by the Court of Appeals Generally
Conclusive

In addition, we reiterate that the ―Court of Tax Appeals is a highly specialized body specifically created for the purpose
[21]
of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether‖ Ateneo
de Manila University may be deemed a subject of the three percent contractor‘s tax ―through the evidence presented
before it.‖ Consequently, ―as a matter of principle, this Court will not set aside the conclusion reached by x x x 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
[22]
exercise of authority x x x.‖ This point becomes more evident in the case before us where the findings and
conclusions of both the Court of Tax Appeals and the Court of Appeals appear untainted by any abuse of authority,
much less grave abuse of discretion. Thus, we find the decision of the latter affirming that of the former free from any
palpable error.

Public Service, Not Profit, is the Motive

The records show that the Institute of Philippine Culture conducted its research activities at a huge deficit of
[23]
P1,624,014.00 as shown in its statements of fund and disbursements for the period 1972 to 1985. In fact, it was
Ateneo de Manila University itself that had funded the research projects of the institute, and it was only when Ateneo
could no longer produce the needed funds that the institute sought funding from outside. The testimony of Ateneo‘s
Director for Accounting Services, Ms. Leonor Wijangco, provides significant insight on the academic and nonprofit
nature of the institute‘s research activities done in furtherance of the university‘s purposes, as follows:

―Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the Institute of Philippine Culture) that as
far as grants from sponsored research it is possible that the grant sometimes is less than the actual cost. Will you
please tell us in this case when the actual cost is a lot less than the grant who shoulders the additional cost?
A The University.

Q Now, why is this done by the University?

A Because of our faculty development program as a university, because a university has to have its own research
[24]
institute.‖
So, why is it that Ateneo continues to operate and conduct researches through its Institute of Philippine Culture when it
undisputedly loses not an insignificant amount in the process? The plain and simple answer is that private respondent
is not a contractor selling its services for a fee but an academic institution conducting these researches pursuant to its
commitments to education and, ultimately, to public service. For the institute to have tenaciously continued operating
for so long despite its accumulation of significant losses, we can only agree with both the Court of Tax Appeals and the
[25]
Court of Appeals that ―education and not profit is [IPC‘s] motive for undertaking the research projects.‖

WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the Court of Appeals is
hereby AFFIRMED in full.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner, vs. DEPARTMENT OF FINANCE
SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT
OFFICER, BIR MISAMIS ORIENTAL, respondents.

MENDOZA, J.:

This is a petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and enjoin
the collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of
1
petitioner organization.

Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or
collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the
issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra
was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore,
exempt from VAT at all stages of production or distribution.

Respondents represent departments of the executive branch of government charged with the generation of funds and
the assessment, levy and collection of taxes and other imposts.

The pertinent provision of the NIRC states:

Sec. 103. Exempt Transactions. — The following shall be exempt from the value-added tax:

(a) Sale of nonfood agricultural, marine and forest products in their original state by the primary
producer or the owner of the land where the same are produced;

(b) Sale or importation in their original state of agricultural and marine food products, livestock and
poultry of a kind generally used as, or yielding or producing foods for human consumption, and
breeding stock and genetic material therefor;

Under §103(a), as above quoted, the sale of agricultural non-food products in their original state is exempt from VAT
only if the sale is made by the primary producer or owner of the land from which the same are produced. The sale
made by any other person or entity, like a trader or dealer, is not exempt from the tax. On the other hand, under
§103(b) the sale of agricultural food products in their original state is exempt from VAT at all stages of production or
distribution regardless of who the seller is.

The question is whether copra is an agricultural food or non-food product for purposes of this provision of the NIRC. On
June 11, 1991, respondent Commissioner of Internal Revenue issued the circular in question, classifying copra as an
agricultural non-food product and declaring it "exempt from VAT only if the sale is made by the primary producer
2
pursuant to Section 103(a) of the Tax Code, as amended."

The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was
classified as an agricultural food product under §103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various
grounds, which will be presently discussed although not in the order raised in the petition for prohibition.

First. Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the
competent government agency to determine the proper classification of food products. Petitioner cites the opinion of
Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect that copra should be considered "food" because it is
produced from coconut which is food and 80% of coconut products are edible.

On the other hand, the respondents argue that the opinion of the BIR, as the government agency charged with the
implementation and interpretation of the tax laws, is entitled to great respect.

We agree with respondents. In interpreting §103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it
a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and
liberally in favor of the state. Indeed, even Dr. Kintanar said that his classification of copra as food was based on "the
broader definition of food which includes agricultural commodities and other components used in the
manufacture/processing of food." The full text of his letter reads:

10 April 1991

Mr. VICTOR A. DEOFERIO, JR.

 Chairman VAT Review Committee

Bureau of Internal Revenue

Diliman, Quezon City

Dear Mr. Deoferio:

This is to clarify a previous communication made by this Office about copra in a letter dated 05
December 1990 stating that copra is not classified as food. The statement was made in the context of
BFAD's regulatory responsibilities which focus mainly on foods that are processed and packaged, and
thereby copra is not covered.

However, in the broader definition of food which include agricultural commodities and other
components used in the manufacture/ processing of food, it is our opinion that copra should be
classified as an agricultural food product since copra is produced from coconut meat which is food and
based on available information, more than 80% of products derived from copra are edible products.

Very truly yours,

QUINTIN L. KINTANAR, M.D., Ph.D.

Director
Assistant Secretary of Health for Standards and Regulations

Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of
Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling
was made by the Commissioner of Internal Revenue in the exercise of his power under § 245 of the NIRC to "make
rulings or opinions in connection with the implementation of the provisions of internal revenue laws,including rulings on
the classification of articles for sales tax and similar purposes."

Second. Petitioner complains that it was denied due process because it was not heard before the ruling was made.
3
There is a distinction in administrative law between legislative rules and interpretative rules. There would be force in
petitioner's argument if the circular in question were in the nature of a legislative rule. But it is not. It is a mere
interpretative rule.

The reason for this distinction is that a legislative rule is in the nature of subordinate legislation, designed to implement
a primary legislation by providing the details thereof. In the same way that laws must have the benefit of public hearing,
it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the
Administrative Code of 1987 provides:

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

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

4
(3) In case of opposition, the rules on contested cases shall be observed.

5
In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to
the law which the administrative agency is in charge of enforcing.

Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the
delegated authority of the administrative agency; (ii) whether it is reasonable; and (iii) whether it was issued pursuant to
proper procedure. But the court is not free to substitute its judgment as to the desirability or wisdom of the rule for the
legislative body, by its delegation of administrative judgment, has committed those questions to administrative
judgments and not to judicial judgments. In the case of an interpretative rule, the inquiry is not into the validity but into
the correctness or propriety of the rule. As a matter of power a court, when confronted with an interpretative rule, is free
to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some
6
intermediate degree of authoritative weight to the interpretative rule.

In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering copra as an
"agricultural food product" within the meaning of § 103(b) of the NIRC. As the Solicitor General contends, "copra per
se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra for food." That
previous Commissioners considered it so, is not reason for holding that the present interpretation is wrong. The
7
Commissioner of Internal Revenue is not bound by the ruling of his predecessors. To the contrary, the overruling of
decisions is inherent in the interpretation of laws.

Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of the
Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not, although
both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of
traders and dealers.

The argument has no merit. There is a material or substantial difference between coconut farmers and copra
producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the
latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a
8
reasonable basis for classifying them differently.

It is not true that oil millers are exempt from VAT. Pursuant to § 102 of the NIRC, they are subject to 10% VAT on the
sale of services. Under § 104 of the Tax Code, they are allowed to credit the input tax on the sale of copra by traders
and dealers, but there is no tax credit if the sale is made directly by the copra producer as the sale is VAT exempt. In
the same manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by other traders
and dealers, but there is no tax credit if the sale is made by the producer.

Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders and dealers would be forced to
buy copra from coconut farmers who are exempt from the VAT and that to the extent that prices are reduced the
government would lose revenues as the 10% tax base is correspondingly diminished.

This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the primary producer
or owner of the land from which the same is produced, but in the case of agricultural food products their sale in their
original state is exempt at all stages of production or distribution. At any rate, the argument that the classification of
copra as agricultural non-food product is counterproductive is a question of wisdom or policy which should be
addressed to respondent officials and to Congress.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-22443 May 29, 1971

THE COMMISSIONER OF CUSTOMS, petitioner, vs. PHILIPPINE ACETYLENE COMPANY, and THE COURT OF
TAX APPEALS, respondents.

MAKALINTAL, J.:

This is a petition filed by the Commissioner of Customs for review of the decision of the Court of Tax Appeals in its
Case No. 1147, ordering the herein petitioner to refund to the Philippine Acetylene Co., Inc. the amount of P3,683.00
which it had paid under protest as special import tax on one (1) custom built liquefied petroleum gas tank.

The facts were stipulated by the parties as follows:

1. That the Philippine Acetylene Company is a corporation duly organized and existing under the laws
of the Philippines;

2. That said company is engaged in the manufacture of oxygen, acetylene and nitrogen and packaging
of liquefied petroleum gas in cylinders and tanks;

3. That sometime in 1957 the protestant imported from the United States one custom-built liquefied
petroleum gas tank which arrived via the S/S 'PLEASANT VILLE' under Register No. 1356, and
declared in Import Entry No. 94060, series of 1957; and .

