These materials are copyrighted and/or based on the writer’s
books on Taxation and future revisions. It is prohibited to
CASE NOTES FOR THE 2015 BAR
Ver. 15.11.02
TAXATION
LOCAL GOVERNMENT TAXATION, REAL PROPERTY TAXATION,
TARIFF AND CUSTOMS
Based on the SYLLABUS FOR THE 2015 BAR
EXAMINATION IN TAXATION
Prepared by
Abelardo T. Domondon
AB, BSC, LLB, MA, LLM, DCL (Cand.).
Lawyer-CPA-Customs Broker
“CASE NOTES FOR THE 2015 BAR”. “CASE NOTES
FOR THE 2015 BAR” are digests or doctrines enunciated in
selected cases up to September 22, 2015 that may be the source
of Bar Questions in Taxation for the 2015 Bar. The actual Bar
questions may not be formulated in the same manner as the “CASE
NOTES”. However, the doctrines tested in the Bar would in all
probability be included in these Notes. The CASE NOTES should
be used as supplementary reading to other materials on Taxation
written by Prof. Domondon, such as his Books on Taxation and the
“Cut and Paste” notes.
The reader should note that the scope of the CASE NOTES
include cases beyond the March 31, 2015 cut-off. It is the
observation of the author that there were certain instances in the
past where Bar questions were drawn from cases decided after the
cut-off. This is especially true where there is merely a reiteration of
doctrines.
If pressed for time, the author suggests that the reader
should focus his attention on the following:
 Nice to know
 Should know
 Must know
It is further suggested that the reader should browse those
without stars.
reproduce any part of the CASE NOTES in any form or any means,
electronic, mechanical or chemical, including photocopying, as well
as uploading over the internet, without the written permission of the
author. These materials are authorized for the use only of
Reviewees who have attended the author’s lectures on Taxation
and others he has personally authorized. Unauthorized users shall
not be prosecuted but SHALL BE SUBJECT TO THE LAW OF
KARMA SUCH THAT THEY WILL NEVER PASS THE BAR OR
WOULD BE UNHAPPY IN LIFE for stealing the intellectual
property of the author.
III. LOCAL GOVERNMENT CODE OF 1991,
as amended
A. Local government taxation
1. Fundamental principles. The fundamental principles
governing the taxing powers of LGUs as laid out in Section 130 of
the LGC, are:
a. Taxation shall be uniform in each LGU.
b. Taxes, fees, charges and other impositions shall:
1) be equitable and based as far as practicable on
the taxpayer's ability to pay;
2) be levied and collected only for public purposes;
3) not be unjust, excessive, oppressive, or
confiscatory;
4) not be contrary to law, public policy, national
economic policy, or in the restraint of trade.
c. The collection of local taxes, fees, charges and other
impositions shall in no case be let to any private person.
d. The revenue collected pursuant to the provisions of
the LGC shall inure solely to the benefit of, and be subject to the
disposition by, the LGU levying the tax, fee, charge or other
imposition unless otherwise specifically provided by the LGC.
e. Each LGU shall, as far as practicable, evolve a
progressive system of taxation. (Pelizloy Realty Corporation v. The
Province of Benguet, G.R. No. 183137, April 10, 2013, 695 SCRA 491
cited in Film Development Council of the Philippines v. Colon Heritage
Realty Corporation, etc., G.R. No. 203754, and companion case, June 16,
2015, numbering supplied)
a) Principle of local fiscal autonomy, defined. Fiscal
autonomy was defined as “the power [of LGUs] to create their own
sources of revenue in addition to their equitable share in the
 2
national taxes released by the national government, as well as the
power to allocate their resources in accordance with their own
priorities. It extends to the preparation of their budgets, and local
officials in turn have to work within the constraints thereof.”
(Pimentel v. Aguirre, G.R. No. 132988, July 19, 2000, 336 SCRA 201 cited
in Film Development Council of the Philippines v. Colon Heritage Realty
Corporation, etc., G.R. No. 203754, and companion case, June 16, 2015)
b) Historical antecedents of local fiscal autonomy.
With the adoption of the 1973 Constitution, and later the 1987
Constitution, municipal corporations were granted fiscal autonomy
via a general delegation of the power to tax. (Film Development
Council of the Philippines v. Colon Heritage Realty Corporation, etc., G.R.
No. 203754, and companion case, June 16, 2015 with a note to See
Manila Electric Company v. Province of Laguna, G.R. No. 131359, May 5,
1999, 306 SCRA 750)
Section 5, Article XI of the 1973 Constitution gave LGUs the
“power to create its own sources of revenue and to levy taxes,
subject to such limitations as may be provided by law.” This
authority was further strengthened in the 1987 Constitution, through
the inclusion in Section 5, Article X thereof of the condition that
“[s]uch taxes, fees, and charges shall accrue exclusively to local
governments.”
Accordingly, under the present Constitution, where there is
neither a grant nor a prohibition by statute, the tax power of
municipal corporations must be deemed to exist although Congress
may provide statutory limitations and guidelines . [Film Development
Council of the Philippine, supra with a note to see The City Government of
Quezon City, et al. v. Bayan Telecommunications, Inc., G.R. No.162015,
March 6, 2006, 484 SCRA 169 (The Court has taken stock of the fact that
by virtue of Section 5, Article X of the 1987 Constitution, local
governments are empowered to levy taxes.)]
The basic rationale for the current rule on local fiscal
autonomy is the strengthening of LGUs and the safeguarding of
their viability and self-sufficiency through a direct grant of general
and broad tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute and unconditional. The
legislature must still see to it that (a) the taxpayer will not be over-
burdened or saddled with multiple and unreasonable impositions;
(b) each LGU will have its fair share of available resources; (c) the
resources of the national government will not be unduly disturbed;
and (d) local taxation will be fair, uniform, and just. [Film
Development Council of the Philippine, supra with a note to see Manila
Electric Company, supra)
In conformity to the dictate of the fundamental law for the
legislature to “enact a local government code which shall provide
for a more responsive and accountable local government structure
instituted through a system of decentralization,” consistent with the
basic policy of local autonomy, Congress enacted the LGC, Book II
of which governs local taxation and fiscal matters and sets forth the
guidelines and limitations for the exercise of this power. (Film
Development Council of the Philippine, supra)
c) Tests to determine validity of ordinances. As
jurisprudence indicates, the tests are divided into
1) the formal (i.e., whether the ordinance was
enacted within the corporate powers of the LGU and whether
it was passed in accordance with the procedure prescribed by
law), and
2) the substantive (i.e., involving inherent merit,
like the conformity of the ordinance with the limitations under
the Constitution and the statutes, as well as with the
requirements of fairness and reason, and its consistency with
public policy). [Ferrer, Jr. v. City Mayor Bautista, et al., G.R. No.
210551, June 30, 2015 citing Legaspi v. City of Cebu, G.R. No.
159110, December 10, 2013, 711 SCRA 771, 785, arrangement and
numbering supplied]
Alternative statement of the tests. For an
ordinance to be valid though,
1) it must not only be within the corporate powers
of the LGU to enact and
2) must be passed according to the procedure
prescribed by law,
3) it should also conform to the following
requirements: (a) not contrary to the Constitution or any
statute; (b) not unfair or oppressive; (c) not partial or
discriminatory; (d) not prohibit but may regulate trade; (e)
general and consistent with public policy; and (f) not
unreasonable. [Ferrer, Jr., supra citing Legaspi v. City of Cebu,
G.R. No. 159110, December 10, 2013, 711 SCRA 771, 784-785;
White Light Corp., et al. v. City of Manila, 596 Phil. 444, 459 (2009);
Social Justice Society (SJS), et al. v. Hon. Atienza, Jr., 568 Phil.
658 (2008)., at 699-700; and See City of Manila v. Hon. Laguio, Jr.,
495 Phil. 289, 307-308 (2005), arrangement and letters supplied,
Arabic numerals in the original]
d) Ordinance must pass the test of constitutionality,
otherwise it is void. An ordinance must pass muster under the
test of constitutionality. [Ferrer, Jr. v. City Mayor Bautista, et al., G.R.
No. 210551, June 30, 2015 citing City of Manila v. Hon. Laguio, Jr., 495
Phil. 289, 308 (2005)] If not, it is void. [Ferrer, Jr., supra citing Tan v.
Pereña, 492 Phil. 200, 221 (2005)]
Ordinance should uphold the principle of the supremacy of
the Constitution. (Ferrer, Jr.., supra citing City of Manila v. Hon. Laguio,
Jr., supra)
e) Local ordinances must not contravene national
statutes. It is a fundamental principle that municipal ordinances
 3
are inferior in status and subordinate to the laws of the state. An
ordinance in conflict with a state law of general character and
statewide application is universally held to be invalid. The principle
is frequently expressed in the declaration that municipal authorities,
under a general grant of power, cannot adopt ordinances which
infringe the spirit of a state law or repugnant to the general policy of
the state. In every power to pass ordinances given to a municipality,
there is an implied restriction that the ordinances shall be consistent
with the general law. [Batangas CATV, Inc. v. Court of Appeals, 482
Phil. 544 (2004) cited in Ferrer, Jr. v. City Mayor Bautista, et al., G.R. No.
210551, June 30, 2015]
f) Rationale why ordinances should not contravene a
stature. The rationale of the requirement that the ordinances
should not contravene a statute is obvious. Municipal governments
are only agents of the national government. Local councils exercise
only delegated legislative powers conferred on them by Congress
as the national lawmaking body. The delegate cannot be superior to
the principal or exercise powers higher than those of the latter. It is
a heresy to suggest that the local government units can undo the
acts of Congress, from which they have derived their power in the
first place, and negate by mere ordinance the mandate of the
statute. [Justice Isagani Cruz (ret.), in Magtajas vs. Pryce Properties
Corp., Inc., cited in Ferrer, Jr. v. City Mayor Bautista, et al., G.R. No.
210551, June 30, 2015]
g) Local tax ordinance must be reasonable. An
ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. (Victorias Milling
Co., Inc. v. Municipality of Victorias, G.R. No. L-21183, September 27,
1968)
2. Nature and source of taxing power
a) The power of taxation of LGUs is merely a
delegated power. LGUs are able to legislate only by virtue of a
valid delegation of legislative power from the national legislature;
they are mere agents vested with what is called the power of
subordinate legislation. [Ferrer, Jr. v. City Mayor Bautista, et al., G.R.
No. 210551, June 30, 2015 citing City of Manila v. Hon. Laguio, Jr., 495
Phil. 289, 337 (2005)]
“Congress enacted the LGC as the implementing law for the
delegation to the various LGUs of the State’s great powers, namely:
the police power, the power of eminent domain, and the power of
taxation. The LGC was fashioned to delineate the specific
parameters and limitations to be complied with by each LGU in the
exercise of these delegated powers with the view of making each
LGU a fully functioning subdivision of the State subject to the
constitutional and statutory limitations.”
Specifically, with regard to the power of taxation, it is
indubitably the most effective instrument to raise needed revenues
in financing and supporting myriad activities of the LGUs for the
delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of
the people. [Ferrer, Jr., supra citing Legaspi v. City of Cebu, G.R. No.
159110, December 10, 2013, 711 SCRA 771, 785]
b) Extent of the delegation. The fundamental law did
not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local
government units are being strengthened and made more
autonomous, the legislature must still see to it that (a) the taxpayer
will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have
its fairshare of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local taxation will
be fair, uniform, and just. .” [Ferrer, Jr. v. City Mayor Bautista, et al., G.R.
No. 210551, June 30, 2015 citing MERALCO v. Province of Laguna, 366
Phil. 428, 434-435 (1999)
Subject to the provisions of the LGC and consistent with the
basic policy of local autonomy, every LGU is now empowered and
authorized to create its own sources of revenue and to levy taxes,
fees, and charges which shall accrue exclusively to the local
government unit as well as to apply its resources and assets for
productive, developmental, or welfare purposes, in the exercise or
furtherance of their governmental or proprietary powers and
functions. (Ferrer, Jr., supra with a note to see LGC, Secs. 18 and 129)
The relevant provisions of the LGC which established the
parameters of the taxing power of the LGUs are as follows:
1) Section 130. The fundamental principles (Sec. 130)
2) Sec. 133. Common Limitations on the Taxing Powers
of Local Government Units
3) Sec. 151. Scope of Taxing Powers
4) Sec. 186. Power To Levy Other Taxes, Fees or
Charges. (Ferrer, Jr., supra)
c) LGUs do not have the inherent power to tax. At the
outset, it must be emphasized that although the power to tax is
inherent in the State, the same is not true for LGUs because
although the mandate to impose taxes granted to LGUs is
categorical and long established in the 1987 Philippine Constitution,
the same is not all encompassing as it is subject to limitations as
explicitly stated in Section 5, Article X of the 1987 Constitution, viz.:
SECTION 5. Each local government unit shall have the power to
 4
create its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local
governments. (Batangas City, et al. v. Pilipinas Shell Petroleum
Corporation, G.R. No. 187631, July 8, 2015)
It is already well-settled that although the power to tax is
inherent in the State, the same is not true for the LGUs to whom the
power must be delegated by Congress and must be exercised
within the guidelines and limitations that Congress may provide.
(Batangas City, et al., supra citing City of Manila, et al. v. Hon. Colet, et al.
G.R. Nos. 120051, December 10, 2014 and companion cases)
The power to tax “is an attribute of sovereignty,” and as such,
inherent in the State. Such, however, is not true for provinces,
cities, municipalities and barangays as they are not the sovereign;
rather, there are mere “territorial and political subdivisions of the
Republic of the Philippines.” (Pelizloy Realty Corporation v. The
Province of Benguet, cited in City of Manila, supra, in turn cited in
Batangas City, et al., supra)
It is settled that a municipal corporation unlike a sovereign
state is clothed with no inherent power of taxation. The charter or
statute must plainly show an intent to confer that power or the
municipality, cannot assume it. (Ferrer, Jr. v. City Mayor Bautista, et
al., G.R. No. 210551, June 30, 2015)
Indeed, LGUs have no inherent power to tax except to the extent
that such power might be delegated to them either by the basic law
or by the statute. [Ferrer, Jr., supra citing MERALCO v. Province of
Laguna, 366 Phil. 428, 433 (1999); Film Development Council of the
Philippines v. Colon Heritage Realty Corporation, etc., G.R. No. 203754,
and companion case, June 16, 2015 citing Manila Electric Company v.
