1. G.R. No.
L-29059 December 15, 1987 Here Justice Eugenio Angeles declared that "before the effectivity of Rep. Act No. 1299, amending
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.
CRUZ, J.:
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on
appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was
ordered to refund to the Cebu Portland Cement Company the amount of P 359,408.98,
representing overpayments of ad valorem taxes on cement produced and sold by it after October
1957. 1
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and
the private respondent, the latter moved for a writ of execution to enforce the said judgment . 2
The motion was opposed by the petitioner on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus
28% surcharge. 3
On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the alleged sales tax
liability of the private respondent was still being questioned and therefore could not be set-off
against the refund. 4
In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the
refund should be charged against the tax deficiency of the private respondent on the sales of
cement under Section 186 of the Tax Code. His position is that cement is a manufactured and not a
mineral product and therefore not exempt from sales taxes. He adds that enforcement of the said
tax deficiency was properly effected through his power of distraint of personal property under
Sections 316 and 318 5 of the said Code and, moreover, the collection of any national internal
revenue tax may not be enjoined under Section 305, 6 subject only to the exception prescribed in
Rep. Act No. 1125. 7 This is not applicable to the instant case. The petitioner also denies that the
sales tax assessments have already prescribed because the prescriptive period should be counted
from the filing of the sales tax returns, which had not yet been done by the private respondent.
For its part, the private respondent disclaims liability for the sales taxes, on the ground that cement
is not a manufactured product but a mineral product. 8 As such, it was exempted from sales taxes
under Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in
accordance with Cebu Portland Cement Co. v. Collector of Internal Revenue, 9 decided in 1968.
Section 246 of the National Internal Revenue Code, cement was taxable as a manufactured product
under Section 186, in connection with Section 194(4) of the said Code," thereby implying that it
was not considered a manufactured product afterwards. Also, the alleged sales tax deficiency could
not as yet be enforced against it because the tax assessment was not yet final, the same being still
under protest and still to be definitely resolved on the merits. Besides, the assessment had already
prescribed, not having been made within the reglementary five-year period from the filing of the
tax returns. 10
Our ruling is that the sales tax was properly imposed upon the private respondent for the reason
that cement has always been considered a manufactured product and not a mineral product. This
matter was extensively discussed and categorically resolved in Commissioner of Internal Revenue
v. Republic Cement Corporation, 11 decided on August 10, 1983, where Justice Efren L. Plana, after
an exhaustive review of the pertinent cases, declared for a unanimous Court:
From all the foregoing cases, it is clear that cement qua cement was never considered as a mineral
product within the meaning of Section 246 of the Tax Code, notwithstanding that at least 80% of its
components are minerals, for the simple reason that cement is the product of a manufacturing
process and is no longer the mineral product contemplated in the Tax Code (i.e.; minerals
subjected to simple treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their present posture is the
case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA
789) penned by Justice Eugenio Angeles. For some portions of that decision give the impression
that Republic Act No. 1299, which amended Section 246, reclassified cement as a mineral product
that was not subject to sales tax. ...
xxx xxx xxx
After a careful study of the foregoing, we conclude that reliance on the decision penned by Justice
Angeles is misplaced. The said decision is no authority for the proposition that after the enactment
of Republic Act No. 1299 in 1955 (defining mineral product as things with at least 80% mineral
content), cement became a 'mineral product," as distinguished from a "manufactured product,"
and therefore ceased to be subject to sales tax. It was not necessary for the Court to so rule. It was
enough for the Court to say in effect that even assuming Republic Act No. 1299 had reclassified
cement was a mineral product, the reclassification could not be given retrospective application (so
as to justify the refund of sales taxes paid before Republic Act 1299 was adopted) because laws
operate prospectively only, unless the legislative intent to the contrary is manifest, which was not
so in the case of Republic Act 1266. [The situation would have been different if the Court instead
had ruled in favor of refund, in which case it would have been absolutely necessary (1) to make an
unconditional ruling that Republic Act 1299 re-classified cement as a mineral product (not subject
to sales tax), and (2) to declare the law retroactive, as a basis for granting refund of sales tax paid
before Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-20563) insofar as its
pronouncements or any implication therefrom conflict with the instant decision.