4. That the amount of P3,683.00 was assessed thereon as special import tax and which (sic) was paid
under protest by the importer-protestant as evidenced by Official Receipt No. 12690 dated February
25, 1958.

According to Charles L. Butler, manager of the Philippine Acetylene Co., Inc., the imported custom-built liquefied
petroleum gas tank is simply a large cylinder which is used as container for liquefied petroleum gas obtained from the
CALTEX Refinery in Bauan, Batangas and transported to the company's plant in Manila. The gas does not undergo
any chemical change and is sold to consumers in the same state as when it was acquired from the refinery, except that
before it is sold the gas is pumped into smaller cylinders, which are labeled with the company's trademark "Philigas."

Under the foregoing facts the issue presented for resolution is purely one of law, namely, whether or not the Philippine
Acetylene Co., Inc., insofar as its packaging operation of liquefied petroleum gas is concerned, may be considered
engaged in an industry as contemplated in section 6 of Republic Act No. 1394 and therefore exempt from the payment
of the special import tax in respect of the gas tank in question.

Section 6 of Republic Act No. 1394, insofar as it is pertinent to the issue, provides:

Section 6. The tax provided for in section one of this Act shall not be imposed against the importation
into the Philippines of machinery and/or raw materials to be used by new and necessary industries as
determined in accordance with Republic Act numbered Nine Hundred and One; ...; machinery,
equipment, accessories and spare parts, for the use of industries, miners, mining enterprises planters
and farmers; ...

In finding that the Philippine Acetylene Co., Inc. is engaged in industry within the meaning of the abovequoted
provision, the Tax Court held that the term industry should be understood in its ordinary and general definition, which is
any enterprise employing relatively large amounts of capital and/or labor. On such premise the Tax Court concluded
that inasmuch as the Philippine Acetylene Co., Inc. employs considerable labor and capital in packaging liquefied
petroleum gas purchased by it and selling the same for profit, it is engaged in industry and hence is exempt from the
payment of the special import tax in connection with the tank used as container.

The following observations in the brief for the petitioner are apropos:

... in the exempting provisions of Republic Act No. 1394, the exempted items are divided into separate
and specific enumerations. The term 'industries' is used in two distinct groups. The first group of
exempted industries refers exclusively to those falling under the new and necessary industries as
defined in Republic Act No. 901. In the second, the term "industries" is classed together with the terms
miners, mining enterprises, planters and farmers. ... If Congress really intended to give the term
"industries" its ordinary and general meaning and thus grant tax exemption to all ventures and trades
falling under the said ordinary and general definition, it should have eliminated the words "new and
necessary industries' and 'mining enterprises" since these two ventures are already covered by the
term "industries" in its ordinary and general meaning. On the other hand, the fact that the language of
the law specifically segregates new and necessary industries under Republic Act No. 901 among those
entitled to the tax exemption, in effect, restricts the meaning and scope of the word "industries."
The argument appears logical and reasonable. Since the term "industries" as used in the law for the second time is
classified together with the terms "miners, mining enterprises, planters and farmers", the obvious legislative intent is to
confine the meaning of the term to activities that tend to produce or create or manufacture, such as those of miners,
mining enterprises, ]planters and farmers. The Tax Court's interpretation would lead to a Patent inconsistency, in that
while the first part of the law confines the exemption to new and necessary industries, another part would extend the
exemption to all other industries, regardless of their nature, as long as they employ labor and capital for profit-making
purposes. In granting the exemption, it would have been illogical for Congress to specify importations needed by new
and necessary industries -- as the term is defined by law and in the same breath allow a similar exemption to all other
industries in general.

The respondents make much of the interpretation of the term "industries" by the Secretary of Finance in his First
Indorsement dated November 19, 1956, to wit:

Any Productive enterprise which employs relatively large amounts of capital and/or labor falls under
the term 'industries' as used in Section 6 of Republic Act No. 1394.

Assuming ng the correctness of such interpretation, what should be noted is that it stresses the productive aspect of
the enterprise. The operation for which the respondent company employs the gas tank in question does not involve
manufacturing or production. It is nothing but packaging; the liquefied gas, when obtained from the refinery, has to be
placed in some kind of container for transportation to Manila. When sold to consumers, it undergoes no change or
transformation, but is merely placed in smaller cylinders for convenience. The process is certainly not production in any
sense.

The phrasing of Section 6 of Republic Act No. 1394, to be sure, is rather vague and infelicitious, particularly in the
repetition of the word "industries." It is such lack of precision in the law that gives rise to litigious controversies
concerning its proper application. One of the established rules of statutory construction, however, is that tax
exemptions are held strictly against the taxpayer, and if not expressly mentioned in the law must be within its purview
by clear legislative intent. In the present case the construction adhered to by the respondents in reference to the scope
of the term "industries" as employed for the second time in Section 6 of Republic Act No. 1394 is contrary to such rule.
For if the term were all inclusive, and meant industries in general, that is, those which involve relatively large amounts
of capital and/or labor regardless of their productive or non-productive nature, there would be no point in making a
separate classification with respect to "new and necessary industries" for purposes of the tax exemption. We hold,
therefore, that to be entitled to exemption under the second classification in the statute the industry concerned, in
connection with the activity for which the importation is made, must be engaged in some productive enterprise, not in
merely packaging an already finished product to facilitate its transportation. In a comparable case this Court has held
that the tax exemption in connection with the processing of gasoline and the manufacture of lubricating oil does not
extend to pump parts imported by the processor and leased to gasoline stations for their use in servicing customers'
vehicles, overruling the argument of the petitioner therein that the marketing of its gasoline product "is corollary to or
incidental to its industrial operations." (ESSO Standard, Eastern, Inc. vs. Acting Commissioner of Customs, 18 SCRA
488).

WHEREFORE, the decision of the Court of Tax Appeals is reversed and that of the Collector of Customs of Manila and
the Commissioner of Customs upheld. Costs against respondent Philippine Acetylene Co., Inc.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-29987 October 22, 1975

MANILA ELECTRIC COMPANY, petitioner, vs. MISAEL P. VERA, in his capacity as Commissioner of Internal
Revenue, respondent.

G.R. No. L-23847 October 22, 1975

MANILA ELECTRIC COMPANY, petitioner, vs. BENJAMIN. TABIOS, as Commissioner of Internal Revenue,
respondent.

MUÑOZ PALMA, J.:

Manila Electric Company, petitioner in these two cases, poses a single before Us: is Manila Electric Company
(MERALCO for short) exempt from payment of a compensating tax on poles, wires, transformers, and insulators
imported by it for use in the operation of its electric light, heat, and power system? MERALCO answers the query in the
affirmative while the Commissioner of Internal Revenue asserts the contrary.

MERALCO is the holder of a franchise to construct, maintain, and operate an electric light, heat, and power system in
1
the City of Manila and its suburbs.

In 1962, MERALCO imported and received from abroad on various dates copper wires, transformers, and insulators for
use in the operation of its business on which, the Collector of Customs, as Deputy of Commissioner of Internal
Revenue, levied and collected a compensating tax amounting to a total of P62,335.00. A claim for refund of said
amount was presented by MERALCO and because no action was taken by the Commissioner of Internal Revenue on
its claim, it appealed to the Court of Tax Appeals by filing a petition for review on February 25, 1964 (CTA Case No.
1495). On November 28, 1968, the Court of Tax Appeals denied MERALCO claim, forthwith, the case was elevated to
the Court on appeal (L-29987).

Again in 1963, MERALCO imported certain quantities of copper wires, transformers and insulators also to be used in its
business and again a compensating tax of P6,587.00 on said purchases was collected. Its claim for refund of the
amount having been denied by the Commissioner of Internal Revenue on January 23, 1964, MERALCO riled with the
Court of Tax Appeals CTA Case No. 1493. On September 23, 1964 the Court of Tax Appeals decided against
petitioner, and the latter filed with this Court the corresponding Petition for Review of said decision docketed herein as
G.R. No. L-23847.

Inasmuch as the two appeals raise the same issue, they are consolidated in this Decision.

The law under which the Commissioner of Internal Revenue, respondent in these two cases, assessed and collected
the corresponding compensating taxes in 1962 and 1963 was found in Section 190 of the National Internal Revenue
Code(Commonwealth Act No. 466, as amended) the pertinent provision of which read at the time as follows:

Sec. 190. Compensating Tax. — All persons residing or doing business in the Philippines, who
purchase or receive from without the Philippines any commodities, goods, wares, or merchandise,
excepting those subject to specific taxes under Title IV of this Code, shall pay on the total value thereof
at the time they are received by such persons, including freight, postage, insurance, commission and
all similar charges, a compensating tax equivalent to the percentage taxes imposed under this Title on
original transactions effected by merchants, importers, or manufacturers, such tax to be paid before
the withdrawal or removal of said commodities, goods, wares, or merchandise from the customhouse
2
or the post office: ...