Province of Laguna, G.R. No. 131359, May 5, 1999, 306 SCRA 750]
“Under the now prevailing Constitution, where there is neither
a grant nor a prohibition by statute, the tax power must be deemed
to exist although Congress may provide statutory limitations and
guidelines. The basic rationale for the current rule is to safeguard
the viability and self sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless,
the fundamental law did not intend the delegation to be absolute
and unconditional; the constitutional objective obviously is to
ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still
see to it that (a) the taxpayer will not be over-burdened or saddled
with multiple and unreasonable impositions; (b) each local
government unit will have its fair share of available resources; (c)
the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.” (Id. at
434-435)
d) “Paradigm shift” from exclusive Congressional
power to direct grant of taxing power to local legislative bodies.
The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees
and other charges pursuant to Article X, section 5 of the 1987
Constitution. (Batangas Power Corporation v. Batangas City, et al. G. R.
No. 152675, and companion case, April 28, 2004 citing National Power
Corporation v. City of Cabanatuan, G. R. No. 149110, April 9, 2003)
Local government legislation, “is not regarded as a transfer
of general legislative power, but rather as the grant of authority to
prescribe local regulations, according to immemorial practice,
subject, of course, to the interposition of the superior in cases of
necessity.” (People v. Vera, 65 Phil. 56)
The basic rationale for the current rule is to safeguard the
viability and selfsufficiency of local government units by directly
granting them general and broad tax powers. (Ferrer, Jr. v. City
Mayor Bautista, et al., G.R. No. 210551, June 30, 2015)
e) Relationship between the taxing power of the local
government units and the national government. Municipal
corporations owe their origin to, and derive their powers and rights
wholly from the legislature. It breathes into them the breath of life,
without which they cannot exist. As it creates, so it may destroy. As
it may destroy, it may abridge and control. Unless there is some
constitutional limitation on the right, the legislature might, by a
single act, and if we can suppose it capable of so great a folly and
so great a wrong, sweep from existence all of the municipal
corporations in the State, and the corporation could not prevent it.
The Supreme Court stated that it knows of no limitation on the right
so far as to the corporation themselves are concerned. They are, so
to phrase it, the mere tenants at will of the legislature.
This basic relationship between the national legislature and
the local government units has not been enfeebled by the new
provisions in the Constitution strengthening the policy of local
autonomy. Without meaning to detract from that policy, the
Supreme Court confirmed that Congress retains control of the local
government units although in significantly reduced degree now than
under our previous Constitutions. The power to create still includes
the power to destroy. The power to grant still includes the power to
withhold or recall. True, there are certain notable innovations in the
Constitution, like the direct conferment on the local government
units of the power to tax, which cannot now be withdrawn by mere
statute.
By and large, however, the national legislature is still the
principal of the local government units, which cannot defy its will or
modify or violate it. [Justice Isagani Cruz (ret.), in Magtajas vs. Pryce
 5
Properties Corp., Inc., cited in Ferrer, Jr. v. City Mayor Bautista, et al., G.R.
No. 210551, June 30, 2015]
f) Taxing power of the local government is limited.
The taxing power of local governments is limited in the sense that
Congress can enact legislation granting tax exemptions.
While the system of local government taxation has changed
with the onset of the 1987 Constitution, the power of local
government units to tax is still limited.
While the power to tax by local governments may be
exercised by local legislative bodies, no longer merely by virtue of a
valid delegation as before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution, the basic doctrine on
local taxation remains essentially the same, “the power to tax is
[still] primarily vested in the Congress.” (Quezon City, et al., v. ABS-
CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing
City Government of Quezon City, et al. v. Bayan Telecommunications,
Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169 in turn referring to
Mactan Cebu International Airport Authority, v. Marcos, G.R. No. 120082,
September 11, 1996, 261 SCRA 667, 680, italics supplied)
g) Further amplification by Bernas of the local
government’s power to tax. “What is the effect of Section 5 on
the fiscal position of municipal corporations ? Section 5 does not
change the doctrine that municipal corporations do not possess
inherent powers of taxation. What it does is to confer municipal
corporations a general power to levy taxes and otherwise create
sources of revenue. They no longer have to wait for a statutory
grant of these powers. The power of the legislative authority
relative to the fiscal powers of local governments has been reduced
to the authority to impose limitations on municipal powers.
Moreover, these limitations must be “consistent with the basic
policy of local autonomy.” The important legal effect of Section 5 is
thus to reverse the principle that doubts are resolved against
municipal corporations. Henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will be resolved in
favor of municipal corporations. It is understood, however, that
taxes imposed by local government must be for a public purpose,
uniform within a locality, must not be confiscatory, and must be
within the jurisdiction of the local unit to pass.” (Quezon City, et al., v.
ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008
citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA
169)
h) Reconciliation of the local government’s authority
to tax and the Congressional general taxing power. Congress
has the inherent power to tax, which includes the power to grant tax
exemptions. On the other hand, the power of local governments,
such as provinces and cities for example Quezon City, to tax is
prescribed by Section 151 in relation to Section 137 of the LGC
which expressly provides that notwithstanding any exemption
granted by any law or other special law, the City or a province may
impose a franchise tax. It must be noted that Section 137 of the
LGC does not prohibit grant of future exemptions.
The Supreme Court in a series of cases has sustained the
power of Congress to grant tax exemptions over and above the
power of the local government’s delegated power to tax. (Quezon
City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 16)
“Indeed, the grant of taxing powers to local government units
under the Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the constitutional grant
to local governments simply means that in interpreting statutory
provisions on municipal taxing powers, doubts must be resolved in
favor of municipal corporations.” [Ibid., referring to Philippine Long
Distance Telephone Company, Inc. (PLDT) vs. City of Davao]
i) Interpretation of power to tax of LGUs. The power
when granted is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must
be resolved against the municipality. Inferences, implications,
deductions – all these – have no place in the interpretation of the
taxing power of a municipal corporation. (Ferrer, Jr. v. City Mayor
Bautista, et al., G.R. No. 210551, June 30, 2015 citing MERALCO v.
Province of Laguna, 366 Phil. 428, 433 (1999)]
j) Criteria for distinguishing between a tax and an
imposition under police power. The Supreme Court held that “if
the generating of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that incidentally revenue is also obtained
does not make the imposition a tax.” [Smart Communications, Inc. v.
Municipality of Malvar, Batangas, G.R. No. 204429, February 18, 2014,
716 SCRA 677, 695 citing Progressive Development Corporation v.
Quezon City, 254 Phil. 635, 646 (1989), and in turn cited in Ferrer, Jr. v.
City Mayor Bautista, et al., G.R. No. 210551, June 30, 2015]
The Supreme Court reiterated that the purpose and effect of
the imposition determine whether it is a tax or a fee, and that the
lack of any standards for such imposition gives the presumption
that the same is a tax. (Smart Communications, Inc., supra)
k) Designation in the ordinance does not decide
whether the imposition is a license fee or a tax. The Supreme
Court accordingly say that the designation given by the municipal
authorities does not decide whether the imposition is properly a
license tax or a license fee. The determining factors are the
 6
purpose and effect of the imposition as may be apparent from the
provisions of the ordinance. Thus, “[w]hen no police inspection,
supervision, or regulation is provided, nor any standard set for the
applicant to establish, or that he agrees to attain or maintain, but
any and all persons engaged in the business designated, without
qualification or hindrance, may come, and a license on payment of
the stipulated sum will issue, to do business, subject to no
prescribed rule of conduct and under no guardian eye, but
according to the unrestrained judgment or fancy of the applicant
and licensee, the presumption is strong that the power of taxation,
and not the police power, is being exercised.” [Smart
Communications, Inc., . v. Municipality of Malvar, Batangas, G.R. No.
204429, February 18, 2014, 716 SCRA 677, citing Victorias Milling Co.,
Inc. v. Municipality of Victorias, etc., 134 Phil. 180, 194 (1968) in turn cited
in Ferrer, Jr., v. City Mayor Bautista, et al., G.R. No. 210551, June 30,
2015]
l) Police power liberally construed . The provisions
related thereto are liberally interpreted to give more powers to
LGUs in accelerating economic development and upgrading the
quality of life for the people in the community. [Ferrer, Jr. v. City
Mayor Bautista, et al., G.R. No. 210551, June 30, 2015 citing LGC, Sec. 5
(c)]
Wide discretion is vested on the legislative authority to
determine not only what the interests of the public require but also
what measures are necessary for the protection of such interests
since the Sanggunian is in the best position to determine the needs
of its constituents. [Ferrer, Jr., supra citing Social Justice Society (SJS),
et al. v. Hon. Atienza, Jr. 568 Phil. 658, 703 (2008)]
m) Limitations on the exercise of police power.
Though broad and far-reaching, police power is subordinate to
constitutional limitations and is subject to the requirement that its
exercise must be reasonable and for the public good. [Ferrer, Jr. v.
City Mayor Bautista, et al., G.R. No. 210551, June 30, 2015 citing City of
Manila v. Hon. Laguio, Jr., 495 Phil. 289, 308 (2005)]
The police power granted to local government units must
always be exercised with utmost observance of the rights of the
people to due process and equal protection of the law. Such power
cannot be exercised whimsically, arbitrarily or despotically as its
exercise is subject to a qualification, limitation or restriction
demanded by the respect and regard due to the prescription of the
fundamental law, particularly those forming part of the Bill of
Rights. Individual rights, it bears emphasis, may be adversely
affected only to the extent that may fairly be required by the
legitimate demands of public interest or public welfare. Due process
requires the intrinsic validity of the law in interfering with the rights
of the person to his life, liberty and property. x x x x
To successfully invoke the exercise of police power as the
rationale for the enactment of the Ordinance, and to free it from the
imputation of constitutional infirmity, not only must it appear that the
interests of the public generally, as distinguished from those of a
particular class, require an interference with private rights, but the
means adopted must be reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon
individuals. It must be evident that no other alternative for the
accomplishment of the purpose less intrusive of private rights can
work. A reasonable relation must exist between the purposes of the
police measure and the means employed for its accomplishment,
for even under the guise of protecting the public interest, personal
rights and those pertaining to private property will not be permitted
to be arbitrarily invaded. (Ferrer, Jr., supra citing City of Manila, supra)
As with the State, LGUs may be considered as having
properly exercised their police power only if there is a lawful subject
and a lawful method or, to be precise, if the following requisites are
met: (1) the interests of the public generally, as distinguished from
those of a particular class, require its exercise and (2) the means
employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals. [Ferrer, Jr.,
supra citing Social Justice Society (SJS), et al., supra at 702]
Lacking a concurrence of these two requisites, the police
measure shall be struck down as an arbitrary intrusion into private
rights – a violation of the due process clause. [Ferrer, Jr., supra citing
City of Manila, supra at 312-313; See also White Light Corp., et al. v. City
of Manila, 596 Phil. 444, 467 (2009)]
The main purpose of Ordinance No. 18 is to regulate certain
construction activities of the identified special projects, which
includes “cell sites” or telecommunications towers. Thus, the fees
imposed in Ordinance No. 18 are primarily regulatory in nature, and
not primarily revenue-raising. They are not taxes. While the fees
may contribute to the revenues of the Municipality, this effect is
merely incidental. (Smart Communications, Inc., v. Municipality of
Malvar, Batangas, G.R. No. 204429, February 18, 2014)
 n) Garbage fees are collected under the general
welfare clause. In the United States of America, it has been held
that the authority of a municipality to regulate garbage falls within
its police power to protect public health, safety, and welfare. [ Ferrer,
Jr., supra with a note to see Ennis v. City of Ray, 595 N.W. 2d 305 (1999)
and Village of Winside v. Jackson, 553 N.W. 2d 476 (1996) ]
As opined, the purposes and policy underpinnings of the
police power to regulate the collection and disposal of solid waste
are: (1) to preserve and protect the public health and welfare as
well as the environment by minimizing or eliminating a source of
disease and preventing and abating nuisances; and (2) to defray
 7
costs and ensure financial stability of the system for the benefit of
the entire community, with the sum of all charges marshalled and
designed to pay for the expense of a systemic refuse disposal
scheme. [Ferrer, Jr., supra with a note to see Jacobson v. Solid Waste
Agency of Northwest Nebraska (SWANN), 653 N.W. 2d 482 (2002); Ennis
v. City v. City of Ray, 595 N.W. 2d 305 (1999); and City of Hobbs v.
Chesport, Ltd., 76 N.M. 609 (1966)]
A municipality has an affirmative duty to supervise and
control the collection of garbage within its corporate limits. [Ferrer,
Jr., supra with a note to see Jacobson v. Solid Waste Agency of Northwest
Nebraska (SWANN), 653 N.W. 2d 482 (2002)]
The LGC specifically assigns the responsibility of regulation
and oversight of solid waste to local governing bodies because the
Legislature determined that such bodies were in the best position to
develop efficient waste management programs. (Ibid.) To impose on
local governments the responsibility to regulate solid waste but not
grant them the authority necessary to fulfill the same would lead to
an absurd result.” (Ibid.)
In this jurisdiction, pursuant to Section 16 of the LGC and in
the proper exercise of its corporate powers under Section 22 of the
same, the Sangguniang Panlungsod of Quezon City, like other local
legislative bodies, is empowered to enact ordinances, approve
resolutions, and appropriate funds for the general welfare of the city
and its inhabitants. (Ferrer, Jr., supra citing LGC, Sec. 458)
The general welfare clause is the delegation in statutory form
of the police power of the State to LGUs. [Batangas CATV, Inc. v.
Court of Appeals 482 Phil. 544, 561 (2004)]
o) Impositions for collection of garbage are fees.
“Charges” refer to pecuniary liability, as rents or fees against
persons or property, while “Fee” means a charge fixed by law or
ordinance for the regulation or inspection of a business or activity.