The above views were reiterated in the resolution 12 denying reconsideration of the said decision,
thus:
The nature of cement as a "manufactured product" (rather than a "mineral product") is well-
settled. The issue has repeatedly presented itself as a threshold question for determining the basis
for computing the ad valorem mining tax to be paid by cement Companies. No pronouncement was
made in these cases that as a "manufactured product" cement is subject to sales tax because this
was not at issue.
The decision sought to be reconsidered here referred to the legislative history of Republic Act No.
1299 which introduced a definition of the terms "mineral" and "mineral products" in Sec. 246 of
the Tax Code. Given the legislative intent, the holding in the CEPOC case (G.R. No. L-20563) that
cement was subject to sales tax prior to the effectivity •f Republic Act No. 1299 cannot be
construed to mean that, after the law took effect, cement ceased to be so subject to the tax. To
erase any and all misconceptions that may have been spawned by reliance on the case of Cebu
Portland Cement Co. v. Collector of Internal Revenue, L-20563, October 29, 1968 (28 SCRA 789)
penned by Justice Eugenio Angeles, the Court has expressly overruled it insofar as it may conflict
with the decision of August 10, 1983, now subject of these motions for reconsideration.
On the question of prescription, the private respondent claims that the five-year reglementary
period for the assessment of its tax liability started from the time it filed its gross sales returns on
June 30, 1962. Hence, the assessment for sales taxes made on January 16, 1968 and March 4, 1968,
were already out of time. We disagree. This contention must fail for what CEPOC filed was not the
sales returns required in Section 183(n) but the ad valorem tax returns required under Section 245
of the Tax Code. As Justice Irene R. Cortes emphasized in the aforestated resolution:
In order to avail itself of the benefits of the five-year prescription period under Section 331 of the
Tax Code, the taxpayer should have filed the required return for the tax involved, that is, a sales tax
return. (Butuan Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus
CEPOC should have filed sales tax returns of its gross sales for the subject periods. Both parties
admit that returns were made for the ad valorem mining tax. CEPOC argues that said returns
contain the information necessary for the assessment of the sales tax. The Commissioner does not
consider such returns as compliance with the requirement for the filing of tax returns so as to start
the running of the five-year prescriptive period.
We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v. CTA, supra, that the
filing of an income tax return cannot be considered as substantial compliance with the requirement
of filing sales tax returns, in the same way that an income tax return cannot be considered as a
return for compensating tax for the purpose of computing the period of prescription under Sec.
331. (Citing Bisaya Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100
and L-11812, May 29, 1959). There being no sales tax returns filed by CEPOC, the statute of stations
in Sec. 331 did not begin to run against the government. The assessment made by the
Commissioner in 1968 on CEPOC's cement sales during the period from July 1, 1959 to December
31, 1960 is not barred by the five-year prescriptive period. Absent a return or when the return is
false or fraudulent, the applicable period is ten (10) days from the discovery of the fraud, falsity or
omission. The question in this case is: When was CEPOC's omission to file tha return deemed
discovered by the government, so as to start the running of said period? 13
The argument that the assessment cannot as yet be enforced because it is still being contested
loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the
payment of taxes could be postponed by simply questioning their validity, the machinery of the
state would grind to a halt and all government functions would be paralyzed. That is the reason
why, save for the exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. — No court shall have authority to
grant an injunction to restrain the collection of any national internal revenue tax, fee or charge
imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already
being questioned in a court of justice but more so if, as in the instant case, the challenge to the
assessment is still-and only-on the administrative level. There is all the more reason to apply the
rule here because it appears that even after crediting of the refund against the tax deficiency, a
balance of more than P 4 million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment
debt, which he will later have the right to distrain for payment of its sales tax liability is in our view
an Idle ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.
WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No. 786 is
SET ASIDE, without any pronouncement as to costs.
SO ORDERED.
2. G.R. Nos. 89898-99 October 1, 1990
MUNICIPALITY OF MAKATI, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as Judge RTC of
Makati, Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and SHERIFF SILVINO R.
PASTRANA, respondents.
RESOLUTION
CORTÉS, J.:
The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner
Municipality of Makati against private respondent Admiral Finance Creditors Consortium, Inc.,
Home Building System & Realty Corporation and one Arceli P. Jo, involving a parcel of land and
improvements thereon located at Mayapis St., San Antonio Village, Makati and registered in the
name of Arceli P. Jo under TCT No. S-5499.
It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case
No. 13699. Attached to petitioner's complaint was a certification that a bank account (Account No.