In deciding against petitioner, the Court of Tax Appeals held that following the ruling of the Supreme Court in the case
of Panay Electric Co. vs. Collector of Internal Revenue, G.R. No. L-6753, July 30, 1955,Manila Gas Corp. vs. Collector
of Internal Revenue, G.R. No. L-11784, October 24, 1958, and Borja vs. Collector of Internal Revenue, G.R. No. L-
12134, November 30,1961, MERALCO is not exempt from paying the compensating tax provided for in Section 190 of
the National Internal Revenue Code, the purpose of which is to "place casual importers, who are not merchants on
equal putting with established merchants who pay sales tax on articles imported by them." The court further stated that
MERALCO's claim for exemption from the payment of the compensating tax is not clear or expressed, contrary to the
cardinal rule in taxation that "exemptions from taxation are highly disfavored in law, and he who claims exemption must
be able to justify his claim by the clearest grant of organic or statute law. (pp. 10-11, L-23847, rollo)

Petitioner, on the other hand, bases its claim for exemption from the compensating tax on poles, wires, transformers
and insulators purchased by it from abroad on paragraph 9 of its franchise which We quote from its brief:

PARAGRAPH 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant
(not including poles, wires, transformers, and insulators), machinery, and personal property as other
persons are or may be hereafter by law to pay. Inconsideration of Part Two of the franchise herein
granted, to wit, the right to build and maintain in the City of Manila and its suburbs a plant for the
 conveying and furnishing of electric current for light, heat, and power, and to charge for the same, the
grantee shall pay to the City of Manila a five per centum of the gross earnings received form its
business under this franchise in the City and its suburbs: PROVIDED, That two and one-half per
centum of the gross earnings received from the business of the line to Malabon shall be paid to the
Province of Rizal. Said percentage shall be due and payable at the times stated in paragraph nineteen
of Part One hereof, and after an audit, like that provided in paragraph twenty of Part One hereof, and
shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon
the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the
grantee, from which taxes and assessments the grantee is hereby expressly exempted. (Petitioner's
brief, p. 4, G.R. No. L-29987; see also pp. 3-4, petitioner's brief, L-23847)

Petitioner argues that the abovequoted provision in plain and unambiguous terms makes two references to the
exemption of the articles in question from all taxes except the franchise tax. Thus, after prescribing in the opening
sentence that "the grantee shall be liable to pay the said taxes upon its real estate buildings, plant (not including poles,
wires, transformers and insulators), machinery and personal property as other persons are or may be hereinafter
required by law to pay," par. 9, specifically provides that the percentage tax payable by petitioner as fixed therein "shall
be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges,
earnings, income, franchise, and poles, wires, transformers and insulators of the grantee from which taxes and
assessments the grantee is hereby expressly exempted." Petitioner further states that while par. 9 does not specifically
mention the compensating tax for the obvious reason that petitioner's original franchise was an earlier enactment, the
words "in lieu of all taxes and assessments of whatsoever nature and by whatsoever authority" are broad and
sweeping enough to include the compensating tax. (p. 5, petitioner's brief, L-29987; pp, 4-5, ibid, L-23847)

Petitioner also contends that the ruling of this Court in the cases of Panay Electric Co., Manila Gas Corporation,
and Borja (supra) are not applicable to its situation.

We find no merit in petitioner's cause.

1. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms
found in the statute. Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may
almost be said "to be odious to the law." He who claims an exemption must be able to print to some positive provision
3
of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. The right of taxation
will not beheld to have been surrendered unless the intention to surrender is manifested by words too plain to be
mistaken (Ohio Life Insurance & Trust Co. vs. Debolt, 60 Howard, 416), for the state cannot strip itself of the most
essential power of taxation by doubtful words; it cannot, by ambiguous language, be deprived of this highest attribute of
sovereignty (Erie Railway Co. vs. Commonwealth of Pennsylvania, 21 Wallace 492, 499). So, when exemption is
claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to
4
the claim (Farrington vs. Tennessee & County of Shelby, 95 U.S. 679, 686).

2. Petitioner's submission that its right to exemption is supported by the "plain and unambiguous" term of paragraph 9
of its franchise is positively without basis.

First, the Court cannot overlook the tax court's finding that, and We quote:

At the outset it should be noted that the franchise by the Municipal Board of the City of Manila to Mr.
Charles M. Swift and later assumed and taken over by petitioner (see Rep. Act No. 150, CTA rec. p.
84), is a municipal franchise and not a legal franchise. While it is true that Section 1 of Act No. 484 of
the Philippine Commission of 1902 authorizes the Municipal Board of the City of Manila to grant a
franchise to the person making the most favorable bid for the construction and maintenance of an
electric street railway and the construction, maintenance, and operation of an electric light, heat, and
power system in Manila and its suburbs, Section 2 of the same Act authorize the said Municipal Board
to make necessary amendments to be fixed by the terms of the successful bid; otherwise, the form of
the franchise to be granted shall be in the words and figures appearing in Act No. 484 of the Philippine
Commission, which includes Par. 9. Part Two, thereof, supra.

This Court is not aware whether or not the tax exemption provisions contained in Par. 9, Part Two of
Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal franchise granted
to Mr. Charles M. Swift by the Municipal Board of the City of Manila and later assumed and taken over
by petitioner because no admissible copy of Ordinance No. 44 of the said Board was ever presented in
evidence by the herein petitioner. Neither is this Court aware of any amendment to the terms of this
franchise granted by the aforesaid Municipal Board to the successful bidder in the absence of
Ordinance No. 44 and the amendment thereto, if any. In the circumstances, we are at a Las to interpret
and apply the tax exemption provisions relied upon by petitioner. (pp. 11-13, rollo, L-29987)

Second, and this is the controlling reason for the denial of petitioner's claim in these cases, We do not see in paragraph
9 of its petitioner's franchise, on the assumption that it does exist as worded, what may be considered as "plain and
unambiguous terms" declaring petitioner MERALCO exempt from paying a compensating tax on its imports of poles,
wires, transformers, and insulators. What MERALCO really wants Us to do, but which We cannot under the principles
enumerated earlier, is to infer and imply that there is such an exemption from the following phrase: "... the grantee shall
pay to the City of Manila five per centum of the gross earnings received from its business ... and shall be in lieu of all
taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee
is hereby expressly exempted."
Note that what the above provision exempts petitioner from, is the payment of property, tax on its poles, wires,
transformers, and insulators; it does not exempt it from payment of taxes like the one in question which, by mere
necessity or consequence alone, fall upon property. The first sentence of paragraph 9 of petitioner's franchise
expressly states that the grantee like any other taxpayer shall pay taxes upon its real estate, buildings, plant (not
including poles, wires, transformers, and insulators),machinery, and personal property. These are direct taxes imposed
upon the thing or property itself. Thus, while the grantee is to pay tax on its plant, its poles, wires, transformers, and
insulators as forming part of the plant or installation(significantly the enumeration is in parenthesis and follows the word
"plant") are exempt and as such are not to be included in the assessment of the property tax to be paid.

The ending clause of paragraph 9 providing in effect that the percentage tax imposed upon petitioner shall be in lieu of
"all taxes and assessments of what and by whatsoever authority" cannot be said to have granted it exemption from
payment of compensating tax. The phrase "all taxes and assessments of whatsoever nature and by whatsoever
authority" is not so broad and sweeping, as petitioner would have Us think, as to include the tax in question because
there is an immediately succeeding phrase which limits the scope of exemption to taxes and assessments "upon the
privileges earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee." The last clause of
paragraph 9 merely reaffirms, with regards to poles, wires, transformers, and insulators, what has been expressed in
the that first sentence of the same paragraph namely, exemption of petitioner from payment of property tax. It is a
principle of statutory construction that general terms may be restricted by specific words, with the result that the general
language will be limited by the specific language which indicates the statute's object and purpose. (Statutory
Construction by Crawford, 1940 ed. p. 324-325)

3. It is a well-settled rule or principle in taxation that a compensating tax is not a property tax but is an excise
5
tax. Generally stated, an excise tax is one that is imposed on the performance of an act, the engaging in an
occupation, or the enjoyment of a privilege. 6 A tax upon property because of its ownership its a direct tax, whereas
one levied upon property because of its use is an excise duty. (Manufacturer's Trust Co. vs. United States, Ct. Cl., 32
F. Supp. 289, 296) Thus, where a tax which is not on the property as such, is upon certain kinds of property, having
reference to their origin and their intended use, that is an excise tax. (State v. Wynne, 133 S.W. 2d 951, 956,957, 133
Tex. 622)

The compensating tax being imposed upon petitioner herein, MERALCO, is an impost on its use of imported
articles and is not in the nature of a direct tax on the articles themselves, the latter tax falling within the exemption.
Thus, in International Business Machine Corp. vs. Collector of Internal Revenue, 1956, 98 Phil. Reports 595, 593,
which involved the collection of a compensating tax from the plaintiff-petitioner on business machines imported by it,
this Court stated in unequivocal terms that "it is not the act of importation that is taxed under section 190, but the use of
imported goods not subjected to sales tax" because "the compensating tax was expressly designed as a substitute to
make up or compensate for the revenue lost to the government through the avoidance of sales taxes by means of
direct purchases abroad. ..."