[Ferrer, Jr., supra citing LGC, Sec. 131 (g) and (l)]
The fee imposed for garbage collections under is a charge
fixed for the regulation of an activity. (Ferrer, Jr., supra)
 p) Limitation upon collection of garbage fees.
Nonetheless, although a special charge, tax, or assessment may be
imposed by a municipal corporation, it must be reasonably
commensurate to the cost of providing the garbage service. [Ferrer,
Jr. v. City Mayor Bautista, et al., G.R. No. 210551, June 30, 2015 with a
note to See Ennis v. City of Ray, 595 N.W. 2d 305 (1999) and Town of
Eclectic v. Mays, 547 So. 2d 96 (1989)]
To pass judicial scrutiny, a regulatory fee must not produce
revenue in excess of the cost of the regulation because such fee
will be construed as an illegal tax when the revenue generated by
the regulation exceeds the cost of the regulation. [Ferrer, Jr., with a
note to see Iroquois Properties v. City of East Lansing, 408 N.W. 2d 495
(1987)]
 q) Quezon City Ordinance No. SP-2095 that
imposes a Socialized Housing Tax (SHT) equivalent to 0.5% on
the assessed value of land in excess of Php100,000.00 is valid.
This special assessment is the same tax referred to in R.A. No.
7279 or the “Urban Development and Housing Act of 1992 (UDHA).
The SHT is one of the sources of funds for urban
development and housing program.
Under the UDHA, socialized housing shall be the primary
strategy in providing shelter for the underprivileged and homeless.
The LGU or the NHA, in cooperation with the private developers
and concerned agencies, shall provide socialized housing or
resettlement areas with basic services and facilities such as potable
water, power and electricity, and an adequate power distribution
system, sewerage facilities, and an efficient and adequate solid
waste disposal system; and access to primary roads and
transportation facilities. The provisions for health, education,
communications, security, recreation, relief and welfare shall also
be planned and be given priority for implementation by the LGU
and concerned agencies in cooperation with the private sector and
the beneficiaries themselves.
In coordination with the NHA, the LGUs shall provide
relocation or resettlement sites with basic services and facilities and
access to employment and livelihood opportunities sufficient to
meet the basic needs of the affected families. Clearly, the SHT
charged by the Quezon City Government is a tax which is within its
power to impose. Aside from the specific authority vested by
Section 43 of the UDHA, cities are allowed to exercise such other
powers and discharge such other functions and responsibilities as
are necessary, appropriate, or incidental to efficient and effective
provision of the basic services and facilities which include, among
others, programs and projects.
For the purpose of undertaking a comprehensive and
continuing urban development and housing program, the disparities
between a real property owner and an informal settler as two
distinct classes are too obvious and need not be discussed at
length. The differentiation conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of
the Constitution. (Ferrer, Jr. v. City Mayor Bautista, et al., G.R. No.
210551, June 30, 2015)
Notably, 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 over another. [Ferrer, Jr., supra with a note to see Tio v.
Videogram Regulatory Board, 235 Phil. 198, 206 (1987)]
It is inherent in the power to tax that a State is free to select
the subjects of taxation. (Ibid.) Inequities which result from a
 8
singling out of one particular class for taxation or exemption
infringe no constitutional limitation. (Ibid.)
Further, the reasonableness of Ordinance No. SP-2095
cannot be disputed. It is not confiscatory or oppressive since the tax
being imposed therein is below what the UDHA actually allows. As
pointed out by Quezon City, while the law authorizes LGUs to
collect SHT on lands with an assessed value of more than
P50,000.00, the questioned ordinance only covers lands with an
assessed value exceeding P100,000.00. Even better, on certain
conditions, the ordinance grants a tax credit equivalent to the total
amount of the special assessment paid beginning in the sixth (6th)
year of its effectivity. Far from being obnoxious, the provisions of
the subject ordinance are fair and just. (Ferrer, Jr., supra)
 r) Illustration of a valid enactment under the
power of taxation as an implement of police power. On October
17, 2011,Quezon City Council enacted Ordinance No. SP-2095, S-
2011, or the Socialized Housing Tax of Quezon City, (SHT) Section
3 of which provides:
“SECTION 3. IMPOSITION. A special assessment
equivalent to one-half percent (0.5%) on the assessed value
of land in excess of One Hundred Thousand Pesos
(Php100,000.00) shall be collected by the City Treasurer
which shall accrue to the Socialized Housing Programs of the
Quezon City Government. The special assessment shall
accrue to the General Fund under a special account to be
established for the purpose.
Effective for five (5) years, the Socialized Housing Tax
(SHT) shall be utilized by the Quezon City Government for
the following projects: (a) land purchase/land banking; (b)
improvement of current/existing socialized housing facilities;
(c) land development; (d) construction of core houses,
sanitary cores, medium-rise buildings and other similar
structures; and (e)financing of public-private partnership
agreement of the Quezon City Government and National
Housing Authority (NHA) with the private sector.
Under certain conditions, a tax credit shall be enjoyed
by taxpayers regularly paying the special assessment:
SECTION 7. TAX CREDIT. Taxpayers dutifully paying
the special assessment tax as imposed by this ordinance
shall enjoy a tax credit. The tax credit may be availed of only
after five (5) years of continue[d] payment. Further, the
taxpayer availing this tax credit must be a taxpayer in good
standing as certified by the City Treasurer and City Assessor.
The tax credit to be granted shall be equivalent to the
total amount of the special assessment paid by the property
owner, which shall be given as follows:
1. 6th year - 20%
2. 7th year - 20%
3. 8th year - 20%
4. 9th year - 20%
5. 10h year - 20%
Furthermore, only the registered owners may avail of the tax
credit and may not be continued by the subsequent property owners
even if they are buyers in good faith, heirs or possessor of a right in
whatever legal capacity over the subject property.
The avowed purpose of the ordinance is to implement the
provisions of Rep. Act No. 7279, the Urban Development and
Housing Act (UDHA). In short to provide funds for the acquisition
and development of relocation sites for informal settlers in slum
areas resulting to urban development.
Is the ordinance valid ?
SUGGESTED ANSWER: Yes. The ordinance imposing is the
Socialized Housing Tax of Quezon City, (SHT) is valid.
The tax is not a pure exercise of taxing power or merely to
raise revenue; it is levied with a regulatory purpose. The levy is
primarily in the exercise of the police power for the general welfare
of the entire city. It is greatly imbued with public interest.
Removing slum areas in Quezon City is not only beneficial to
the underprivileged and homeless constituents but advantageous to
the real property owners as well. The situation will improve the
value of the their property investments, fully enjoying the same in
view of an orderly, secure, and safe community, and will enhance
the quality of life of the poor, making them law-abiding constituents
and better consumers of business products. [Ferrer, Jr. v. City Mayor
Bautista, et al., G.R. No. 210551, June 30, 2015 citing City of Manila v.
Hon. Laguio, Jr., 495 Phil. 289, 308 (2005)]
s) Double taxation, defined. There is double taxation
when the same taxpayer is taxed twice when he should be taxed
only once for the same purpose by the same taxing authority within
the same jurisdiction during the same taxing period, and the taxes
are of the same kind or character. Double taxation is obnoxious.
(Nursery Care Corporation, et al., v. Acevedo, etc., et al, G.R. No.
180651, July 30, 2014)
t) Elements of double taxation. For double taxation to
take place, the two taxes must be imposed on the same subject
matter, for the same purpose, by the same taxing authority, within
the same jurisdiction, during the same taxing period; and the taxes
must be of the same kind or character. Because Section 21 of the
Revenue Code of Manila imposed the tax on a person who sold
 9
goods and services in the course of trade or business based on a
certain percentage of his gross sales or receipts in the preceding
calendar year, while Section 15 and Section 17 likewise imposed
the tax on a person who sold goods and services in the course of
trade or business but only identified such person with particularity,
namely, the wholesaler, distributor or dealer (Section 15), and the
retailer (Section 17), all the taxes – being imposed on the privilege
of doing business in the City of Manila in order to make the
taxpayers contribute to the city’s revenues – were imposed on the
same subject matter and for the same purpose. (Nursery Care
Corporation, et al., v. Acevedo, etc., et al, G.R. No. 180651, July 30,
2014)
u) Example of double taxation in its strict sense
which violates the concept of equal protection because there
is discrimination. An ordinance imposing a tax on centrifugal
sugar produced and exported only by a specific sugar company and
not upon those produced and exported by other sugar companies
was declared null and void. (Ormoc Sugar Co. v. Treasurer of Ormoc
City, 22 SCRA 603) The law is discriminatory singling out for taxation
a specific company only.
v) Illustration of double taxation that is obnoxious.
The City of Manila assessed and collected taxes from the individual
establishments pursuant to Section 15 (Tax on Wholesalers,
Distributors, or Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila. At the same time, the City of Manila
imposed additional taxes upon the same establishments pursuant to
Section 21 of the Revenue Code of Manila, as amended, as a
condition for the renewal of their respective business licenses for
the year 1999. Section 21 of the Revenue Code of Manila stated:
To comply with the City of Manila’s assessment of taxes
under Section 21, the establishments paid under protest the
amounts demanded corresponding to the first quarter of 1999. A
request for refund of the taxes paid under protest was denied by the
City Treasurer, and a motion for reconsideration was likewise
denied.
The establishments then filed their respective petitions for
certiorari in the Regional Trial Court (RTC) in Manila which were
then consolidated in one branch.
The RTC dismissed the consolidated petitions after which the
matter was appealed to the Court of Appeals which denied the
appeal.
The establishments then appealed to the Supreme Court. Is
there double taxation when the City imposed additional taxes
pursuant to Section 21 of the Revenue Code of Manila ?
HELD: Yes. Double taxation means taxing the same
property twice when it should be taxed only once; that is, "taxing the
same person twice by the same jurisdiction for the same thing."
It is obnoxious when the taxpayer is taxed twice, when it
should be but once. Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same subject
matter, for the same purpose, by the same taxing authority, within
the same jurisdiction, during the same taxing period; and the taxes
must be of the same kind or character.
Using the aforementioned test, there is indeed double
taxation since the petitioners are subjected to the taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794, since these are
being imposed: (1) on the same subject matter – the privilege of
doing business in the City of Manila; (2) for the same purpose – to
make persons conducting business within the City of Manila
contribute to city revenues; (3) by the same taxing authority –
respondent City of Manila; (4) within the same taxing jurisdiction –
within the territorial jurisdiction of the City of Manila; (5) for the
same taxing periods – per calendar year; and (6) of the same kind
or character – a local business tax imposed on gross sales or
receipts of the business. (City of Manila v. Coca-Cola Bottlers
Philippines, Inc., G.R. No. 181845, August 4, 2009, 595 SCRA 299 and
G.R. No. 167283, February 10, 2010. which has been reiterated in
Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila,
G.R. No. 181277, July 3, 2013, 700 SCRA 428, 439-442 both cited in
Nursery Care Corporation, et al., v. Acevedo, etc., et al, G.R. No. 180651,
July 30, 2014)
Section 143 of the LGC, is the very source of the power of
municipalities and cities to impose a local business tax, and to
which any local business tax imposed by City of Manila must
conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other
article of commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers,
etc.to a business tax under Section 143(h) of the same Code.
Section 143(h) may be imposed only on businesses that are subject
to excise tax, VAT, or percentage tax under the NIRC, and that are
"not otherwise specified in preceding paragraphs." In the same way,
businesses such as respondent’s, already subject to a local
business tax under Section 14 of Tax Ordinance No. 7794 [which is
based on Section 143(a) of the LGC], can no longer be made liable
for local business tax under Section 21 of the same Tax Ordinance
[which is based on Section 143(h) of the LGC. (Ibid.)
w) Imposition of garbage fee is not double taxation.
A garbage fee is not a tax hence its imposition is not double
 10
taxation. (Ferrer, Jr. v. City Mayor Bautista, et al., G.R. No. 210551, June
30, 2015)
In Georgia, U.S.A., assessments for garbage collection
services have been consistently treated as a fee and not a tax.
[Ferrer, Jr., supra citing Monticello, Ltd. v. City of Atlanta, 499 S.E. 2d 157
(1998)] In another U.S. case, the garbage fee was considered as a
"service charge" rather than a tax as it was actually a fee for a
service given by the city which had previously been provided at no
cost to its citizens. [Ferrer, Jr., supra citing Martin v. City of Trussville,
376 So. 2d 1089 (1979)]
a) Grant of local taxing power under the local
government code
(i) Power is merely delegated. Local
governments do not have the inherent power to tax except to
the extent that such power might be delegated to them either
by the basic law or by statute. Presently, under Article X of
the 1987 Constitution, a general delegation of that power has
been given in favor of local government units. (Manila Electric
Company v. Province of Laguna, G.R. No. 131359, May 5, 1999)
b) Authority to prescribe penalties for tax
violations
c) Authority to grant local tax exemptions
d) Withdrawal of exemptions
(i) Rationale for the withdrawal of tax
exemptions. The grant of exemptions to government-owned
or controlled corporations and all other units of government
were that
(a) such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly
situated enterprises. (Mactan Cebu International Airport
cited in National Power Corporation v. City of Cabanatuan,
G. R. No. 149110, April 9, 2003)
The intention of the law, in withdrawing the tax
exemptions, is to broaden the tax base of local
government units to assure them of substantial
sources of revenue. [Philippine Rural Electric
Cooperatives Association, Inc. (PHILRECA) v. The
Secretary , Department of Interior and Local Government,
403 SCRA 558 (2003)]
(b) With the added burden of devolution, it is
even more imperative for government entities to share
in the requirements of development, fiscal or
otherwise, by paying taxes or other charges due from
them.
This is so as doubtless, the power to tax is the
most effective instrument to raise needed revenues to
finance and support myriad activities of the local
government units for the delivery of basic services
essential to the promotion of the general welfare and
the enhancement of peace, progress, and prosperity of
the people. (National Power Corporation, supra)
(ii) Withdrawal of tax exemption is not to be
construed as prohibiting future grants of tax
exemptions. Philippine Long Distance Telephone Company,
Inc., v. City of Davao, et al., etc., G.R. No. 143867, August
22, 2001, upheld the authority of the City of Davao, a local
government unit, to impose and collect a local franchise tax
because the Local Government has withdrawn all tax
exemptions previously enjoyed by all persons and authorized
local government units to impose a tax on business enjoying
a franchise tax notwithstanding the grant of tax exemption to
them.