S/A 265-537154-3) had been opened with the PNB Buendia Branch under petitioner's name
containing the sum of P417,510.00, made pursuant to the provisions of Pres. Decree No. 42. After
due hearing where the parties presented their respective appraisal reports regarding the value of
the property, respondent RTC judge rendered a decision on June 4, 1987, fixing the appraised value
of the property at P5,291,666.00, and ordering petitioner to pay this amount minus the advanced
payment of P338,160.00 which was earlier released to private respondent.
After this decision became final and executory, private respondent moved for the issuance of a writ
of execution. This motion was granted by respondent RTC judge. After issuance of the writ of
execution, a Notice of Garnishment dated January 14, 1988 was served by respondent sheriff
Silvino R. Pastrana upon the manager of the PNB Buendia Branch. However, respondent sheriff was
informed that a "hold code" was placed on the account of petitioner. As a result of this, private
respondent filed a motion dated January 27, 1988 praying that an order be issued directing the
bank to deliver to respondent sheriff the amount equivalent to the unpaid balance due under the
RTC decision dated June 4, 1987.
Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the
expropriation amount should be done in installments which the respondent RTC judge failed to
state in his decision. Private respondent filed its opposition to the motion.
Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation"
informing the court that private respondent was no longer the true and lawful owner of the subject
property because a new title over the property had been registered in the name of Philippine
Savings Bank, Inc. (PSB) Respondent RTC judge issued an order requiring PSB to make available the
documents pertaining to its transactions over the subject property, and the PNB Buendia Branch to
reveal the amount in petitioner's account which was garnished by respondent sheriff. In
compliance with this order, PSB filed a manifestation informing the court that it had consolidated
its ownership over the property as mortgagee/purchaser at an extrajudicial foreclosure sale held
on April 20, 1987. After several conferences, PSB and private respondent entered into a
compromise agreement whereby they agreed to divide between themselves the compensation due
from the expropriation proceedings.
Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1) approved
the compromise agreement; (2) ordered PNB Buendia Branch to immediately release to PSB the
sum of P4,953,506.45 which corresponds to the balance of the appraised value of the subject
property under the RTC decision dated June 4, 1987, from the garnished account of petitioner; and,
(3) ordered PSB and private respondent to execute the necessary deed of conveyance over the
subject property in favor of petitioner. Petitioner's motion to lift the garnishment was denied.
Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On
the other hand, for failure of the manager of the PNB Buendia Branch to comply with the order
dated September 8, 1988, private respondent filed two succeeding motions to require the bank
manager to show cause why he should not be held in contempt of court. During the hearings
conducted for the above motions, the general manager of the PNB Buendia Branch, a Mr. Antonio
Bautista, informed the court that he was still waiting for proper authorization from the PNB head
office enabling him to make a disbursement for the amount so ordered. For its part, petitioner
contended that its funds at the PNB Buendia Branch could neither be garnished nor levied upon
execution, for to do so would result in the disbursement of public funds without the proper
appropriation required under the law, citing the case of Republic of the Philippines v. Palacio [G.R.
No. L-20322, May 29, 1968, 23 SCRA 899].
Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion for
reconsideration on the ground that the doctrine enunciated in Republic v. Palacio did not apply to
the case because petitioner's PNB Account No. S/A 265-537154-3 was an account specifically
opened for the expropriation proceedings of the subject property pursuant to Pres. Decree No. 42.
Respondent RTC judge likewise declared Mr. Antonio Bautista guilty of contempt of court for his
inexcusable refusal to obey the order dated September 8, 1988, and thus ordered his arrest and
detention until his compliance with the said order.
Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions for certiorari
with the Court of Appeals, which were eventually consolidated. In a decision promulgated on June
28, 1989, the Court of Appeals dismissed both petitions for lack of merit, sustained the jurisdiction
of respondent RTC judge over the funds contained in petitioner's PNB Account No. 265-537154-3,
and affirmed his authority to levy on such funds.

Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files the
present petition for review with prayer for preliminary injunction.
On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining
respondent RTC judge, respondent sheriff, and their representatives, from enforcing and/or
carrying out the RTC order dated December 21, 1988 and the writ of garnishment issued pursuant
thereto. Private respondent then filed its comment to the petition, while petitioner filed its reply.
Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals,
but also alleges for the first time that it has actually two accounts with the PNB Buendia Branch, to
wit:
xxx xxx xxx
(1) Account No. S/A 265-537154-3 — exclusively for the expropriation of the subject
property, with an outstanding balance of P99,743.94.