It is true that upon the collection of a compensating tax on petitioner's poles, wires, transformers, and insulators
purchased from abroad, the tax falls on the goods themselves; this fact leads petitioner to claim that what is being
imposed upon it is a property tax. But petitioner loses sight of the principle that "every excise necessarily must finally
fall upon and be paid by property, and so may be indirectly a tax upon property; but if it is really imposed upon
the performance of an act, the enjoyment of a privilege, or the engaging in an occupation, it will be considered an
excise." (51 Am. Jur. 1d, Taxation, Sec. 34, emphasis supplied) And so, to reiterate, what is being taxed here is the use
of goods purchased from out of the country, and the imposition is in the nature of an excise tax.

4. There is no valid reason for Us not to apply to petitioner the ruling of the Court in Panay Electric Co. and Borja,
supra, for MERALCO is similarly situated.

Panay Electric Co. sought exemption from payment of a compensating tax on equipments purchased abroad for use in
its electric plant. A provision in its franchise reads:

Sec 8. ... Said percentage shall be due and payable quarterly and shall be lieu of all taxes of any kind
levied, established, or collected by any authority whatsoever, now or in the future, on its poles, wires,
insulators, switches, transformers and other structures, installations, conductors, and accessories,
placed in and over the public streets, avenues, roads, thoroughfares, squares, bridges, and other
places on its franchise, from which taxes the grantee is hereby expressly exempted. (113 Phil. 570)

This Court rejected the exemption sought by Panay Electric and held that the cited provision in its franchise exempts
from taxation those rights and privileges which are not enjoyed by the public in general but only by the grantee of a
franchise, but do not include the common right or privileges of every citizen to make purchases anywhere; and that we
must bear in mind the purpose for the imposition of compensating tax which as explained in the report of the Tax
Commission is as follows:

The purpose of this proposal is to place persons purchasing goods from dealers doing business in the
Philippines on an equal footing, for tax purposes, with those who purchase goods directly from without
the Philippines. Under the present tax law, the former bear the burden of the local sales tax because it
is shifted to them as part of the selling price demanded by the local merchants, while the latter do not.
The proposed tax will do away with this inequality and render justice to merchants and firms of all
nationalities who are in legitimate business here, paying taxes and giving employment to a large
number of people. (113 Phil. 571)
In Borja, petitioner Consuelo P. Borja, a grantee of a legislative franchise, also claimed to be free from paying the
compensating tax imposed on the materials and equipment such as wires, insulators, transformers, conductors, etc.
imported from Japan, on the basis of Sec. 10 of Act No. 3636 (Model Electric Light and Power Franchise Act) which
has been incorporated by reference in franchise under Act No. 3810. Section 10 provides:

The grantee shall pay the same taxes as are now or may "hereafter be required by law from other
individuals, co-partnerships, private, public or quasi-public associations, corporations, or joint-stock
companies, on his (its) real estate, buildings, plants, machinery; and other personal property, except
property section. In consideration of the franchise and rights hereby granted, the grantee shall pay into
the municipal treasury of the (of each) municipality in which it is supplying electric current to the public
under this franchise, a tax equal to two per centum of the gross earnings from electric current sold or
supplied under this franchise in said (each) municipality. Said tax shall be due and payable quarterly
and shall be in lieu of any and all taxes of any kind, nature or description levied, established, or
collected by any authority whatsoever, municipal, provincial or insular, now or in the future, on its
poles, wires, insulators, switches; transformers and structures, installations, conductors, and
accessories, placed in and over and under all public property, including public streets and highways,
provincial roads, bridges and public squares, and on its franchise, rights, privileges, receipts, revenues
and profits, from which taxes the grantee is hereby expressly exempted. (113 Phil. 569-570)

The Court applying the ruling in Panay Electric denied the exemption with the added statement that

Considering, therefore, the fact that section 190 of the Tax Code is a sort of an equalizer, to place
casual importers, who are not merchants on equal footing with established merchants who pay sales
tax on articles imported by them ... We may conclude that it was not the intention of the law to exempt
the payment of compensating tax on the personal properties in question. The principle and legal
philosophy underlying the imposition of compensating tax, as enunciated in the above case (referring
to Borja), are fundamentally correct, and no plausible reason is advanced for their non-application to
the case at bar. (p. 572, ibid.)

Petitioner claims that there exists a difference between paragraph 9 of its franchise and the corresponding provisions of
the franchise of Panay Electric and Borja in that in the latter, unlike in the former, there is no statement that the grantee
is exempt from "all taxes of whatsoever nature and whatsoever authority." In addition, petitioner points out, the
franchise of Panay Electric and Borjacontains a qualifying phrase, to wit: "placed in and over the public streets,
avenues, roads, thoroughfares, etc."

A comparison of the pertinent provisions mentioned by petitioner and which are quoted in the preceding pages reveals
no substantial or fundamental distinction as to remove petitioner MERALCO from the ambit of the Panay
Electric and Borja ruling. There may be differences in the phraseology used, but the intent to exempt the grantee from
the payment only of property tax on its poles, wires, transformers, and insulators is evidently common to the three;
withal, in all the franchises in question there is no specific mention of exemption of the grantee from the payment of
compensating tax.

Petitioner disputes, however, the applicability of the stare decisis principle to its case claiming that this Court should not
blindly follow the doctrine of Panay Electric and Borja, and that in Philippine Trust Co. et al. vs. Mitchell, 59 Phil. 30, 36,
the Court had occasion to state: ,the rule of stare decisis is entitled to respect. Stability in the law, particularly in the
business field, is desirable. But idolatrous reverence for precedent, simply as precedent, no longer rules. More
important than anything else is that the court should be right." (pp. 18-19, petitioner's brief, L-29987)

But what possible ground can there be for deviating from the decisions of this Court in these two cases? A doctrine
buttressed by the law, reason, and logic is not to be simply brushed aside to suit the convenience of a particular party
or interest or to avoid hardship to one. As We view this legal problem, no justification can be found for giving petitioner
herein preferential treatment by reading into its franchise an exemption from a particular kind of tax which is not there.
If it had been the legislative intent to exempt MERALCO from paying a tax on the use of imported equipments, the
legislative body could have easily done so by expanding the provision of paragraph 9 and adding to the exemption
such words as "compensating tax" or "purchases from abroad for use in its business," and the like. We cannot ignore
the principle that express mention in a statute of one exemption precludes reading others into it. (Hoard vs. Sears,
Roebuck & Co., 122 Conn. 185, 193, 188 A. 269)

On this point, the Government correctly argues that the provision in petitioner's franchise that the payment of the
percentage tax on the gross earnings shall be "in lieu of all taxes and assessments of whatsoever nature, and
whatsoever authority" is not to be given a literal meaning as to preclude the imposition of the compensating tax in this
particular case, and cites for its authority the Opinion of the Supreme Court of Connecticut rendered in Connecticut
Light & Power Co., et al. vs. Walsh, 1948, which involved the construction of a statute imposing a sales and use tax,
and which inter alia held:

The broad statement that the tax upon the gross earning of telephone companies shall be "in lieu of all
other taxation" upon them is not necessarily to be given a literal meaning. "In construing the act it is our
duty to seek the real intent of the legislature, even though by so doing we may limit the literal meaning
of the broad language used." Greenwich Trust Co. v. Tyson, 129 Conn. 211, 222, 27 A. 2d 166, 172. It
is not reasonable to assume that the General Assembly intended by the provisions we have quoted
that the tax on gross earnings should take the place of taxes of a kind not then anywhere imposed and
entire outside its knowledge. ... ." (57 A.R., 2d S, pp. 129, 133-134, emphasis supplied)
In 1902 when Act 484 of the Philippine Commission was enacted, "compensating tax' was certainly not generally
known or in use, hence, to paraphrase the above-mentioned Connecticut decision, the Court cannot assume that the
Philippine Commission in providing that the gross earnings taxes imposed on the grantee of the electric light franchise
shall be in lieu of all taxes and assessments, meant to include impositions in the nature of a compensating tax which
came into use in this country only upon the enactment of Commonwealth Act 466 in 1939.

5. One last argument of petitioner to support its cause is that just as a new and necessary industry was held to be
exempt from paying a compensating tax on its imports under the tax exemption provision of Republic Act 901, so
should MERALCO be exempt from such a tax under the general clause in its franchise, to wit: "... in lieu of all taxes and
assessments of whatsoever nature and whatsoever authority upon poles, wires, etc."

We agree with the court below that there can be no analogy between MERALCO and what is considered as a new and
necessary industry under Republic Act 35 now superseded by Republic Act 901.

The rationale of Republic Act 901 is "to encourage the establishment or exploitation of new and necessary industries to
promote the economic growth of the country," and because "an entrepreneur engaging in a new and necessary
industry faces uncertainty and assumes a risk bigger than one engaging in a venture already known and developed ...
the law grants him tax exemption — to lighten onerous financial burdens and reduce losses." (Marcelo Steel
Corporation vs. Collector of Internal Revenue, 109 Phil. 921, 926) This intendment of the legislature in enacting
Republic Act 901 is not the motivation behind the tax exemption clause found in petitioner MERALCO's franchise;
consequently, there can be no analogy between the two.

IN VIEW OF THE FOREGOING, We find no merit in these Petitions for Review and We hereby AFFIRM the decision of
the Court of Tax Appeals in these two cases, with costs against petitioner in both instances.

So Ordered

.
 FIRST DIVISION

[G.R. No. 100959. June 29, 1992.]