Also reiterated was the doctrine enunciated in
Philippine Airlines, Inc. v. Edu, 164 SCRA 320, that the
withdrawal of a tax exemption should not be construed as
prohibiting future grants of exemption from all taxes. Indeed,
the grant of taxing powers to local government units under
the Local Government Code does not affect the power of
Congress to grant exemptions to certain persons, pursuant to
a declared national policy. The legal effect of the
constitutional grant to local governments simply means that
in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal
corporations.
e) Authority to adjust local tax rates
(i) Rationale for the authority to adjust local tax
rates. One of the characteristic of a sound tax system is
fiscal adequacy This means that the tax system must be
able to provide sufficient revenues in order to meet the
legitimate objects of government.
Stated otherwise, the taxes collected must be able to
finance government expenditures and their variations.
 11
[Abakada Guro Party List (Formerly AASJS), etc., v, Ermita, et al.,
G. R. No.168056, September 1, 2005 citing Chavez v. Ongpin, 4. Scope of taxing power. The taxing power of cities,
G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338]
municipalities and municipal districts may be used (1) upon any
Without the authority to adjust local tax rates, local person engaged in any occupation or business, or exercising any
governments may find it difficult to meet the ever increasing privilege therein; (2) for services rendered by those political
demands for more public services. This in turn would result subdivisions or rendered in connection with any business,
not only to a violation of the fiscal adequacy concept but may profession or occupation being conducted therein, and (3) to levy,
likewise impinge upon the lifeblood theory of taxation. for public purposes just and uniform taxes, licenses or fees .
(ii) Authority to adjust rate for special (Philippine Match Co., Ltd. v. City of Cebu, G.R. No. L-30745, January 18,
education fund. Setting the rate of the additional levy for 1978)
the special education fund at less than 1% is within the taxing
power of local government units. It is consistent with the 5. Specific taxing power of Local Government Units
guiding constitutional principle of local autonomy. It was well
within the power of the Sangguniang Panlalawigan of a) Taxing powers of provinces
Palawan to enact an ordinance providing for additional levy
on real property tax for the special education fund at the rate
(i) Tax on transfer of real property
of 0.5% rather than at 1%. (Demaala v. Commission on Audit,
etc., G.R. No. 199752, February 17, 2015) ownership
(ii) Tax on business of printing and
f) Residual taxing power of local governments publication

g) Authority to issue local tax ordinances (iii) Franchise tax

3. Local taxing authority 1) Transferee liable for local franchise

a) Power to create revenues exercised through
Local Government Units
b) Procedure for approval and effectivity of tax
ordinances
(i) Publication requirement. It is clear under
Sec. 188 of R.A. No. 7160 and Art. 277 of its implementing
rules that the requirement of publication is mandatory and
leaves no choice. The use of the word "shall" in both
provisions is imperative, operating to impose a duty that may
be enforced (Coca-Cola Bottlers Phil., Inc. v. City of Manila, G.R.
No. 156252, June 27, 2006)
(ii) Public hearing must be conducted. It is
categorical, therefore, that a public hearing be held prior to
the enactment of an ordinance levying taxes, fees, or
charges; and that such public hearing be conducted as
provided under Section 277 of the Implementing Rules and
Regulations of the Local Government Code. (Ongsuco v.
Malones, G.R. No. 182065, October 27, 2009)
tax. A transferor who was required to transfer its
facilities including its nationwide franchise by operation
of law is not subject to the payment of franchise tax
delinquencies incurred after the transfer. (National
Power Corporation v. Provincial Government of Bataan, et
al., G.R. No. 180654, April 21, 2014)
2) The withdrawal of a tax exemption
should not be construed as prohibiting future
grants of exemption from all taxes. (Philippine Long
Distance Telephone Company, Inc., v. City of Davao, et al.,
etc., G. R. No. 143867, August 22, 2001)
3) Tax exemptions in franchises are
always subject to withdrawal. A legislative
franchise is granted with the express condition that it is
subject to amendment, alteration, or repeal. (1987
Constitution, Art. XII, Sec. 11)
It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment,
fetter the exercise of the taxing power of the State. For
not only are existing laws read into contracts in order
to fix obligations as between parties, but the
reservation of essential attributes of sovereign power
 12
is also read into contracts as a basic postulate of the
legal order. The policy of protecting contracts against
impairment presupposes the maintenance of a
government which retains adequate authority to secure
the peace and good order of society. (Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R.
No. 155491, September 16, 2008)
NOTES AND COMMENTS: Philippine Long
Distance Telephone Company, Inc., v. City of Davao, et al.,
etc., G. R. No. 143867, August 22, 2001 made the
observation that since Smart’s franchise was granted after the
effectivity of the Local Government Code that its tax
exemption privilege was reinstated. However, Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R.
No. 155491, September 16, 2008 is explicit in its holding
that Smart is not entitled to a tax exemption.
4) When withdrawal of a tax exemption
impairs the obligation of contracts. The Contract
Clause has never been thought as a limitation on the
exercise of the State’s power of taxation save only
where a tax exemption has been granted for a valid
consideration. (Smart Communications, Inc. v. The City of
Davao, etc., et al., G. R. No. 155491, September 16, 2008)
citing Tolentino v. Secretary of Finance, G. R. No. 115455,
August 25, 1994, 235 SCRA 630, 685) The author opines
that since practically all franchises granted to
telecommunications companies are similarly worded
that the above doctrine finds application to the others)
5) The primary reason for the withdrawal of
tax exemption privileges granted to government
owned and controlled corporations and all other
units of government was that such privilege resulted to
serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence
resulting in the need for these entities to share in the
requirements of development, fiscal or otherwise, by
paying the taxes and other charges due them. (Philippine
Ports Authority v. City of Iloilo, G. R. No. 109791, July 14,
2003)
6) National Power Corporation (NPC) is of
the insistence that it is not subject to the payment of
franchises taxes imposed by the Province of Isabela
because all of its shares are owned by the Republic of
the Philippines. It is thus, an instrumentality of the
National Government which is exempt from local
taxation. As such it is not a private corporation engaged
in “business enjoying franchise”
Is such contention meritorious ?
SUGGESTED ANSWER: No. Philippine Long
Distance Telephone Company, Inc., v. City of Davao, et
al., etc., G. R. No. 143867, August 22, 2001, upheld the
authority of the City of Davao, a local government unit,
to impose and collect a local franchise tax because the
Local Government Code has withdrawn all tax
exemptions previously enjoyed by all persons and
authorized local government units to impose a tax on
business enjoying a franchise tax notwithstanding the
grant of tax exemption to them.
7) “In lieu of all taxes” in the franchise of
ABS-CBN does not exempt it from local franchise
taxes. It does not expressly provide what kind of taxes
ABS-CBN is exempted from. It is not clear whether
the exemption would include both local, whether
municipal, city or provincial, and national tax. Whether
the “in lieu of all taxes provision” would include
exemption from local tax is not unequivocal.
The right to exemption from local franchise tax
must be clearly established and cannot be made out of
inference or implications but must be laid beyond
reasonable doubt. Verily, the uncertainty in the “in lieu
of all taxes” provision should be construed against
ABS-CBN. ABS-CBN has the burden to prove that it is
in fact covered by the exemption so claimed but has
failed to do so. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6,
2008)
NOTES AND COMMENTS: This is practically the
same holding in an earlier case involving another
telecommunications company Smart Communications, Inc.
v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008. The author opines that since
practically all franchises granted to telecommunications
companies are similarly worded that the above doctrine
finds application to the others.)
8) “In lieu of all taxes” refers to national
internal revenue taxes and not to local taxes. The
“in lieu of all taxes” clause applies only to national
internal revenue taxes and not to local taxes. As
appropriately pointed out in the separate opinion of
Justice Antonio T. Carpio in a similar case involving a
demand for exemption from local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's
franchise refers only to taxes, other than income tax,
 13
imposed under the National Internal Revenue Code.
The "in lieu of all taxes" clause does not apply to local
taxes. The proviso in the first paragraph of Section 9
of Smart's franchise states that the grantee shall
"continue to be liable for income taxes payable under
Title II of the National Internal Revenue Code." Also,
the second paragraph of Section 9 speaks of tax
returns filed and taxes paid to the "Commissioner of
Internal Revenue or his duly authorized representative
in accordance with the National Internal Revenue
Code." Moreover, the same paragraph declares that
the tax returns "shall be subject to audit by the Bureau
of Internal Revenue." Nothing is mentioned in Section
9 about local taxes. The clear intent is for the "in lieu
of all taxes" clause to apply only to taxes under the
National Internal Revenue Code and not to local taxes.
Even with respect to national internal revenue taxes,
the "in lieu of all taxes" clause does not apply to
income tax.
If Congress intended the "in lieu of all taxes"
clause in Smart's franchise to also apply to local taxes,
Congress would have expressly mentioned the
exemption from municipal and provincial taxes.
Congress could have used the language in Section
9(b) of Clavecilla's old franchise, as follows:
x x x 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 the grantee is hereby expressly
exempted, x x x. (Emphasis supplied).
However, Congress did not expressly exempt
Smart from local taxes. Congress used the "in lieu of
all taxes" clause only in reference to national internal
revenue taxes. The only interpretation, under the rule
on strict construction of tax exemptions, is that the "in
lieu of all taxes" clause in Smart's franchise refers only
to national and not to local taxes. [Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R.
No. 155491, September 16, 2008 citing Philippine Long
Distance Telephone Company, Inc. v. City of Davao, 447
Phil. 571, 594 (2003)]
NOTES AND COMMENTS: The author opines
that the above finds application to all telecommunications
companies.
9) The “in lieu of all taxes” clause in the
franchise of ABS-CBN has become functus officio
with the abolition of the franchise tax on
broadcasting companies with yearly gross
receipts exceeding Ten Million Pesos. The clause
“in lieu of all taxes” does not pertain to VAT or any
other tax. It cannot apply when what is paid is a tax
other than a franchise tax. Since the franchise tax on
the broadcasting companies with yearly gross receipts
exceeding ten million pesos has been abolished, the
“in lieu of all taxes” clause has now become functus
officio, rendered inoperative. (Quezon City, et al., v. ABS-
CBN Broadcasting Corporation, G. R. No. 166408, October
6, 2008)
NOTES AND COMMENTS: This is practically the
same holding in an earlier case involving another
telecommunications company. Smart Communications, Inc.
v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008. The author opines that since
practically all franchises granted to telecommunications
companies are similarly worded that the above doctrine
finds application to the others.)
(iv) Tax on sand, gravel and other quarry
services
(v) Professional tax
(vi) Amusement tax
(a) Grant of amusement tax reward
incentive under RA 9167: not a tax exemption.
Without question, Congress has the power to grant
exemptions over the power of LGUs to impose taxes.
[Film Development Council of the Philippines v. Colon
Heritage Realty Corporation, etc., G.R. No. 203754, and
companion case, June 16, 2015 with a note to see The City
Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006,
484 SCRA 169 (For sure, in Philippine Long Distance
Telephone Company, Inc. (PLDT) vs. City of Davao, this
Court has upheld the power of Congress to grant
exemptions over the power of local government units to
impose taxes. There, the Court wrote: Indeed, the grant of
taxing powers to local government units under the
Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant
to a declared national policy. The legal effect of the
constitutional grant to local governments simply means that
in interpreting statutory provisions on municipal taxing
 14
powers, doubts must be resolved in favor of municipal
corporations.)]
This amusement tax reward, however, is not, a
tax exemption.
Exempting a person or entity from tax is to
relieve or to excuse that person or entity from the
burden of the imposition. Here, however, it cannot be
said that an exemption from amusement taxes was
granted by Congress to the producers of graded films.
It should be noted that the burden of paying the
amusement tax in question is on the proprietors,
lessors, and operators of the theaters and cinemas
that showed the graded films. Simply put, both the
burden and incidence of the amusement tax are borne
by the proprietors, lessors, and operators, not by the
producers of the graded films. The transfer of the
amount to the film producers is actually a monetary
reward given to them for having produced a graded
film, the funding for which was taken by the national
government from the coffers of the covered LGUs.
Without a doubt, this is not an exemption from
payment of tax. (Film Development Council of the
Philippines v. Colon Heritage Realty Corporation, supra)
(b) Improper exercise of legislative power
limiting the power of LGUs to dispose of
amusement taxes. Sometime in 1993, the City of
Cebu, in its exercise of its power to impose
amusement taxes under Section 140 of the Local
Government Code (LGC) anchored on the
constitutional policy on local autonomy, passed City
Ordinance No. LXIX otherwise known as the “Revised
Omnibus Tax Ordinance of the City of Cebu (tax
ordinance).”
Sections 42 and 43, Chapter XI thereof require
proprietors, lessees or operators of theatres, cinemas,
concert halls, circuses, boxing stadia, and other pl
aces of amusement, to pay an amusement tax
equivalent to thirty percent (30%) of the gross receipts
of admission fees to the Office of the City Treasurer of
Cebu City.
On June 7, 2002, Congress passed RA 9167,
creating the Film Development Council of the
Philippines (FDCP) and abolishing the Film
Development Foundation of the Philippines, Inc. and
the Film Rating Board. Secs. 13 and 14 of RA 9167
provided for the tax treatment of certain graded films
which shall entitle their producers to an incentive
equivalent to the amusement tax imposed and
collected on the graded films by cities and
municipalities in Metro Manila and other highly
urbanized and independent component cities in the
Philippines pursuant to Sections 140 to 151 of
Republic Act No. 7160, the Local Government Code.
On January 2009 FDCP sent demand letters for
unpaid amusement tax reward (with 5% surcharge for
each month of delinquency) due to the producers of
the Grade “A” or “B” films to cinema proprietors and
operators in Cebu City. Colon Heritage Realty Corp.
(Colon Heritage), operator of the Oriente theater, were
given ten (10) days from receipt thereof to pay the
aforestated amounts to FDCP. The demand, however,
fell on deaf ears.