(2) Account No. S/A 263-530850-7 — for statutory obligations and other purposes of the
municipal government, with a balance of P170,098,421.72, as of July 12, 1989.
xxx xxx xxx
[Petition, pp. 6-7; Rollo, pp. 11-12.]
Because the petitioner has belatedly alleged only in this Court the existence of two bank accounts,
it may fairly be asked whether the second account was opened only for the purpose of
undermining the legal basis of the assailed orders of respondent RTC judge and the decision of the
Court of Appeals, and strengthening its reliance on the doctrine that public funds are exempted
from garnishment or execution as enunciated in Republic v. Palacio [supra.] At any rate, the Court
will give petitioner the benefit of the doubt, and proceed to resolve the principal issues presented
based on the factual circumstances thus alleged by petitioner.
Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation
proceedings it had initiated over the subject property, petitioner poses no objection to the
garnishment or the levy under execution of the funds deposited therein amounting to P99,743.94.
However, it is petitioner's main contention that inasmuch as the assailed orders of respondent RTC
judge involved the net amount of P4,965,506.45, the funds garnished by respondent sheriff in
excess of P99,743.94, which are public funds earmarked for the municipal government's other
statutory obligations, are exempted from execution without the proper appropriation required
under the law.
There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-
530850-7 are public funds of the municipal government. In this jurisdiction, well-settled is the rule
that public funds are not subject to levy and execution, unless otherwise provided for by statute
[Republic v. Palacio, supra.; The Commissioner of Public Highways v. San Diego, G.R. No. L-30098,
February 18, 1970, 31 SCRA 616]. More particularly, the properties of a municipality, whether real
or personal, which are necessary for public use cannot be attached and sold at execution sale to
satisfy a money judgment against the municipality. Municipal revenues derived from taxes, licenses
and market fees, and which are intended primarily and exclusively for the purpose of financing the
governmental activities and functions of the municipality, are exempt from execution [See Viuda
De Tan Toco v. The Municipal Council of Iloilo, 49 Phil. 52 (1926): The Municipality of Paoay, Ilocos
Norte v. Manaois, 86 Phil. 629 (1950); Municipality of San Miguel, Bulacan v. Fernandez, G.R. No.
61744, June 25, 1984, 130 SCRA 56]. The foregoing rule finds application in the case at bar. Absent
a showing that the municipal council of Makati has passed an ordinance appropriating from its
public funds an amount corresponding to the balance due under the RTC decision dated June 4,
1987, less the sum of P99,743.94 deposited in Account No. S/A 265-537154-3, no levy under
execution may be validly effected on the public funds of petitioner deposited in Account No. S/A
263-530850-7.
Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse.
Where a municipality fails or refuses, without justifiable reason, to effect payment of a final money
judgment rendered against it, the claimant may avail of the remedy of mandamus in order to
compel the enactment and approval of the necessary appropriation ordinance, and the
corresponding disbursement of municipal funds therefor [See Viuda De Tan Toco v. The Municipal
Council of Iloilo, supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v. Gonzales, 108 Phil. 247
(1960)].
In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by petitioner.
No appeal was taken therefrom. For three years now, petitioner has enjoyed possession and use of
the subject property notwithstanding its inexcusable failure to comply with its legal obligation to
pay just compensation. Petitioner has benefited from its possession of the property since the same
has been the site of Makati West High School since the school year 1986-1987. This Court will not
condone petitioner's blatant refusal to settle its legal obligation arising from expropriation
proceedings it had in fact initiated. It cannot be over-emphasized that, within the context of the
State's inherent power of eminent domain,
. . . [j]ust compensation means not only the correct determination of the amount to be paid to the
owner of the land but also the payment of the land within a reasonable time from its taking.
Without prompt payment, compensation cannot be considered "just" for the property owner is
made to suffer the consequence of being immediately deprived of his land while being made to
wait for a decade or more before actually receiving the amount necessary to cope with his loss
[Cosculluela v. The Honorable Court of Appeals, G.R. No. 77765, August 15, 1988, 164 SCRA 393,
400. See also Provincial Government of Sorsogon v. Vda. de Villaroya, G.R. No. 64037, August 27,
1987, 153 SCRA 291].