BENGUET CORPORATION, Petitioner, v. CENTRAL BOARD OF ASSESSMENT APPEALS, LOCAL BOARD OF

ASSESSMENT APPEALS OF THE PROVINCE OF BENGUET, and MUNICIPAL ASSESSOR OF ITOGON,
BENGUET, Respondents.

SYLLABUS

1. TAXATION; REAL PROPERTY TAX; PRESIDENTIAL DECREE 1955 AND EXECUTIVE ORDER 93; BOTH
OPERATE AS WITHDRAWAL OF TAX INCENTIVES; REASONS THEREOF. — Both P.D. 1955 and E.O. 93 operate
as wholesale withdrawal of tax incentives granted to private entities so that the government may re-examine existing
tax exemptions and restore through the "review mechanism" of the Fiscal Incentives Review Board only those that are
consistent with declared economic policy. Thuswise, the chief revenue source of the government will not be greatly, if
not unnecessarily, eroded since tax exemptions that were granted on piecemeal basis, and which have lost relevance
to existing programs, are eliminated.

2. ID.; ID.; EXEMPTIONS; CONSTRUED STRICTLY AGAINST TAXPAYERS. — Petitioner claims that E.O. 93 does
not repeal social statutes like P.D. 745, in the same breath takes refuge in Sec. 1 (e) of the same E.O. 93, to wit:
"Section 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: . . . (e) those conferred under the four basic
codes, namely: . . . (iv) the Real Property Tax Code, as amended . . . ." in relation to Sec. 40 of the Real Property Tax
Code, which provides: "Sec. 40. Exemptions from Real Property Tax. — The exemption shall be as follows: . . . (g)
Real property exempt under other laws," and concluding that P.D. 745 is one of the "other laws" referred to. We do not
agree. If We are to sanction this interpretation, then necessarily all real properties exempt by any law would be
covered, and there would be no need for the legislature to specify "Real Property Tax Code, as amended," instead of
stating clearly "realty tax exemption laws." Indubitably, the intention is to limit the application of the "exception clause"
only to those conferred by the Real Property Tax Code. This is not only a logical construction of the provisions but
more so in keeping with the principle of statutory construction that tax exemptions are construed strictly against
taxpayers, hence, they cannot be created by mere implication but must be clearly provided by law. Non-exemption, in
case of doubt, is favored. Quite obviously, the exception in Sec. 1 (e), (iv), of E.O. 93, refers to "those conferred under .
. . Real Property Tax Code, as amended," and that the exemption claimed by petitioner is granted not by the Real
Property Tax Code but by P.D. 745.

3. ID.; ID.; LEVIED BY THE NATIONAL GOVERNMENT; ENFORCEMENT OF TAX CODE TO BE DONE BY THE
LOCAL GOVERNMENTS. — While local government units are charged with fixing the rate of real property taxes, it
does not necessarily follow from that authority the determination of whether or not to impose the tax. In fact, local
governments have no alternative but to collect taxes as mandated in Sec. 38 of the Real Property Tax Code, which
states: "Sec. 38. Incidence of Real Property Tax. — There shall be levied, assessed and collected in all provinces,
cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other
improvements affixed or attached to real property not hereinafter specifically exempted." It is thus clear from the
foregoing that it is the national government, expressing itself through the legislative branch, that levies the real property
tax. Consequently, when local governments are required to fix the rates, they are merely constituted as agents of the
national government in the enforcement of the Real Property Tax Code. The delegation of taxing power is not even
involved here because the national government has already imposed realty tax in Sec. 38 above-quoted, leaving only
the enforcement to be done by local governments.

4. REMEDIAL LAW; JURISDICTION; MAY BE RAISED ANYTIME EVEN DURING APPEAL; EXCEPTION. — The
Solicitor General observes that the petitioner is estopped from raising the question of lack of authority to issue the
challenged assessments inasmuch as it was never raised before, hence, not passed upon by, the municipal and
provincial assessors, LBAA and CBAA. This observation is well taken. The rule that the issue of jurisdiction over
subject matter may be raised anytime, even during appeal, has been qualified where its application results in mockery
of the tenets of fair play, as in this case when the issue could have been disposed of earlier and more authoritatively by
any of the respondents who are supposed to be experts in the field of realty tax assessment.

DECISION

BELLOSILLO, J.:

BENGUET CORPORATION, in this original petition for certiorari, seeks to annul and set aside the Decision of the
Central Board of Assessment Appeals of May 28, 1991, as well as the Resolution of July 1, 1991, denying its motion
for reconsideration, which affirmed the decision of respondent Local Board of Assessment Appeals of the Province of
Benguet declaring as valid the tax assessments made by the Municipal Assessor of Itogon, Benguet, on the
bunkhouses of petitioner occupied as dwelling by its rank and file employees based on Tax Declarations Nos. 8471
and 10454.chanrobles lawlibrary : rednad

The Provincial Assessor of Benguet, through the Municipal Assessor of Itogon, assessed real property tax on the
bunkhouses of petitioner Benguet Corporation occupied for residential purposes by its rank and file employees under
Tax Declarations Nos. 8471 (effective 1985) and 10454 (effective 1986). According to the Provincial Assessor, the tax
exemption of bunkhouses under Sec. 3 (a), P.D. 745 (Liberalizing the Financing and Credit Terms for Low Cost
Housing Projects of Domestic Corporations and Partnerships), was withdrawn by P.D. 1955 (Withdrawing, Subject to
Certain Conditions, the Duty and Tax Privileges Granted to Private Business Enterprises and/or Persons Engaged in
Any Economic Activity, and Other Purposes). Petitioner appealed the assessment on Tax Declarations Nos. 8471 and
10454 to the Local Board of Assessment Appeals (LBAA) of the Province of Benguet, docketed as LBAA Cases Nos.
42 and 43, respectively. Both were heard jointly.chanrobles.com : virtual law library

Meanwhile, the parties agreed to suspend hearings in LBAA Cases Nos. 42 and 43 to await the outcome of another
case, LBAA Case No. 41, covering Tax Declaration No. 3534 (effective 1984), which involved the same parties and
issue until the appeal was decided by the Central Board of Assessment Appeals (CBAA). On July 15, 1986, CBAA
handed down its decision in LBAA Case No. 41 holding that the buildings of petitioner used as dwellings by its rank and
file employees were exempt from real property tax pursuant to P.D. 745.

Thereafter, the proceedings in LBAA Cases Nos. 42 and 43 proceeded after which a decision was rendered affirming
the taxability of subject property of petitioner. On appeal, CBAA sustained the decision holding that the realty tax
exemption under P.D. 745 was withdrawn by P.D. 1955 and E.O. 93, so that petitioner should have applied for
restoration of the exemption with the Fiscal Incentives Review Board (FIRB) The decision of CBAA clarified that Case
No. 41 was different because it was effective prior to 1985, hence, was not covered by P.D. 1955 nor by E.O. 93.

Petitioner moved for reconsideration but was denied with CBAA holding that petitioner‘s "classification" of P.D. 745 is
unavailing because P.D. 1955 and E.O. 93 do not discriminate against the so-called "social statutes." Hence, this
petition.

Encapsulized, the issues raised in the petition are: (1) whether respondent Assessors may validly assess real property
tax on the properties of petitioner considering the proscription in The Local Tax Code (P.D 231) and the Mineral
Resources Development Decree of 1974 (P.D. 463) against imposition of taxes on mines by local governments; and,
(2) whether the real tax exemption granted under P.D. 745 (promulgated July 15, 1975) was withdrawn by P.D. 1955
(took effect October 15, 1984) and E.O. 93.

Presidential Decree No. 745, particularly Sec. 3 thereof, provides:jgc:chanrobles.com.ph

"Section 3. Pursuant to the above incentive, such domestic corporations and partnerships shall enjoy tax exemption on:
(a) real estate taxes on the improvements which will be used exclusively for housing their employees and workers . .
."cralaw virtua1aw library

Presidential Decree No. 1955, Sec. 1, provides:jgc:chanrobles.com.ph

"Section 1. The provisions of any special or general law to the contrary notwithstanding, all exemptions from or any
preferential treatment in the payment of duties, taxes, fees, imposts and other charges heretofore granted to private
business enterprises and/or persons engaged in any economic activity are hereby withdrawn, except those enjoyed by
the following: . . . (e) Those that will be approved by the President of the Philippines upon the recommendation of the
Minister of Finance,"

should be read in connection with Ministry Order No. 39-84, Sec. 1 (d), of the then Ministry of Finance, which took
effect October 15, 1984, states:jgc:chanrobles.com.ph

"Section 1. The withdrawal of exemptions from, or any preferential treatment in, the payment of duties, taxes, fees,
imposts and other charges as provided for under Presidential Decree No. 1955, does not apply to exemptions or
preferential treatment embodied in the following laws: . . . (d) The Real Property Tax Code . . ."cralaw virtua1aw library

Executive Order No. 93, promulgated December 17, 1986, is also to the same effect. Both P.D. 1955 and F.O. 93
operate as wholesale withdrawal of tax incentives granted to private entities so that the government may re-examine
existing tax exemptions and restore through the "review mechanism" of the Fiscal Incentives Review Board only those
that are consistent with declared economic policy. Thus wise, the chief revenue source of the government will not be
greatly, if not unnecessarily, eroded since tax exemptions that were granted on piecemeal basis, and which have lost
relevance to existing programs, are eliminated.