Meanwhile, FDCP received letters from various
movie producers inquiring on the status of its
receivables for tax rebates in Cebu cinemas for all
their A and B rate films or requesting the immediate
remittance of its amusement tax rewards for its graded
films for different years. Because of the persistent
refusal of the proprietors and cinema operators to
remit the said amounts as FDCP demanded, on one
hand, and Cebu City’s assertion of a claim on the
amounts in question, the city finally filed on May 18,
2009 before the RTC, Branch 14 a petition for
declaratory relief with application for a writ of
preliminary injunction. The City sought the
declaration of Secs. 13 and 14 of RA 9167 as invalid
and unconstitutional. RTC Branch 14 then declared
Secs. 13 and 14 of RA 9167 unconstitutional..
Similarly, Colon Heritage filed before RTC
Branch 5, a civil case seeking to declare Secs. 14 of
RA 9167 as unconstitutional. Branch 5 ruled that the
whole of RA 9167 is unconstitutional.
Are Secs. 13 and 14 of RA 9167 truly
unconstitutional ? Explain.
SUGGESTED ANSWER: Yes. Both Secs. 13
and 14 are unconstitutional for being violative of the
fiscal autonomy principle enunciated by the
Constitution.
Local fiscal autonomy includes the power of
LGUs to allocate their resources in accordance with
their own priorities. By earmarking the income on
 15
amusement taxes imposed by the LGUs in favor of
FDCP and the producers of graded films, the
legislature appropriated and distributed the LGUs’
funds––as though it were legally within its control––
under the guise of setting a limitation on the LGUs’
exercise of their delegated taxing power.
This, undoubtedly, is a usurpation of the latter’s
exclusive prerogative to apportion their funds, an
impermissible intrusion into the LGUs’ constitutionally-
protected domain which puts to naught the guarantee
of fiscal autonomy to municipal corporations enshrined
in our basic law.
This is in clear contravention of the
constitutional command that taxes levied by LGUs
shall accrue exclusively to said LGU and is repugnant
to the power of LGUs to apportion their resources in
line with their priorities.
It is a basic precept that the inherent legislative
powers of Congress, broad as they may be, are limited
and confined within the four walls of the Constitution.
[Film Development Council of the Philippines v. Colon
Heritage Realty Corporation, etc., G.R. No. 203754, and
companion case, June 16, 2015 with a note to see Social
Justice Society (SJS) v. Dangerous Drugs Board, citing
Government v. Springer, 50 Phil. 259 (1927), (As early as
1927, in Government v. Springer, the Court has defined, in
the abstract, the limits on legislative power in the following
wise: Someone has said that the powers of the legislative
department of the Government, like the boundaries of the
ocean, are unlimited. In constitutional governments,
however, as well as governments acting under delegated
authority, the powers of each of the departments x x x are
limited and confined within the four walls of the constitution
or the charter, and each department can only exercise such
powers as are necessarily implied from the given powers.
The Constitution is the shore of legislative authority against
which the waves of legislative enactment may dash, but
over which it cannot leap.)]
Accordingly, whenever the legislature exercises
its power to enact, amend, and repeal laws, it should
do so without going beyond the parameters wrought by
the organic law. (Film Development Council of the
Philippines, supra)
(vii) Tax on delivery truck/van
b) Taxing powers of cities
c) Taxing powers of municipalities
(i) Tax on various types of businesses
(a) Illustration of generalia specialibus
non derogant. It is likewise irrefutable that the
specific exemption provided under Section 133 of the
LGC prevails over Section 143 of the same Code.
The omnibus grant of power to LGUs under
Section 143(h) of the LGC cannot overcome the
specific exception or exemption in Section 133(h) of
the same Code. This is in accord with the rule on
statutory construction that specific provisions must
prevail over general ones. A special and specific
provision prevails over a general provision irrespective
of their relative positions in the statute.
Generalia specialibus non derogant. Where
there is in the same statute a particular enactment and
also a general one which in its most comprehensive
sense would include what is embraced in the former,
the particular enactment must be operative, and the
general enactment must be taken to affect only such
cases within its general language as are not within the
provisions of the particular enactment. [Petron
Corporation v. Mayor Tiangco, et al., 574 Phil. 620, 636
(2008) citing City of Manila, et al. v. Hon. Colet, et al., G.R.
Nos. 120051, and companion cases, December 10, 2014]
(ii) Ceiling on business tax impossible on
municipalities within Metro Manila
(iii) Tax on retirement on business
(iv) Rules on payment of business tax
(v) Fees and charges for regulation &
licensing
(vi) Situs of tax collected
d) Taxing powers of barangays
e) Common revenue raising powers
(i) Service fees and charges
(ii) Public utility charges
(iii) Toll fees or charges
f) Community tax
 16
6. Common limitations on the taxing powers of LGUs
a) Illustrative case of prohibition to tax petroleum
products. Pilipinas Shell Petroleum Corporation (Shell) operates
an oil refinery and depot in Tabangao, Batangas City, which
manufactures and produces petroleum products that are distributed
nationwide.
On February 20, 2002, Batangas City, sent a notice of
assessment to Shell demanding the payment of P92,373,720.50
and P312,656,253.04 as business taxes for its manufacture and
distribution of petroleum products and the amount of
P4,299,851.00 as Mayor’s Permit Fee based on the gross sales of
its Tabangao Refinery. The assessment was allegedly pursuant of
Section 134 of the LGC of 1991 and Section 23 of its Batangas City
Tax Code of 2002.
Shell filed a protest on April 17, 2002 contending among
others that it is not liable for the payment of the local business tax
either as a manufacturer or distributor of petroleum products. It
further argued that the Mayor’s Permit Fees are exorbitant,
confiscatory, arbitrary, unreasonable and not commensurable with
the cost of issuing a license.
Rule on the validity of the impositions.
SUGGESTED ANSWER: The imposition of the local
business tax is invalid.
Indisputably, the power of LGUs to impose business taxes
derives from Section 134 of the LGC. However, the same is subject
to the explicit statutory impediment provided for under Section
133(h) of the same Code which prohibits LGUs from imposing
“taxes, fees or charges on petroleum products.” It can, therefore, be
deduced that although petroleum products are subject to excise tax,
the same is specifically excluded from the broad power granted to
LGUs under Section 143(h) of the LGC to impose business taxes.
Strictly speaking, as long as the subject matter of the taxing
powers of the LGUs is the petroleum products per se or even the
activity or privilege related to the petroleum products, such as
manufacturing and distribution of said products, it is covered by the
said limitation and thus, no levy can be imposed. [Petron Corporation
v. Mayor Tiangco, et al., 574 Phil. 620, 636 (2008) cited in Batangas City,
et al. v. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, July 8,
2015)
Article 232(h) of the Implementing Rules and Regulations
(IRR) of the LGC of 1991 states:, that in line with existing
national policy, any business engaged in the production,
manufacture, refining, distribution or sale of oil, gasoline, and
other petroleum products shall not be subject to any local tax
imposed in this Article.
Article 232 defines with more particularity the capacity of a
municipality to impose taxes on businesses. However, it admits of
certain exceptions, specifically, that businesses engaged in the
production, manufacture, refining, distribution or sale of oil,
gasoline, and other petroleum products, shall not be subject to any
local tax imposed by Article 232. (Petron, supra)
The amount being collected as Mayor Permit Fees is invalid
7. Collection of business tax
a) Tax period and manner of payment
b) Accrual of tax
c) Time of payment
d) Penalties on unpaid taxes, fees or charges
(i) Imposition of a surcharge. As understood
from the common and usual meaning of the conjunction
“and,” the words “tax due” and “unpaid” are inseparable.
Hence, when the taxpayer does not pay its tax due for a
particular year, then a surcharge is applied on the full amount
of the tax due. However, when the taxpayer makes a partial
payment of the tax due, the surcharge is applied only on the
balance or the part of the tax due that remains unpaid.
(National Power Corporation v. City of Cabanatuan, etc., G.R. No.
177332, October 01, 2014)
(ii) Nature of a surcharge. The surcharge is a civil
penalty imposed once for late payment of a tax. Contrast this
with the succeeding provisions on interest, which was
imposable at the rate not exceeding 2% per month of the
unpaid taxes until fully paid. The fact that the interest charge
is made proportionate to the period of delay, whereas the
surcharge is not, clearly reveals the legislative intent for the
different modes in their application. Indeed, both the
surcharge and interest are imposable upon failure of the
taxpayer to pay the tax on the date fixed in the law for its
payment. (National Power Corporation v. City of Cabanatuan, etc.,
G.R. No. 177332, October 01, 2014)
(iii) Purpose of imposing a surcharge. The
surcharge is imposed to hasten tax payments and to punish
for evasion or neglect of duty, while interest is imposed to
compensate the State “for the delay in paying the tax and for
the concomitant use by the taxpayer of funds that rightfully
should be in the government’s hands.” (National Power
 17
Corporation v. City of Cabanatuan, etc., G.R. No. 177332, October
01, 2014)
(iv) Authority to impose a surcharge. Section
168 of the Local Government Code categorically provides
that the local government unit may impose a surcharge not
exceeding 25% of the amount of taxes, fees, or charges not
paid on time and an interest at the rate not exceeding two
percent (2%) per month of the unpaid taxes, fees or charges
including surcharges, until such amount is fully paid but in no
case shall the total interest on the unpaid amount or portion
thereof exceed thirty-six (36) months. (National Power
Corporation v. City of Cabanatuan, etc., G.R. No. 177332, October
01, 2014)
(v) Surcharge must not be confiscatory. The
City's yearly imposition of the 25% surcharge, resulted in an
aggregate penalty that is way higher than the taxpayer’s
basic tax liabilities.
A surcharge regardless of how it is computed is
already a deterrent. While it is true that imposing a higher
amount may be a more effective deterrent, it cannot be done
in violation of law and in such a way as to make it
confiscatory. (National Power Corporation v. City of Cabanatuan,
etc., G.R. No. 177332, October 01, 2014)
e) Authority of treasurer in collection and
inspection of books
8. Taxpayer’s remedies
a) Periods of assessment and collection of local
taxes, fees or charges
b) Protest of assessment
c) Claim for refund of tax credit for erroneously
or illegally collected tax, fee or charge
(i) No automatic offsetting between excess
payments with tax liability. The absolute freedom that the
taxpayer seeks to automatically credit tax payments against
tax liabilities for a succeeding taxable year, can easily give
rise to confusion and abuse, depriving the government of
authority and control over the manner by which the taxpayers
credit and offset their tax liabilities, not to mention the
resultant loss of revenue to the government under such a
scheme. (Coca-Cola Bottlers Philippines, Inc. v. City of Manila,
etc., G.R. No. 197561, April 7, 2014)
9. Civil remedies by the LGU for collection of revenues
a) Local government’s lien for delinquent taxes,
fees or charges
b) Civil remedies, in general
(i) Administrative action
(a) Ways recovering illegally collected tax.
Under the first option, any tax on income that is paid in
excess of the amount due the government may be
refunded, provided that a taxpayer properly applies for the
refund. On the other hand, the second option works by
applying the refundable amount against the tax liabilities of
the petitioner in the succeeding taxable years. Hence,
instead of moving for the issuance of a writ of execution
relative to the aforesaid decision, petitioner should have
merely requested for the approval of the City of Manila in
implementing the tax refund or tax credit, whichever is
appropriate. In other words, no writ was necessary to cause
the execution thereof, since the implementation of the tax
refund will effectively be a return of funds by the City of
Manila in favor of petitioner while a tax credit will merely
serve as a deduction of petitioner’s tax liabilities in the
future. (Coca-Cola Bottlers Philippines, Inc. v. City of Manila, et al.,
G.R. No. 197561, April 7, 2014)
(b) Procedure for tax sales strictly
observed. There could be no presumption of the
regularity of any administrative action which resulted
in depriving a taxpayer of his property through a tax
sale. This is an exception to the rule that
administrative proceedings are presumed to be
regular. This jurisprudential tenor clearly demonstrates
that the burden to prove compliance with the validity of
the proceedings leading up to the tax delinquency sale
is incumbent upon the buyer or the winning bidder,
which, in this case, is Agojo. This is premised on the
rule that a sale of land for tax delinquency is in
derogation of property and due process rights of the
registered owner. In order to be valid, the steps
required by law must be strictly followed. Agojo must
 18
be reminded that the requirements for a tax
delinquency sale under the LGC are mandatory. Strict
adherence to the statutes governing tax sales is
imperative not only for the protection of the taxpayers,
but also to allay any possible suspicion of collusion
between the buyer and the public officials called upon
to enforce the laws. (Corporate Strategies Development
Corp., et al., v. Agojo, G.R. No. 208740, November 19,
2014)
(ii) Judicial action
B. Real property taxation
1. Fundamental principles
2. Nature of real property tax
a) The special education fund may be set below 1%.
Setting the rate of the additional levy for the special education fund
at less than 1% is within the taxing power of local government
units.
It is consistent with the guiding constitutional principle of
local autonomy. It was well within the power of the Sangguniang
Panlalawigan of Palawan to enact an ordinance providing for
additional levy on real property tax for the special education fund at
the rate of 0.5% rather than at 1%. (Demaala v. Commission on Audit,
etc., G.R. No. 199752, February 17, 2015)
3. Imposition of real property tax
a) Power to levy real property tax
b) Exemption from real property tax
 (i) Mactan-Cebu International Airport Authority
(MCIAA) is an instrumentality of the government exempt
from real property taxes. Mactan-Cebu International
Airport Authority (MCIAA) was created by Congress on July
31, 1990 under Republic Act No. 6958 to "undertake the
economical, efficient and effective control, management and
supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City x x x
and such other airports as may be established in the
Province of Cebu.” Upon its creation, petitioner enjoyed
exemption from realty taxes.
On September 11, 1996, however, the Supreme Court
rendered a decision in Mactan-Cebu International Airport
Authority v. Marcos (the 1996 MCIAA case) declaring that
upon the effectivity of Republic Act No. 7160 (The Local
Government Code of 1991), MCIAA was no longer exempt
from real estate taxes. As a result, Cebu City demanded from
MCIAA the payment of real property taxes. MCIAA paid
some of the demanded real [property taxes but refused to
pay some more because of the Department of Justice
opinion that it is exempt. Cebu City , through its City
Treasurer, then issued Notices of Levy on 18 sets of real
properties of MCIAA after which the properties were sold at
public auction. The properties were forfeited in favor of the
Cebu City because of the absence of bidders. The
corresponding Certificates of Sale of Delinquent Property
were issued to Cebu City.
Is MCIAA subject to real property taxes ? Explain.
SUGGESTED ANSWER: No. MCIAA is an
instrumentality of the government; thus, its properties
actually, solely and exclusively used for public purposes,
consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated, are not
subject to real property tax and Cebu City is not justified in
collecting taxes from MCIAA over said properties. (Mactan-
Cebu International Airport Authority (MCIAA) v. City of Lapu-Lapu,
et al., G.R. No. 181756, June 15, 2015)
 (ii) PEZA and its lessees not subject to real
property taxation. PEZA is an instrumentality of the
national government, that cannot be taxed by local
government units.
Although a body corporate vested with some corporate
powers, the PEZA is not a government-owned or controlled
corporation taxable for real property taxes. The PEZA's
predecessor, the EPZA, was declared non-profit in character
with all its revenues devoted for its development,
improvement, and maintenance. Consistent with this non-
profit character, the EPZA was explicitly declared exempt
from real property taxes under its charter.
Even the PEZA's lands and buildings whose beneficial
use have been granted to other persons may not be taxed
with real property taxes. The PEZA may only lease its lands
and buildings to PEZA-registered economic zone enterprises
and entities. These PEZA-registered enterprises and entities,
 19
which operate within economic zones, are not subject to real (ii) Interests on unpaid real property tax
property taxes. (City of Lapu-Lapu v. Philippine Economic Zone (iii) Condonation of real property tax
Authority, G.R. No. 184203, November 26, 2014, and its e) Remedies of LGUs for collection of real
companion case)
property tax
4. Appraisal and assessment of real property tax (i) Issuance of notice of delinquency for
real property tax payment
a) Rule on appraisal of real property at fair (ii) Local government’s lien
market value (iii) Remedies in general
b) Declaration of real property (iv) Resale of real estate taken for taxes,
c) Listing of real property in assessment rolls fees or charges
d) Preparation of schedules of fair market value (v) Further levy until full payment of amount
(i) Authority of assessor to take evidence due
(ii) Amendment of schedule of fair market 6. Refund or credit of real property tax
value a) Payment under protest
e) Classes of real property b) Repayment of excessive collections
f) Actual use of property as basis of assessment
g) Assessment of real property 7. Taxpayer’s remedies
(i) Assessment levels
(ii) General revisions of assessments and a) Contesting an assessment of value of real
property classification property
(i) In case of an illegal assessment where the
(iii) Date of effectivity of assessment or
assessment was issued without authority, exhaustion of
reassessment administrative remedies is not necessary and the taxpayer
may directly resort to judicial action. The taxpayer shall file a
(iv) Assessment of property subject to back complaint for injunction before the Regional Trial Court to
taxes enjoin the local government unit from collecting real property
(v) Notification of new or revised taxes. The party unsatisfied with the decision of the Regional
assessment Trial Court shall file an appeal, not a petition for certiorari,
h) Appraisal and assessment of machinery before the Court of Tax Appeals, the complaint being a local
5. Collection of real property tax tax case decided by the Regional Trial Court. The appeal
a) Date of accrual of real property tax and shall be filed within fifteen (15) days from notice of the trial
court’s decision. In this case, the petition for injunction filed
special levies before the Regional Trial Court of Pasay was a local tax case
b) Collection of tax originally decided by the trial court in its original jurisdiction.
(i) Collecting authority Since the PEZA assailed a judgment, not an interlocutory
(ii) Duty of assessor to furnish local order, of the Regional Trial Court, the PEZA’s proper remedy
treasurer with assessment rolls was an appeal to the Court of Tax Appeals. ( City of Lapu-Lapu
(iii) Notice of time for collection of tax v. Philippine Economic Zone Authority, and companion case, G.R.
c) Periods within which to collect real property No. 184203, G.R. NO. 187583, November 26, 2014)
(ii) Three (3) modes of appeal from RTC
tax
decisions. Under the Rules of Court, there are three modes
d) Special rules on payment of appeal from Regional Trial Court decisions.
(i) Payment of real property tax in 1) The first mode is through an ordinary
installments appeal before the Court of Appeals where the decision
 20
assailed was rendered in the exercise of the Regional
Trial Court’s original jurisdiction. Ordinary appeals are
governed by Rule 41, Sections 3 to 13 of the Rules of
Court. In ordinary appeals, questions of fact or mixed
questions of fact and law may be raised. [City of Lapu-
Lapu v. Philippine Economic Zone Authority, G.R. No.
184203, November 26, 2014, and its companion case citing
Rules of Court, Rule 41, Sec. 2 (a)]
2) The second mode is through a petition for
review before the Court of Appeals where the decision
assailed was rendered by the Regional Trial Court in
the exercise of its appellate jurisdiction. Rule 42 of the
Rules of Court governs petitions for review before the
Court of Appeals. In petitions for review under Rule 42,
questions of fact, of law, or mixed questions of fact
and law may be raised. [City of Lapu-Lapu, supra citing
Rules of Court, Rule 41, Sec. 2(b)]
3) The third mode is through an appeal by
certiorari before this court under Rule 45 where only
questions of law shall be raised. [City of Lapu-Lapu,
supra citing Rules of Court, Rule 41, Sec. 2(c)]
(iii) When a refund case is a question of law and
when a question of fact. The proper interpretation of the
provisions on tax refund that does not call for an examination
of the probative value of the evidence presented by the
parties-litigants is a question of law. [Fortune Tobacco
Corporation v. Commissioner of Internal Revenue, G. R. No.
192024, July 1, 2015 citing Crisolo v. CA, 160-A Phil. 1085, 1091-
1092 (1975)].
Conversely, it may be said that if the appeal
essentially calls for the re-examination of the probative value
of the evidence presented by the appellant, the same raises
a question of fact.
Often repeated is the distinction that there is a
question of law in a given case when doubt or difference
arises as to what the law is on a certain state of facts; there is
a question of fact when doubt or difference arises as to the
truth or falsehood of alleged facts. [Fortune Tobacco
Corporation, supra citing Atlas Consolidated Mining and
Development Corporation v. CIR, 551 Phil. 519, 559 (2007)].
Verily, the sufficiency of a claimant’s evidence and the
determination of the amount of refund are questions of fact
[Fortune Tobacco Corporation, supra citing Commissioner of
Internal Revenue v. Manila Electric Company, 561 Phil. 500, 511
(2007)] which are for the judicious determination by the CTA
of the evidence on record.
(i) Appeal to the Local Board of
Assessment Appeals
(ii) Appeal to the Central Board of
Assessment Appeals
(iii) Effect of payment of tax
b. Payment of real property tax under protest
(i) File protest with local treasurer
(ii) Appeal to the Local Board of
Assessment Appeals
(iii) Appeal to the Central Board of
Assessment Appeals
(iv) Appeal to the CTA
(a) Appeals from decisions of the Central
Board of Assessment Appeals. In fine, if a taxpayer is
not satisfied with the decision of the CBAA or the RTC,
as the case may be, the taxpayer may file, within thirty
(30) days from receipt of the assailed decision, a
petition for review with the CTA pursuant to Section
7(a) of R.A. 9282. In cases where the question
involves the amount of the tax or the correctness
thereof, the appeal will be pursuant to Section 7(a)(5)
of R.A. 9282. When the appeal comes from a judicial
remedy which questions the authority of the local
government to impose the tax, Section 7(a)(3) of R.A.
9282 applies. Thereafter, such decision, ruling or
resolution may be further reviewed by the CT A En
Banc pursuant to Section 2, Rule 4 of the Revised
Rules of the CTA. (National Power Corporation v.
Municipal Government of Navotas, et al., G.R. No. 192300,
November 24, 2014)
(b) Disposition of improper appeals fled
with the Court of Appeals. An improper appeal
before the Court of Appeals is dismissed outright and
shall not be referred to the proper court.
An appeal erroneously taken to the Court of
Appeals shall not be transferred to the appropriate
court but shall be dismissed outright.
An appeal under Rule 41 taken from the
Regional Trial Court to the Court of Appeals raising
only questions of law shall be dismissed, issues purely
of law not being reviewable by said court. Similarly, an
appeal by notice of appeal instead of by petition for
 21
review from the appellate judgment of a Regional Trial
Court shall be dismissed. (City of Lapu-Lapu v. Philippine
Economic Zone Authority, G.R. No. 184203, November 26,
2014, and its companion case citing Rules of Court, Rule
50, Sec. 2)
(v) Appeal to the Supreme Court
(a) Disposition of erroneous appeals by
certiorari filed directly with the Supreme Court.
With respect to appeals by certiorari directly filed
before the Supreme Court but which raise questions
of fact, paragraph 4(b) of Circular No. 2-90 dated
March 9, 1990 states that this court "retains the option,
in the exercise of its sound discretion and considering
the attendant circumstances, either itself to take
cognizance of and decide such issues or to refer them
to the Court of Appeals for determination."
The Supreme Court once said that, "cannot
tolerate ignorance of the law on appeals." [Indoyon, Jr.
v. Court of Appeals, G.R. No. 193706, March 12, 2013, 693
SCRA 201, 207 [Per C.J. Sereno, En Banc in turn citing
citing Ybañez v. Court of Appeals, 323 Phil. 643 (1996) [Per
J. Francisco, Third Division] cited in City of Lapu-Lapu v.
Philippine Economic Zone Authority, G.R. No. 184203,
November 26, 2014, and its companion case] The
Supreme Court went on further to say t is not the
court’s task to determine for litigants their proper
remedies under the Rules. (Id. at 207–208)
(b) Despite wrong appeal, the Supreme
Court considering the important questions
involved may take cognizance of a petition for
review on certiorari in the interest of justice. While
it is true that rules of procedure are intended to
promote rather than frustrate the ends of justice, and
while the swift unclogging of the dockets of the courts
is a laudable objective, it nevertheless must not be
met at the expense of substantial justice.
The Court has allowed some meritorious cases
to proceed despite inherent procedural defects and
lapses. This is in keeping with the principle that rules
of procedure are mere tools designed to facilitate the
attainment of justice, and that strict and rigid
application of rules which should result in technicalities
that tend to frustrate rather than promote substantial
justice must always be avoided. It is a far better and
more prudent cause of action for the court to excuse a
technical lapse and afford the parties a review of the
case to attain the ends of justice, rather than dispose
of the case on technicality and cause grave injustice to
the parties, giving a false impression of speedy
disposal of cases while actually resulting in more
delay, if not a miscarriage of justice.
Similar to Municipality of Pateros, we opt to
relax the rules in this case. The PEZA operates or
otherwise administers special economic zones all over
the country. Resolving the substantive issue of
whether the PEZA is taxable for real property taxes will
clarify the taxing powers of all local government units
where special economic zones are operated. This
case, therefore, should be decided on the merits. (City
of Lapu-Lapu v. Philippine Economic Zone Authority, G.R.
No. 184203, November 26, 2014, and its companion case)
IV. TARIFF AND CUSTOMS CODE OF 1978,
as amended
A. Tariff and duties, defined. "Customs duties" is "the
name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported
from, or exported to, a foreign country. (Nestle Philippines, Inc. v.
Court of Appeals, G.R. No. 134114, July 06, 2001)
B. General rule: all imported articles are subject to
duty
1. Importation by the government taxable
C. Purpose for imposition. The government imposes tariff
or customs duties on articles that are imported into or exported
from the Philippines for the following reasons:
a. Main purpose. Revenue raising: to raise revenues for
the support of the government;
b. Secondary purposes: Protective purposes.
1) To protect local customers and domestic
manufacturers, as well as Philippine products from undue
competition posed by foreign made products.
2) They may likewise be imposed to protect
domestic industries and producers from increased imports
which inflict or could inflict serious injury on them.
 22
D. Flexible tariff clause. Customs duties may be increased,
reduced or even removed by the President of the Philippines
for the purpose of protecting consumers. The standard “in the
interest of the national economy, general welfare and/or national
security” within which the President may exercise the authority
under Sec. 401 of the Tariff and Customs Code is not limited to the
“protection of local industries” but may also include the “protection
of the consumer” who after all constitute the very great bulk of the
population.
Custom duties are very much likely taxes which are imposed
for both revenue raising and for regulatory purposes. (Garcia v.
Executive Secretary, et al., 211 SCRA 227)
E. Requirements of importation
1. Beginning and ending of importation
a) When importation begins. Section 1202 of
the Tariff and Customs Code provides that importation begins
when the carrying vessel or aircraft enters the jurisdiction of
the Philippines with intention to unload therein. It is clear
from the provision of the law that mere intent to unload is
sufficient to commence an importation and "intent," being a
state of mind, is rarely susceptible of direct proof, but must
ordinarily be inferred from the facts, and therefore can only
be proved by unguarded, expressions, conduct and
circumstances generally. (Feeder International Line, Pte., Ltd. v.
Court of Appeals, G.R. No. 94262, May 31, 1991)
(i) Exception to the above rule. Under
Section 1202 of the TCCP, importation takes place
when merchandise is brought into the customs
territory of the Philippines with the intention of
unloading the same at port. An exception to this rule
is transit cargo entered for immediate exportation
which may be allowed under Section 2103 of the
TCCP when the following concur:
(a) there is a clear intent to export
the article as shown in the bill of lading,
invoice, cargo manifest or other satisfactory
evidence;
(b) the Collector must designate the vessel
or aircraft wherein the articles are laden as a
constructive warehouse to facilitate the direct
transfer of the articles to the exporting vessel or
aircraft;
(c) the imported articles are directly
transferred from the vessel or aircraft designated as
a constructive warehouse to the exporting vessel or
aircraft and
(d) an irrevocable domestic letter of credit,
bank guaranty or bond in an amount equal to the
ascertained duties, taxes and other charges is
submitted to the Collector (unless it appears in the
bill of lading, invoice, manifest or satisfactory
evidence that the articles are destined for
transshipment). (Commissioner of Customs v. Court of
Tax Appeals, G.R. Nos. 171516-17, February 13, 2009)
b) When importation is terminated. Importation is
terminated only upon the payment of duties, taxes and other
charges upon the articles, or secured to be paid, at the port of entry
and the legal permit for withdrawal shall have been granted.