On the first issue, petitioner contends that local government units are without any authority to levy realty taxes on
mines pursuant to Sec. 52 of P.D. 463, which states:chanrobles virtual lawlibrary

"Sec. 52. Power to Levy Taxes on Mines Mining Operations and Mineral Products. — Any law to the contrary
notwithstanding, no province, city, municipality, barrio or municipal district shall levy and collect taxes, fees, rentals,
royalties or charges of any kind whatsoever on mines, mining claims, mineral products, or any operation, process or
activity connected, therewith,"

and Sec. 5 (m) of The Local Tax Code, as amended by P.D. 426 (reiterated in Secs. 17 [d] and 22 [c], same Code),
which provides:jgc:chanrobles.com.ph

"Sec. 5. Common limitations on the taxing powers of local governments. — The exercise of the taxing powers of
provinces, cities, municipalities and barrios shall not extend to the imposition of the following: . . . (m) Taxes on mines,
mining operations; and minerals, mineral products, and their by-products when sold domestically by the operator . .
."cralaw virtua1aw library

The Solicitor General observes that the petitioner is estopped from raising the question of lack of authority to issue the
challenged assessments inasmuch as it was never raised before, hence, not passed upon by, the municipal and
provincial assessors, LBAA and CBAA. This observation is well taken. The rule that the issue of jurisdiction over
subject matter may be raised anytime, even during appeal, has been qualified where its application results in mockery
of the tenets of fair play, as in this case when the issue could have been disposed of earlier and more authoritatively by
any of the respondents who are supposed to be experts in the field of realty tax assessment. As We held in Suarez v.
Court of Appeals: 1

". . . It is settled that any decision rendered. without jurisdiction is a total nullity and may be struck down at any time,
even on appeal before this Court. The only exception is where the party raising the issue is barred by estoppel (Tijam
v. Sibonghanoy, 23 SCRA 29, reiterated in Solid Homes, Inc. v. Payawal and Court of Appeals, G.R. No. 84811,
August 29, 1989; Emphasis supplied).

"While petitioner could have prevented the trial court from exercising jurisdiction over the case by seasonably taking
exception thereto, they instead involved the very same jurisdiction by filing an answer and seeking affirmative relief
from it. What is more, they participated in the trial of the case by cross-examining Respondent. Upon the premises,
petitioner cannot now be allowed belatedly to adopt an inconsistent posture by attacking the jurisdiction of the court to
which they had submitted themselves voluntarily (Tijam v. Sibonghanoy, supra)."cralaw virtua1aw library

In Aguinaldo Industries Corporation v. Commissioner of Internal Revenue and the Court of Tax Appeals, 2 We
held:jgc:chanrobles.com.ph

"To allow a litigant to assume a different posture when he comes before the court and challenge the position he had
accepted at the administrative level, would be to sanction a procedure whereby the court — which is supposed to
review administrative determinations — would not review, but determine and decide for the first time, a question not
raised at the administrative forum. This cannot be permitted, for the same reason that underlies the requirement of prior
exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide controversies
within its competence, and in much the same way that, on the judicial level, issues not raised in the lower court cannot
be raised for the first time on appeal."cralaw virtua1aw library

Besides, the special civil action of certiorari is available to pass upon the determinations of administrative bodies where
patent denial of due process is alleged as a consequence of grave abuse of discretion or lack of jurisdiction, or
question of law is raised and no appeal is available. In this case, petitioner may not complain of denial of due process
since it had enough opportunity, but opted not, to raise the issue of jurisdiction in any of the administrative bodies to
which the case may have been brought.chanrobles virtual lawlibrary

Petitioner argues that realty taxes are local taxes because they are levied by local government units; citing Sec. 39 of
P.D. 464, which provides:jgc:chanrobles.com.ph

"Sec. 39. Rates of Levy. — The provincial, city or municipal board or council shall fix a uniform rate of real property tax
applicable to their respective localities . . ."cralaw virtua1aw library

While local government units are charged with fixing the rate of real property taxes, it does not necessarily follow from
that authority the determination of whether or not to impose the tax. In fact, local governments have no alternative but
to collect taxes as mandated in Sec. 38 of the Real Property Tax Code, which states:jgc:chanrobles.com.ph

"Sec. 38. Incidence of Real Property Tax. — There shall be levied, assessed and collected in all provinces, cities and
municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements
affixed or attached to real property not hereinafter specifically exempted."cralaw virtua1aw library

It is thus clear from the foregoing that it is the national government, expressing itself through the legislative branch, that
levies the real property tax. Consequently, when local governments are required to fix the rates, they are merely
constituted as agents of the national government in the enforcement of the Real Property Tax Code. The delegation of
taxing power is not even involved here because the national government has already imposed realty tax in Sec. 38
above-quoted, leaving only the enforcement to be done by local governments.

The challenge of petitioner against the applicability of Meralco Securities Industrial Corporation v. Central Board of
Assessment Appeals, Et Al., 3 is unavailing, absent any cogent reason to overturn the same. Thus —

"Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general application. This argument is
untenable because the realty tax has always been imposed by the lawmaking body and later by the President of the
Philippines in the exercise of his lawmaking powers, as shown in Sections 342 et seq. of the Revised Administrative
Code, Act No. 3995, Commonwealth Act No 470 and Presidential Decree No. 464.

"The realty tax is enforced throughout the Philippines and not merely in a particular municipality or city but the proceeds
of the tax accrue to the province, city, municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464).
In contrast, a local tax is imposed by the municipal or city council by virtue of the Local Tax Code, Presidential Decree
No. 231, which took effect on July 1, 1973 (69 O.G. 6197)."cralaw virtua1aw library

Consequently, the provisions of Sec. 52 of the Mineral Resources Development Decree of 1974 (P.D. 463), and Secs.
5 (m), 17 (d) and 22 (c) of The Local Tax Code (P.D. 231) cited by petitioner are mere limitations on the taxing power of
local government units, they are not pertinent to the issue before Us and, therefore, cannot and should not affect the
imposition of real property tax by the national government.

As regards the second issue, Petitioner, which claims that E.O. 93 does not repeal social statutes like P.D. 745, in the
same breath takes refuge in Sec. 1 (e) of the same E.O. 93, to wit:chanrobles.com.ph : virtual law library
"Section 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: . . . (e) those conferred under the four basic
codes, namely: . . . (iv) the Real Property Tax Code, as amended . . ."cralaw virtua1aw library

in relation to Sec. 40 of the Real Property Tax Code, which provides:jgc:chanrobles.com.ph

"Sec. 40. Exemptions from Real Property Tax. — The exemption shall be as follows: . . . (g) Real property exempt
under other laws,"

and concluding that P.D. 745 is one of the "other laws" referred to.

We do not agree. If We are to sanction this interpretation, then necessarily all real properties exempt by any law would
be covered, and there would be no need for the legislature to specify "Real Property Tax Code, as amended", instead
of stating clearly "realty tax exemption laws." Indubitably, the intention is to limit the application of the "exception
clause" only to those conferred by the Real Property Tax Code. This is not only a logical construction of the provisions
but more so in keeping with the principle of statutory construction that tax exemptions are construed strictly against
taxpayers, hence, they cannot be created by mere implication but must be clearly provided by law. Non-exemption, in
case of doubt, is favored.chanrobles virtual lawlibrary

Quite obviously, the exception in Sec. 1 (e), (iv), of E.O. 93, refers to "those conferred under . . . Real Property Tax
Code, as amended", and that the exemption claimed by petitioner is granted not by the Real Property Tax Code but by
P.D. 745. When Sec. 40 (g) of the Property Tax Code provides that" [T]he exemption shall be as follows: . . . Real
Property exempt under other laws." the Code merely recognizes realty tax exemptions provided by other laws,
otherwise, it may unwittingly repeal those "other laws."

The argument of petitioner that P.D. 745 is a social statute to give flesh to the Constitutional provisions on housing,
hence, not covered by P.D. 1955, was squarely met by respondent CBAA in its Resolution of July 1, 1991, to which We
fully agree —

"The phrase ‗any special or general law‘ explicitly indicates that P.D. No. 1955 did not distinguish between a social
statute and an economic or tax legislation. Hence, where the law does not distinguish, we cannot distinguish. In view
thereof, we have no recourse but to apply the express provision of P.D. No. 1955 and rule in favor of the withdrawal of
the real property tax exemption provided under P.D. No. 745. We also find without merit the contention of Petitioner-
Appellant that B.P. No. 391 (Investment Incentives Policy Act of 1983) is the source and reason for the existence of
P.D. No. 1955; therefore, the scope of P.D. No. 1955 is limited to investment incentives. Although Section 20 of said
B.P. which authorizes the President to restructure investment incentives systems/legislations to align them with the
overall economic development objectives is one of the declared policies of P.D. No. 1955, its primary aim is the
formulation of national recovery program to meet and overcome the grave emergency arising from the current
economic crisis. Hence, it cannot be maintained that its provisions apply only to investment incentives.

Besides, even granting that its scope is limited, it is noted that P.D. No. 745 also speaks of investment incentives in
Sections 2 and 3 thereof . . ."cralaw virtua1aw library

In fine, despite the spirited effort put up by petitioner, We find no compelling reason to disturb the findings and
conclusion of public respondents. Petitioner, which even changed theories midstream, utterly failed to show that
respondents, in issuing the challenged Decision and Resolution, committed grave abuse of discretion amounting to
lack of or excess of jurisdiction.