Payment of the duties, taxes, fees and other charges must be in
full. (Papa v. Mago, G.R. No. L-27360, February 28, 1968)
2. Obligations of importer
a) Cargo manifest
b) Import entry
(i) Entry, defined. The term "entry" in Customs
law has a triple meaning. It means (1) the documents filed at
the Customs house; (2) the submission and acceptance of
the documents; and (3) the procedure of passing goods
through the Customs house. (Jardeleza v. People, G.R. No.
165265, February 06, 2006)
c) Declaration of correct weight or value
d) Liability for payment of duties
e) Liquidation of duties. A liquidation is the final
computation and ascertainment by the collector of the duties on
imported merchandise, based on official reports as to the quantity,
character, and value thereof, and the collector’s own finding as to
the applicable rate of duty; it is akin to an assessment of internal
revenue taxes under the National Internal Revenue Code where the
tax liability of the taxpayer is definitely determined. (Pilipinas Shell
 23
Petroleum Corporation v. Commissioner of Customs, G. R. No. 176380,
June 18, 2009)
f) Keeping of records
F. Importation in violation of the tariff and customs
code
1. Smuggling.
a) Concept of Sec. 3601. Section 3601 of the
TCC was designed to supplement the existing provisions of
the TCC against the means leading up to smuggling, which
might render it beneficial by a substantive and criminal
statement separately providing for the punishment of
smuggling. The law was intended not to merge into one and
the same offense all the many acts which are classified and
punished by different penalties, penal or administrative, but
to legislate against the overt act of smuggling itself.
This is manifested by the use of the words
“fraudulently” and “contrary to law” in the law. Smuggling is
committed by any person who: (1) fraudulently imports or
brings into the Philippines any article contrary to law; (2)
assists in so doing any article contrary to law; or (3) receives,
conceals, buys, sells or in any manner facilitate the
transportation, concealment or sale of such goods after
importation, knowing the same to have been imported
contrary to law.
The phrase “contrary to law” in Section 3601 qualifies
the phrases “imports or brings into the Philippines” and
“assists in so doing,” and not the word “article.” The law
penalizes the importation of any merchandise in any manner
contrary to law.
The word “law” includes regulations having the force
and effect of law, meaning substantive or legislative type
rules as opposed to general statements of policy or rules of
agency, organization, procedures or positions. An inherent
characteristic of a substantive rule is one affecting individual
rights and obligations; the regulation must have been
promulgated pursuant to a congressional grant of quasi-
legislative authority; the regulation must have been
promulgated in conformity to with congressionally-imposed
procedural requisites. [Jardeleza v. People, 517 Phil. 179 (2006)]
cited in Bureau of Customs v. The Honorable Devanadera, etc., et
al., G.R. No. 193253, September 8, 2015)]
2. Other fraudulent practices
a) Fraudulent practices against customs
revenue. Sec. 3602 enumerates the various fraudulent
practices against customs revenue, such as the entry of
imported or exported articles by means of any false or
fraudulent invoice, statement or practice; the entry of goods
at less than the true weight or measure; or the filing of any
false or fraudulent entry for the payment of drawback or
refund of duties. [Bureau of Customs v. The Honorable
Devanadera, etc., et al., G.R. No. 193253, September 8, 2015)
citing Jardeleza v. People, 517 Phil. 179 at 201-203, (2006)]
b) Fraud under the customs laws. The fraud
contemplated by law must be intentional fraud, consisting of
deception, willfully and deliberately dared or resorted to in
order to give up some right. The offender must have acted
knowingly and with the specific intent to deceive for the
purpose of causing financial loss to another; even false
representations or statements or omissions of material facts
come within fraudulent intent.
The fraud envisaged in the law includes the
suppression of a material fact which a party is bound in good
faith to disclose. Fraudulent nondisclosure and fraudulent
concealment are of the same genre.
Fraudulent concealment presupposes a duty to
disclose the truth and that disclosure was not made when
opportunity to speak and inform was present, and that the
party to whom the duty of disclosure as to a material fact was
due was thereby induced to act to his injury. Fraud is not
confined to words or positive assertions; it may consist as
well of deeds, acts or artifice of a nature calculated to
mislead another and thus allow one to obtain an undue
advantage. [Bureau of Customs v. The Honorable Devanadera,
etc., et al., G.R. No. 193253, September 8, 2015) citing Jardeleza
v. People, 517 Phil. 179 at 201-203, (2006)]
G. Classification of goods
1. Taxable importation
2. Prohibited importation
a) Disposition of prohibited imports. Prohibited
importations are subject to forfeiture whether the importation
 24
is direct or indirect such as when the shipper and the a) Dumping duties
consignee are one and the same person. (Paterok v. Bureau of b) Countervailing duties
Customs, G.R. Nos. 90660-61, January 21, 1991) c) Marking duties
Although the illegally imported articles may not be
d) Retaliatory/discriminatory duties
absolutely prohibited, but only qualifiedly prohibited under
Sec. 102 (K) of the Tariff and Customs Code, for it may be
imported subject to certain conditions, it is nonetheless e) Safeguard
prohibited and is a contraband (Comm. of Customs vs. CTA
& Dichoco, L-33471, Jan. 31, 1972), and the legal effects of (i) Safeguard measures, defined. These are
the importation of qualifiedly prohibited articles are the same the emergency measures, including tariffs, to protect
as those of absolutely prohibited articles. (Auyong Hian v. CTA, domestic industries and producers from increased imports
G.R. No. L-28782, September 12, 1974) which inflict or could inflict serious injury on them. [ Southern
Cross Cement Corporation v. Cement Manufacturers Association of
the Philippines, et al., G.R. No. 158540, August 3, 2005 citing
3. Conditionally-free importation Tanada v. Angara, 338 Phil. 546, 556; 272 SCRA 18, 40 (1997),
note 2at p. 69]
H. Classification of duties Other safeguard measures may include tariff rate
quotas or quantitative restrictions on the importation of a
1. Ordinary/regular duties product into the country.
(ii) Authority to impose safeguard measures.
a) Ad valorem; methods of valuation Secretary of Agriculture, if the article in question is an
agricultural product; or the Secretary of Trade and Industry, if
(i) Transaction value the article is a non-agricultural product who “shall apply a
(ii) Transaction value of identical goods general safeguard measure upon, and only upon, a positive
(iii) Transaction value of similar goods final determination of the Tariff Commission.” (Sec. 5, Rep.
Act No. 8800 cited in Southern Cross Cement Corporation v.
(iv) Deductive value Cement Manufacturers Association of the Philippines, et al., G.R.
(v) Computed value No. 158540, August 3, 2005)
(vi) Fallback value Congress has designated the Tariff Commission as its
agent in the determination of whether to impose safeguard
b) Specific measures and the Secretaries could act only in the light of
such determination. (Southern Cross Cement Corporation,
supra)
2. Special duties. Rationale or purpose for imposing the
special customs duties. The special customs duties are imposed
for the protection of consumers and manufacturers, as well as I. Remedies
Philippine products from undue competition posed by foreign made
products. (These special customs duties are provided for under the 1. Government
Tariff and Customs Code and include anti-dumping duties, the
countervailing duties, the marking duty and the discriminatory duties.) a) Administrative/extrajudicial
They may likewise be imposed to protect domestic industries
and producers from increased imports which inflict or could inflict
(i) Search, seizure, forfeiture, arrest
serious injury on them. (These special customs duties include the
additional tariffs imposed as safeguard measures under the Safeguard
Measures Act, Southern Cross Cement Corporation v. Cement  (a) Nature of seizure and forfeiture
Manufacturers Association of the Philippines, et al., G.R. No. 158540, proceedings. It is quite clear that seizure and
August 3, 2005 the motion for reconsideration) forfeiture proceedings under the tariff and customs
laws are not criminal in nature as they do not result in
 25
the conviction of the offender nor in the
imposition of the penalty provided for in section
3601 of the Code. As can be gleaned from Section
2533 of the code, seizure proceedings, such as those
instituted in this case, are purely civil and
administrative in character, the main purpose of which
is to enforce the administrative fines or forfeiture
incident to unlawful importation of goods or their
deliberate possession. (People v. Court of First Instance
of Rizal, G.R. No. L-41686, November 17, 1980)
A forfeiture proceeding is in the nature of a
proceeding in rem, i.e., directed against the res or
imported articles and entails a determination of the
legality of their importation. In this proceeding, it is in
legal contemplation the property itself which commits
the violation and is treated as the offender, without
reference whatsoever to the character or conduct of
the owner. (Transglobe International, Inc. v. Court of
Appeals, G.R. No. 126634, January 25, 1999)
(i) Articles subject to forfeiture.
The Tariff and Customs law subjects to
forfeiture any article which is removed
contrary to law from any public or private
warehouse under customs supervision, or
released irregularly from Customs custody.
Before forfeiture proceedings are instituted the
law requires the presence of probable cause;
once established, the burden of proof is shifted
to the claimant. (Carrara Marble Phil., Inc. v.
Commissioner of Customs, G.R. No. 129680,
September 01, 1999)
In order to warrant forfeiture, it is not
necessary that the vessel or aircraft must itself
carry the contraband. There is nothing in the
law that so requires. (Llamado v. Commissioner
of Customs, G.R. No. L-28809, May 16, 1983)
(ii) Requisites for forfeiture cases.
The requisites for the forfeiture of goods under
Section 2530(f), in relation to (1) (3-5), of the
Tariff and Customs Code are: (a) the wrongful
making by the owner, importer, exporter or
consignee of any declaration or affidavit, or
the wrongful making or delivery by the same
person of any invoice, letter or paper — all
touching on the importation or exportation of
merchandise; (b) the falsity of such
declaration, affidavit, invoice, letter or paper;
and (c) an intention on the part of the
importer/consignee to evade the payment of
the duties due. (Republic v. CTA, G.R. No.
139050, October 02, 2001)
(iii) Fraud must be present in
forfeiture. To support forfeiture, there must
be fraud on the part of the importer to evade
payment of the duties due. Fraud is never
presumed. It must be proved. Failure of fraud
is a bar to forfeiture. (Farm Implement and
Machinery v. Com. Of Customs, G.R. No. L-22212,
August 30, 1968 citing Kasilag v. Rodriguez, 69
Phil. 217, and other cases; The Commissioner of
Customs, et al., v. New Frontier Sugar Corporation,
G.R. No. 163055, June 11, 2014) REASON:
Forfeiture is a harsh measure and should be
resorted to, only with extra care. All doubts,
therefore, should be resolved in favor of the
taxpayer. (Rivera v. Mison, CTA Case No. 4479,
Dec. 24, 1993)
(iv) The fraud contemplated by law
must be actual not constructive. It must be
intentional fraud, consisting of deception
willfully and deliberately done or resorted to in
order to induce another to give up some right.
(Hon. Farolan, Jr. et c., v. Court of Tax Appeals, et
al., 217 SCRA 298; The Commissioner of Customs,
et al., v. New Frontier Sugar Corporation, G.R. No.
163055, June 11, 2014))
It must amount to intentional wrong-
doing with the sole object of avoiding tax.
(Aznar v. Court of Tax Appeals, 58 SCRA 543)
(v) Due process in seizure and
forfeiture cases. In administrative proceed-
ings, such as those before the BOC, technical
rules of procedure and evidence are not
strictly applied and administrative due process
cannot be fully equated with due process in its
strict judicial sense. The essence of due
process is simply an opportunity to be heard
or, as applied to administrative proceedings,
an opportunity to explain one's side or an
opportunity to seek reconsideration of the
action or ruling complained of. (El Greco Ship
Manning and Management Corporation v.
 26
Commissioner of Customs, G.R. No. 177188,
December 04, 2008)
(vii) Shifting of burden of proof.
Once probable cause has been shown for the
institution of forfeiture proceedings, the burden
of proof is upon claimant to establish that he fell
within the purview of the exception. The legal
presumption in Section 5(j), Rule 131 of the
Rules of Court and Article 541 of the Civil Code
are of a general character and cannot prevail
over the specific provisions of the Tariff and
Customs Code. (Acting Commissioner. of Customs
v. CTA, G.R. No. 62636, April 27, 1984)
(v) Criminal liability not settled
through payment of fine. Settlement of the
case by payment of the fine or redemption of
the forfeited property, prior to the filing of the
criminal action, does not extinguish the
offender's criminal liability under Section 3601
of the Tariff and Customs Code. (People v.
Desiderio, G.R. No. L-20805, November 29, 1965)
 (b) Exclusive jurisdiction of the
Bureau of Customs over seizure and forfeiture
proceedings. it is well settled that the Collector of
Customs has exclusive jurisdiction over seizure and
forfeiture proceedings, and regular courts cannot
interfere with his exercise thereof or stifle or put it at
naught.
The Collector of Customs sitting in seizure and
forfeiture proceedings has exclusive jurisdiction to
hear and determine all questions touching on the
seizure and forfeiture of dutiable goods. Regional trial
courts are devoid of any competence to pass upon the
validity or regularity of seizure and forfeiture
proceedings conducted by the BOC and to enjoin or
otherwise interfere with these proceedings. Regional
trial courts are precluded from assuming cognizance
over such matters even through petitions for certiorari,
prohibition or mandamus. (Agriex Co., Ltd., v. Hon.
Villanueva, etc., G.R. No. 158150, September 10, 2014)
(i) When customs acquire
jurisdiction. It is settled that the Bureau of
Customs acquires exclusive jurisdiction over
imported goods for purposes of enforcing the
Customs laws, from the moment the goods are
actually in possession and control of said
Bureau even in the absence of any warrant of
seizure or detention. (Papa v. Mago, G.R. No. L-
27360, February 28, 1968)
(ii) RTCs have no jurisdiction.
Regional trial courts are devoid of any
competence to pass upon the validity or
regularity of seizure and forfeiture proceedings
conducted by the BOC and to enjoin or
otherwise interfere with these
proceedings. Regional trial courts are precluded
from assuming cognizance over such matters
even through petitions for certiorari, prohibition
or mandamus. (Subic Bay Metropolitan Authority v.
Rodriguez, G.R. No. 160270, April 23, 2010)
Even if the seizure by the Collector of
Customs were illegal, which has yet to be
proven, we have said that such act does not
deprive the Bureau of Customs of jurisdiction
thereon. The allegations of petitioners regarding
the propriety of the seizure should properly be
ventilated before the Collector of Customs. (Jao
v. Court of Appeals, G.R. No. 104604, 111223,
October 06, 1995)
(c) Illustrative cases:
(i) NFSC is a Japan-based company
who sells raw sugar. However, NFSC was
charged by violation of the Joint Order by the
Commissioner Customs. The court ruled that
NFSC did not violate the order and such was in
good faith. The Court ruled that the onus
probandi to establish the existence of fraud is
lodged with the Bureau of Customs which
ordered the forfeiture of the imported goods.
Fraud is never presumed. It must be proved.
Failure of proof of fraud is a bar to forfeiture.
The reason is that forfeitures are not favored in
law and equity. The fraud contemplated by law
must be intentional fraud, consisting of
deception willfully and deliberately done or
resorted to in order to induce another to give up
some right. Absent fraud, the Bureau of
Customs cannot forfeit the shipment in its favor.
(The Commissioner of Customs, et al. v. New
Frontier Sugar Corporation, G.R. No. 163055, June
11, 2014)
 27
(ii) Agriex Co. foreign corporation
alleges that the Bureau of Customs exclusive
original jurisdiction over actual and physical
possession of foreign shipments and thus RTC
has no jurisdiction over such. The court ruled
that it is well settled that the Collector of
Customs has exclusive jurisdiction over seizure
and forfeiture proceedings, and regular courts
cannot interfere with his exercise thereof or
stifle or put it at naught. The Collector of
Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear
and determine all questions touching on the
seizure and forfeiture of dutiable goods.
Regional trial courts are devoid of any
competence to pass upon the validity or
regularity of seizure and forfeiture proceedings
conducted by the BOC and to enjoin or
otherwise interfere with these proceedings.
Regional trial courts are precluded from
assuming cognizance over such matters even
through petitions for certiorari, prohibition or
mandamus. (Agriex Co., Ltd., v. Hon. Villanueva,
etc., et al., G.R. No. 158150, September 10, 2014)
b) Judicial
(i) Rules on appeal including jurisdiction
(a) Exhaustion of administrative remedies
not an iron-clad rule. The Commissioner of Customs
posits that only when the ensuing decision of the
Collector and then the adverse decision of the
Commissioner of Customs would it be proper for Oilink
to seek judicial relief from the CTA. The Court ruled
that the principle of non-exhaustion of administrative
remedies was not an iron-clad rule because there were
instances in which the immediate resort to judicial
action was proper. As the records indicate, the
Commissioner of Customs already decided to deny the
protest by Oilink and stressed then that the demand to
pay was final. In that instance, the exhaustion of
administrative remedies would have been an exercise
in futility because it was already the Commissioner of
Customs demanding the payment of the deficiency
taxes and duties. (Commissioner of Customs v. Oilink
International Corporation, G.R. No. 161759, July 2, 2014)
(b) CTA en banc should first review
decision of division. Before the CTA En Banc could
take cognizance of the petition for review concerning a
case falling under its exclusive appellate jurisdiction,
the litigant must sufficiently show that it sought prior
reconsideration or moved for a new trial with the
concerned CTA division. Procedural rules are not to be
trifled with or be excused simply because their non-
compliance may have resulted in prejudicing a party's
substantive rights. (Commisioner of Customs v. Marina
Sales, Inc., G.R. No. 183868, November 22, 2010)
(i) Supreme Court has no
jurisdiction without CTA en banc’s decision.
The Bureau of Customs (BOC) committed
procedural missteps and the decision of the CTA
division has become final. The Supreme Court
is without jurisdiction to review decisions
rendered by a division of the CTA but the
decision of the CTA en banc. Under Sec. 9 of
RA 9282, a party affected by the ruling or
decision of a division of the CTA may file an MR
within 15 days. Sec. 11 of RA 9282 provides that
if the MR is denied, a petition for review is filed
with the CTA en banc. From an adverse ruling or
decision from the CTA en banc, the appeal by
way of petition for review on certiorari under
Rule 45 is filed with the Supreme Court. Thus
the Supreme Court has no jurisdiction to review
the decision of a division of the CTA.
(Commissioner of Customs v. Gelmart Industries, 579
SCRA 272)
(ii) CTA has no jurisdiction over
decisions of Collectors of Customs. It should
be stressed that the CTA has no jurisdiction to
review by appeal, decisions of the customs
collector. [Commissioner of Internal Revenue v.
Court of Tax Appeals (Second Division), et al., G.R.
No. 207843, July 15, 2015 with a note to see Lopez
& Sons, Inc. v. CTA, 100 Phil. 850, 856-857 (1957)]
The TCC prescribes that a party
adversely affected by a ruling or decision of the
customs collector may protest such ruling or
decision upon payment of the amount due and,
if aggrieved by the action of the customs
 28
collector on the matter under protest, may have
the same reviewed by the COC. It is only after
the COC shall have ruled on the matter that it
may be elevated to the Court of Tax Appeals.
(Ibid.)
(c) Rationale for automatic review.
Without the automatic review by the Commissioner of
Customs and the Secretary of Finance, a collector in
any of our country's far-flung ports, would have
absolute and unbridled discretion to determine whether
goods seized by him are locally produced, hence, not
dutiable, or of foreign origin, and therefore subject to
payment of customs duties and taxes. His decision,
unless appealed by the aggrieved party (the owner of
the goods), would become final with no one the wiser
except himself and the owner of the goods. (Yaokasin v.
Commissioner of Customs, G.R. No. 84111, December 22,
1989)
(d) Courts may look into jurisdiction even
if not raised in the pleadings. Although the question
of jurisdiction over the subject matter was not raised at
bench by either of the parties, the Court will first
address such question before delving into the
procedural and substantive issues of the instant
petition. After all, it is the duty of the courts to consider
the question of jurisdiction before they look into other
matters involved in the case, even though such
question is not raised by any of the parties. (Bureau of
Customs v. The Honorable Devanadera, etc., et al., G.R.
No. 193253, September 8, 2015 citing 20 Am. Jur. 2d,
Courts, §92, 1965)
Courts are bound to take notice of the limits of
their authority and, even if such question is neither
raised by the pleadings nor suggested by counsel, they
may recognize the want of jurisdiction and act
accordingly by staying pleadings, dismissing the
action, or otherwise noticing the defect, at any stage of
the proceedings. [Bureau of Customs, supra citing Ace
Publications, Inc. v. Commissioner of Customs, 120 Phil.
143, 149 (1964), in turn citing 15 C.J. 852]
Besides, issues or errors not raised by the
parties may be resolved by the Court where, as in this
case, the issue is one of jurisdiction; it is necessary in
arriving at a just decision; and the resolution of the
issues raised by the parties depend upon the
determination of the unassigned issue or error, or is
necessary to give justice to the parties. [Bureau of
Customs, supra Villaflores v. Ram System Services, Inc.,
530 Phil. 749, 763 (2006)]
(e) Courts have jurisdiction to rule on
validity of administrative issuances. “The
determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the
law or the constitution is within the jurisdiction of the
regular courts. Indeed, the Constitution vests the
power of judicial review or the power to declare a law,
treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or
regulation in the courts, including the regional trial
courts. This is within the scope of judicial power, which
includes the authority of the courts to determine in an
appropriate action the validity of the acts of the
political departments.” [Commissioner of Customs v.
Hypermix Feeds Corporation , G.R. No. 179579, February 1,
2012, 664 SCRA 666, 672, citing Smart Communications,
Inc. v. National Telecommunications Commission, 456 Phil.
145, 158-159 (2003) both cited in The Philippine American
Life and General Insurance Company v. The Secretary of
Finance, et al., G.R. No. 210987 , November 24, 2014]
(f) Illustrative case of an instance where
the Court of Appeals should have dismissed a tax
case. A collection suit for unpaid taxes and customs
duties in the aggregate amount of P46,844,385.00
filed by the Bureau of Customs (BOC) against
Mitsubishi Motors Philippines Corporation (Mitsubishi)
before the Regional Trial Court (RTC). It was alleged
that from 1997 to 1998, Mitsubishi was able to secure
tax credit certificates (TCCs) from various
transportation companies; after which, it made several
importations and utilized said TCCs for the payment of
various customs duties and taxes in the aggregate
amount of P46,844,385.00. However, a post-audit
investigation of the Department of Finance revealed
that the TCCs were fraudulently secured with the use
of fake commercial and bank documents. A demand to
pay the duties and taxes covered by the TCCs was
unavailing so the suit was filed.
Initially, the RTC dismissed the collection case
due to the continuous absences of the BOC’s counsel
during trial. On appeal to the Court of Appeals (CA),
the said case was reinstated and trial on the merits
continued before the RTC.
 29
A motion for Demurrer to Evidence was filed by
Mitsubishi which was granted. BOC’s motion for
reconsideration was denied.
The BOC appealed the RTC decision to the CA.
Instead of dismissing the appeal outright, the CA
referred the records of the collection case to the CTA
for proper disposition considering that the
government stands to lose the amount of
P46,844,385.00 in taxes and customs duties which can
then be used for various public works and projects.
Was the CA correct in referring the records to
the CTA ? Explain with reasons.
SUGGESTED ANSWER: No. The CA was not
correct.
Sec. 7, Republic Act No. (RA) 1125, as
amended by RA 9282 and Section 3, Rule 4 of the
Revised Rules of the Court of Tax Appeals, similarly
provide that The CTA shall exercise exclusive
appellate jurisdiction in tax collection cases over
appeals from the judgments, resolutions or orders of
the Regional Trial Courts in tax collection cases
originally decided by them in their respective territorial
jurisdiction.
The CA has no jurisdiction over BOC’s appeal;
hence, it cannot perform any action on the same
except to order its dismissal pursuant to Section 2,
Rule 50 of the Rules of Court. Therefore, the act of the
CA in referring BOC’s wrongful appeal before it to the
CTA under the guise of furthering the interests of
substantial justice is blatantly erroneous, and thus,
stands to be corrected. (Mitsubishi Motors Philippines
Corporation v. Bureau of Customs, G.R. No. 209830, June
17, 2015)
(g) The Court of Tax Appeals (CTA), not
Court of Appeal (CA) has jurisdiction to review
through a petition for certiorari the DOJ
resolution in preliminary investigations involving
tax and tariff offenses. Concededly, there is no clear
statement under R.A. No. 1125, the amendatory R.A.
No. 9282, let alone in the Constitution, that the CTA
has original jurisdiction over a petition for certiorari.
By virtue of Section 1, Article VIII of the 1987
Constitution, vesting judicial power in the Supreme
Court and such lower courts as may be established by
law, to determine whether or not there has been a
grave abuse of discretion on the part of any branch or
instrumentality of the Government, in relation to
Section 5(5), Article VIII thereof, vesting upon it the
power to promulgate rules concerning practice and
procedure in all courts, the Supreme Court thus
declared that the CA's original jurisdiction over a
petition for certiorari assailing the DOJ resolution in a
preliminary investigation involving tax and tariff
offenses was necessarily transferred to the CTA
pursuant to Section 7 of R.A. No. 9282, and that such
petition shall be governed by Rule 65 of the Rules of
Court, as amended. Accordingly, it is the CTA, not the
CA, which has jurisdiction over the petition for
certiorari assailing the DOJ resolution of dismissal of
the BOC's complaint-affidavit against private
respondents for violation of the TCCP. (Bureau of
Customs v. The Honorable Devanadera, etc., et al., G.R.
No. 193253, September 8, 2015)
2. Taxpayer
a) Protest
(i) When customs protest applicable. The
requirement of a prior protest as an exclusive remedy in
protestable cases applies only to a situation, “whereby
liability for duties, taxes, fees and other charges are
determined.”
This necessarily refers to a situation where a particular
shipment has arrived and there is a dispute between the
importer and the Collector as to the correct determination of
duties, taxes, fees and other charges. That is why the law
requires the importer to file a protest, “at the time when
payment of the amount claimed to be due the government is
made or within fifteen (15) days thereafter. (Philippines
Phosphate Fertilizer Corporation v. Commissioner of Customs, CTA
Case No. 4994, August 4, 1995)
(ii) No protest, no refund rule. The claim for
refund of customs duties in protestable cases may be
foreclosed by failure to file a written protest . (Nestle
Philippines, Inc. v. Court of Appeals, 413 Phil. 106)
b) Abandonment
(i) Entry must be made within the
reglementary period otherwise goods deemed
abandoned. Both the Import Entry Declaration (IED)
 30
and Import Entry and Internal Revenue Declaration
(IEIRD) should be filed within 30 days from the date of
discharge of the last package from the vessel or
aircraft (Chevron Philippines, Inc. v. Commr., G.R. No.
178759, August 11, 2008), otherwise deemed abandoned
and goods ipso facto becomes government property.
(R.V. Marzan Freight, Inc. v. Court of Appeals, et al., G. R.
No.128064, March 4, 2004)
(ii) Jurisdiction of District Collector of
Customs over abandonment proceedings which a
regular court could not exercise. A trial court is
incompetent to pass upon and nullify
(a) the seizure of the cargo in the
abandonment proceedings; and
(b) the declaration made by the District
Collector of Customs that the cargo was abandoned
and ipso facto owned by the government.
A trial court likewise has no jurisdiction to
resolve the issue of whether or not the importer was
the owner of the cargo before it was gutted by fire.
The District Collector of Customs did not lose
jurisdiction over the abandonment proceedings. The
loss of the cargo did not extinguish his incipient
jurisdiction in the said proceedings, nor render functus
officio his declaration that the subject shipment had
been abandoned. (R.V. Marzan Freight, Inc. v. Court of
Appeals, et al., G. R. No.128064, March 4, 2004)

c) Abatement and refund

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