WHEREFORE, for lack of merit, the instant petition is dismissed, with costs against petitioner.

SO ORDERED.

Cruz, Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

 EN BANC
[G.R. No. 143867. March 25, 2003]

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs. CITY OF DAVAO and ADELAIDA B.
BARCELONA, in her capacity as the City Treasurer of Davao, respondents.

RESOLUTION
Mendoza, J.:

Petitioner seeks a reconsideration of the decision of the Second Division in this case. Because the decision bears
directly on issues involved in other cases brought by petitioner before other Divisions of the Court, the motion for
[1]
reconsideration was referred to the Court en banc for resolution. The parties were heard in oral arguments by the
Court en banc on January 21, 2003 and were later granted time to submit their memoranda. Upon the filing of the last
memorandum by the City of Davao on February 10, 2003, the motion was deemed submitted for resolution.
To provide perspective, it will be helpful to restate the basic facts.
Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid
in lieu of all taxes on this franchise or earnings thereof pursuant to R.A. No. 7082 amending its charter, Act. No.
3436. The exemption from all taxes on this franchise or earnings thereof was subsequently withdrawn by R.A. No. 7160
(Local Government Code of 1991), which at the same time gave local government units the power to tax businesses
enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The Local
Government Code (LGC) took effect on January 1, 1992.
The pertinent provisions of the LGC state:

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. . . .

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.

Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent
part provides:

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.

[2]
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe) and Smart
[3]
Information Technologies, Inc. (Smart) franchises which contained in lieu of all taxes provisos. In 1995, it enacted
R.A. No. 7925 (Public Telecommunications Policy of the Philippines), 23 of which provides that Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
facto become part of previously granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises. The law took effect on March 16, 1995.
In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro Exchange, it was required to
pay the local franchise tax for the first to the fourth quarter of 1999 which then had amounted to P3,681,985.72. PLDT
challenged the power of the city government to collect the local franchise tax and demanded a refund of what it had
paid as local franchise tax for the year 1997 and for the first to the third quarters of 1998. For this reason, it filed a
petition in the Regional Trial Court of Davao. However, its petition was dismissed and its claim for exemption under
R.A. No. 7925 was denied. The trial court ruled that the LGC had withdrawn tax exemptions previously enjoyed by
persons and entities and authorized local government units to impose a tax on businesses enjoying franchises within
their territorial jurisdictions, notwithstanding the grant of tax exemption to them. Petitioner, therefore, brought this
appeal.
In its decision of August 22, 2001, this Court, through its Second Division, held that R.A. No. 7925, 23 cannot be
so interpreted as granting petitioner exemption from local taxes because the word exemption, taking into consideration
the context of the law, does not mean tax exemption. Hence this motion for reconsideration.
The question is whether, by virtue of R.A. No. 7925, 23, PLDT is again entitled to exemption from the payment of
local franchise tax in view of the grant of tax exemption to Globe and Smart.
Petitioner contends that because their existing franchises contain in lieu of all taxes clauses, the same grant of tax
exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But
the rule is that tax exemptions should be granted only by clear and unequivocal provision of law expressed in a
[4]
language too plain to be mistaken. If, as PLDT contends, the word exemption in R.A. No. 7925 means tax exemption
and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of
granting tax exemption to PLDT is not a direct, clear and unequivocal way of communicating the legislative intent.
But the best refutation of PLDTs claim that R.A. No. 7925, 23 grants tax exemption is the fact that after its
enactment on March 16, 1995, Congress granted several franchises containing both an equality clause similar to 23
and an in lieu of all taxes clause. If the equality clause automatically extends the tax exemption of franchises with in
lieu of all taxes clauses, there would be no need in the same statute for the in lieu of all taxes clause in order to extend
its tax exemption to other franchises not containing such clause. For example, the franchise of Island Country
Telecommunications, Inc., granted under R.A. No. 7939 and which took effect on March 22, 1995, contains the
following provisions:

Sec. 8. Equality Clause. If any subsequent franchise for telecommunications service is awarded or granted by the
Congress of the Philippines with terms, privileges and conditions more favorable and beneficial than those contained in
this Act, then the same privileges or advantages shall ipso facto accrue to the herein grantee and be deemed part of
this Act.

Sec. 10. Tax Provisions. The grantee shall be liable to pay the same taxes on their real estate, buildings and personal
property exclusive of this franchise, as other persons or telecommunications entities are now or hereafter may be
required by law to pay. In addition hereto, the grantee, its successors or assigns, shall pay a franchise tax equivalent to
three percent (3%) of all gross receipts transacted under this franchise, and the said percentage shall be in lieu of all
taxes on this franchise or earnings thereof; Provided, That the grantee shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code. The grantee shall file the return with and pay the taxes
due thereon to the Commissioner of Internal Revenue or his duly authorized representatives in accordance with the
National Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue. (Emphasis added)

Similar provisions (in lieu of all taxes and equality clauses) are also found in the franchises of Cruz Telephone
[5] [6] [7]
Company, Inc., Isla Cellular Communications, Inc., and Islatel Corporation.
We shall now turn to the other points raised in the motion for reconsideration of PLDT.
First. Petitioner contends that the legislative intent to promote the development of the telecommunications industry
is evident in the use of words as development, growth, and financial viability, and that the way to achieve this purpose
is to grant tax exemption or exclusion to franchises belonging in this industry. Furthermore, by using the words
advantage, favor, privilege, exemption, and immunity and the terms ipso facto, immediately, and unconditionally,
Congress intended to automatically extend whatever tax exemption or tax exclusion has been granted to the holder of
a franchise enacted after the LGC to the holder of a franchise enacted prior thereto, such as PLDT.
The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing, and
operations of all public telecommunications entities and thus to level the playing field in the telecommunications
industry. An intent to grant tax exemption cannot even be discerned from the law. The records of Congress are bereft
of any discussion or even mention of tax exemption. To the contrary, what the Chairman of the Committee on
Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which became R.A. No. 7925,
were equal access clauses in interconnection agreements, not tax exemptions. He said:

There is also a need to promote a level playing field in the telecommunications industry. New entities must be granted
protection against dominant carriers through the encouragement of equitable access charges and equal access
clauses in interconnection agreements and the strict policing of predatory pricing by dominant carriers. Equal access
should be granted to all operators connecting into the interexchange network. There should be no discrimination
[8]
against any carrier in terms of priorities and/or quality of service.

Nor does the term exemption in 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption from
certain regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance,
R.A. No. 7925, 17 provides: The Commission shall exempt any specific telecommunications service from its rate or
tariff regulations if the service has sufficient competition to ensure fair and reasonable rates or tariffs. Another
exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing
[9]
permits from the NTC every time a telecommunications company imports equipment.
Second. PLDT says that the policy of the law is to promote healthy competition in the telecommunications
[10]
industry. According to PLDT, the LGC did not repeal the in lieu of all taxes provision in its franchise but only
excluded from it local taxes, such as the local franchise tax. However, some franchises, like those of Globe and Smart,
which contain in lieu of all taxes provisions were subsequently granted by Congress, with the result that the holders of
franchises granted prior to January 1, 1992, when the LGC took effect, had to pay local franchise tax in view of the
withdrawal of their local tax exemption. It is argued that it is this disparate situation which R.A. No. 7925, 23 seeks to
rectify.
One can speak of healthy competition only between equals. For this reason, the law seeks to break up monopoly
in the telecommunications industry by gradually dismantling the barriers to entry and granting to new
telecommunications entities protection against dominant carriers through equitable access charges and equal access
clauses in interconnection agreements and through the strict policing of predatory pricing by dominant
[11]
carriers. Interconnection among carriers is made mandatory to prevent a dominant carrier from delaying the
[12]
establishment of connection with a new entrant and to deter the former from imposing excessive access charges.
[13]
That is also the reason there are franchises granted by Congress after the effectivity of R.A. No. 7925 which do
not contain the in lieu of all taxes clause, just as there are franchises, also granted after March 16, 1995, which contain
[14]
such exemption from other taxes. If, by virtue of 23, the tax exemption granted under existing franchises or thereafter
granted is deemed applicable to previously granted franchises (i.e., franchises granted before the effectivity of R.A. No.
7925 on March 16, 1995), then those franchises granted after March 16, 1995, which do not contain the in lieu of all
taxes clause, are not entitled to tax exemption. The in lieu of all taxes provision in the franchises of Globe and Smart,
which are relatively new entrants in the telecommunications industry, cannot thus be deemed applicable to PLDT,
[15]
which had virtual monopoly in the telephone service in the country for a long time, without defeating the very policy
of leveling the playing field of which PLDT speaks.
 Third. Petitioner argues that the rule of strict construction of tax exemptions does not apply to this case because
the in lieu of all taxes provision in its franchise is more a tax exclusion than a tax exemption. Rather, the applicable rule
should be that tax laws are to be construed most strongly against the government and in favor of the taxpayer.
[16]
This is contrary to the uniform course of decisions of this Court which consider in lieu of all taxes provisions as
granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be interpreted strictly
against the taxpayer and in favor of the taxing authority applies. Along with the police power and eminent domain,
taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty,
such as those containing exemption from taxation, should be strictly construed in favor of the state. A state cannot be
stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous
[17]
language.
Indeed, both in their nature and in their effect there is no difference between tax exemption and tax
exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are
[18]
subjected. Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,
[19]
exclusions from gross income and allowable deductions. Exclusion is thus also an immunity or privilege which frees
a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption should be applied
in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. To
construe otherwise the in lieu of all taxes provision invoked is to be inconsistent with the theory that R.A. No. 7925, 23
grants tax exemption because of a similar grant to Globe and Smart.
[20]
Petitioner cites Cagayan Electric Power & Light Co., Inc. v. Commissioner of Internal Revenue in support of its
argument that a tax exemption is restored by a subsequent law re-enacting the tax exemption. It contends that by virtue
of R.A. No. 7925, its tax exemption or exclusion was restored by the grant of tax exemptions to Globe and
Smart. Cagayan Electric Power & Light Co., Inc., however, is not in point. For there, the re-enactment of the exemption
was made in an amendment to the charter of Cagayan Electric Power and Light Co.
Indeed, petitioners justification for its claim of tax exemption rests on a strained interpretation of R.A. No. 7925,
23. For petitioners claim for exemption is not based on an amendment to its charter but on a circuitous reasoning
involving inquiry into the grant of tax exemption to other telecommunications companies and the lack of such grant to
[21]
others, when Congress could more clearly and directly have granted tax exemption to all franchise holders or amend
the charter of PLDT to again exempt it from tax if this had been its purpose.
[22]
The fact is that after petitioners tax exemption by R.A. No. 7082 had been withdrawn by the LGC, no
amendment to re-enact its previous tax exemption has been made by Congress. Considering that the taxing power of
local government units under R.A. No. 7160 is clear and is ordained by the Constitution, petitioner has the heavy
[23]
burden of justifying its claim by a clear grant of exemption.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too
[24]
plain to be mistaken. They cannot be extended by mere implication or inference. Thus, it was held in Home
[25]
Insurance & Trust Co. v. Tennessee that a law giving a corporation all the powers, rights reservations, restrictions,
and liabilities of another company does not give an exemption from taxation which the latter may possess. In Rochester
[26]
R. Co. v. Rochester, the U.S. Supreme Court, after reviewing cases involving the effect of the transfer to one
company of the powers and privileges of another in conferring a tax exemption possessed by the latter, held that a
statute authorizing or directing the grant or transfer of the privileges of a corporation which enjoys immunity from
taxation or regulation should not be interpreted as including that immunity. Thus:

We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary, that a statute authorizing or
directing the grant or transfer of the privileges of a corporation which enjoys immunity from taxation or regulation should
not be interpreted as including that immunity.We, therefore, conclude that the words the estate, property, rights,
privileges, and franchises did not embrace within their meaning the immunity from the burden of paving enjoyed by the
Brighton Railroad Company. Nor is there anything in this, or any other statute, which tends to show that the legislature
used the words with any larger meaning than they would have standing alone. The meaning is not enlarged, as faintly
suggested, by the expression in the statute that they are to be held by the successor fully and entirely, and without
change and diminution, words of unnecessary emphasis, without which all included in estate, property, rights,
privileges, and franchises would pass, and with which nothing more could pass. On the contrary, it appears, as clearly
as it did in the Phoenix Fire Insurance Company Case, that the legislature intended to use the words rights, franchises,
[27]
and privileges in the restricted sense. . . .

Fourth. It is next contended that, in any event, a special law prevails over a general law and that the franchise of
petitioner giving it tax exemption, being a special law, should prevail over the LGC, giving local governments taxing
power, as the latter is a general law. Petitioner further argues that as between two laws on the same subject matter
which are irreconcilably inconsistent, that which is passed later prevails as it is the latest expression of legislative will.
This proposition flies in the face of settled jurisprudence. In City Government of San Pablo, Laguna v.
[28]
Reyes, this Court held that the phrase in lieu of all taxes found in special franchises should give way to the
peremptory language of 193 of the LGC specifically providing for the withdrawal of such exemption privileges. Thus,
the rule that a special law must prevail over the provisions of a later general law does not apply as the legislative
purpose to withdraw tax privileges enjoyed under existing laws or charters is apparent from the express provisions of
137 and 193 of the LGC.
As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has already explained in the
decision under reconsideration that no inconsistency exists and that the rule that the later law is the latest expression of
the legislature does not apply. The matter need not be further discussed.
In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioners
exemption from local taxes has been restored is a contemporaneous construction of 23 and, as such, it is entitled to
great weight.
 The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals, which is a special
court created for the purpose of reviewing tax cases, the BLGF was created merely to provide consultative services
and technical assistance to local governments and the general public on local taxation and other related
[29]
matters. Thus, the rule that the Court will not set aside conclusions rendered by the CTA, which is, by the very
nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily
[30]
developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority cannot
apply in the case of BLGF.
WHEREFORE, the motion for reconsideration is DENIED and this denial is final.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
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.

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
1
development of hydraulic power and the production of power from other sources.

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
2
instrumentalities and agencies of the government, including its financial institutions. 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
3
power on a nationwide basis. 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-
4
owned or controlled corporations including their subsidiaries. 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
firmsnever 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, 1985—The 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 isdirectly 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. Ordoñez, 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
5
with the ruling of that Department dated May 20,1988, as confirmed by this Office on June 15, 1988 . . .

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.

6
PETITIONER prays for such other relief and remedy as may be just and equitable in the premises.

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
7
nature and extent of the tax exemption privilege restored to NPC.

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
8
action and that it is not sufficient for him to have a mere general interest common to all members of the public.

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 appeal—Any 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
9
functions.

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
10
beyond statutory authority.

Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an unlawful exercise of
11 12
jurisdiction or to prevent the oppressive exercise of legal authority. 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
14
Aceytelene Co. Inc. vs. Commissioner of Internal Revenue. 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
15
existence. Petitioner cites rulings of the BIR that the phrase exemption from "all taxes, etc." from "all forms of taxes"
16
and "in lieu of all taxes" covers only taxes for which the taxpayer is directly liable.

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
17
arrangements, for purposes of tax and duty exemptions privileges.

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
18
the Real Property Tax Code, as amended.

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
19
promulgated said resolutions.

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.

20
Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of Albay, wherein
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
21 22
certificate which was assigned to respondent Caltex through a deed of assignment approved by the BIR 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.

23
The NPC is a non-profit public corporation created for the general good and welfare wholly owned by the government
24
of the Republic of the Philippines. From the very beginning of its corporate existence, the NPC enjoyed preferential
25
tax treatment to enable the Corporation to pay the indebtedness and obligation and in furtherance and effective
26
implementation of the policy enunciated in Section one of "Republic Act No. 6395" which provides:

Sec. 1. 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 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
27
one of this Act, . . ."

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
28
favor of a government political subdivision or instrumentality.

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
29
exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies.

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
30
such property "exemption is the rule and taxation the exception."

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,
31
or unless the latter Act fully embraces the subject matter of the earlier. The first effort of a court must always be to
32
reconcile or adjust the provisions of one statute with those of another so as to give sensible effect to both provisions.

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part or
33
a particular provision alone. When construing a statute, the reason for its enactment should be kept in mind and the
34 35
statute should be construed with reference to its intended scope and purpose and the evil sought to be remedied.

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
36
weight.

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
37
payment of all taxes relative to NPC's petroleum purchases including indirect taxes. 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 Charter—the 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 companies—as payment, in effect, of the tax
component shown in the sales invoices. (NOTE: These procedures varied over time—There 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
38
to be specific order to the Bureaus concerned for the resumption of the processing of these claims."

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance, the said opinion
39
ruling of the latter was confirmed and its implementation was directed.

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 inPhilippine 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
40
to do so. This report shall be in addition to the usual FIRB reporting requirements on incentive availment.

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,
41
has the power to modify, alter or reverse the construction of a statute given by a department secretary.

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.

42 43
The required "standard" need not be expressed. In Edu vs. Ericta and in De la Llana vs. Alba 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."

44 45
In People vs. Rosenthal the broad standard of "public interest" was deemed sufficient. In Calalang vs. Williams, , it
46
was "public welfare" and in Cervantes vs. Auditor General, 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
47 48
standard and so was "protection of fish fry or fish eggs.

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
49
Secretary, by authority of the President, on October 15, 1987.

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
50
and the time, to provide the required direct and efficacious, not to say specific solutions.

51
Thus, in the case of Tablarin vs. Gutierrez, 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 Osmeña, 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
52
constitutionality of legislation should be adopted.

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.

53
Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld in Albay.

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.

54
In Albay, 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
55
approved by the President of the Philippines as required by P.D. No. 776. 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.1âwphi1

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
56
per kilowatt hour that took effect just over a week ago., 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,
57
1975 was already amended by P.D. No. 1931 , 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.1a\^/phi1 There 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
58
rates. 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
59
consumers if the NPC is to survive and continue to provide our power requirements. The greater interest of the
people must be paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

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.

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, 1991 1 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 markets 4 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 objectives 9 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, 51 which
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). 62 A 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 Malacañang, 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, 90
wherein 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 97 executed
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.