The State's power of eminent domain should be exercised within the bounds of fair play and
justice. In the case at bar, considering that valuable property has been taken, the compensation to
be paid fixed and the municipality is in full possession and utilizing the property for public purpose,
for three (3) years, the Court finds that the municipality has had more than reasonable time to pay
full compensation.

WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately pay
Philippine Savings Bank, Inc. and private respondent the amount of P4,953,506.45. Petitioner is
hereby required to submit to this Court a report of its compliance with the foregoing order within a
non-extendible period of SIXTY (60) DAYS from the date of receipt of this resolution.

The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil Case No.
13699, is SET ASIDE and the temporary restraining order issued by the Court on November 20,
1989 is MADE PERMANENT.

SO ORDERED.
3. G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE vs. ALGUE, INC., and THE COURT OF TAX APPEALS
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the
petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years
1958 and 1959.1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration,
which letter was stamp received on the same day in the office of the petitioner. 2 On March 12,
1965, a warrant of distraint and levy was presented to the private respondent, through its counsel,
Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A
search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file
copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On
April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals.6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No.
1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged.7
It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8
and renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial
thereof and makes the said request deemed rejected." 10 But there is a special circumstance in the
case at bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of
the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not
pro forma and was based on strong legal considerations. It thus had the effect of suspending on
January 18, 1965, when it was filed, the reglementary period which started on the date the
assessment was received, viz., January 14, 1965. The period started running again only on April 7,
1965, when the private respondent was definitely informed of the implied rejection of the said
protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23,
1965, only 20 days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals
had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid
by the private respondent for actual services rendered. The payment was in the form of
promotional fees. These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional
fees to be personal holding company income 12 but later conformed to the decision of the
respondent court rejecting this assertion.13 In fact, as the said court found, the amount was
earned through the joint efforts of the persons among whom it was distributed It has been
established that the Philippine Sugar Estate Development Company had earlier appointed Algue as
its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such
authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other
persons to invest in it.14 Ultimately, after its incorporation largely through the promotion of the
said persons, this new corporation purchased the PSEDC properties.15 For this sale, Algue received
as agent a commission of P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals.16
There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.18
The petitioner claims that these payments are fictitious because most of the payees are members
of the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not
made in one lump sum but periodically and in different amounts as each payee's need arose. 19 It
should be remembered that this was a family corporation where strict business procedures were
not applied and immediate issuance of receipts was not required. Even so, at the end of the year,
when the books were to be closed, each payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal.
This arrangement was understandable, however, in view of the close relationship among the
persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. 21 After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in
accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as
deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable
year in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or
incurred in carrying on any trade or business may be included a reasonable allowance for salaries
or other compensation for personal services actually rendered. The test of deductibility in the case
of compensation payments is whether they are reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical application may
be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is
not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of
whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or bear a close relationship to the stockholdings of
the officers of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the
validity of the claimed deduction. In the present case, however, we find that the onus has been
discharged satisfactorily. The private respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in a new
business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits intended to improve
the lives of the people and enhance their moral and material values. This symbiotic relationship is
the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to
his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.
SO ORDERED.
4. [G.R. No. 122480. April 12, 2000]
BPI-FAMILY SAVINGS BANK, Inc., petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and
the COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
PANGANIBAN, J.:
If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it
apply the same standard against itself in refunding excess payments. When it is undisputed that a
taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not
belonging to it. No one, not even the State, should enrich oneself at the expense of another.
The Case
Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of Appeals[1]
(CA) in CA-GR SP No. 34240, which affirmed the December 24, 1993 Decision[2] of the Court of Tax
Appeals (CTA). The CA disposed as follows:
"WHEREFORE, foregoing premises considered, the petition is hereby DISMISSED for lack of
merit."[3]
On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as follows:
"WHEREFORE, in [view of] all the foregoing, Petitioners claim for refund is hereby DENIED and this
Petition for Review is DISMISSED for lack of merit."[4]
Also assailed is the November 8, 1995 CA Resolution[5] denying reconsideration.
The Facts
The facts of this case were summarized by the CA in this wise:
"This case involves a claim for tax refund in the amount of P112,491.00 representing petitioners tax
withheld for the year 1989.
In its Corporate Annual Income Tax Return for the year 1989, the following items are reflected:
Income.............................P1,017,931,831.00
Deductions........................P1,026,218,791.00
Net Income (Loss).................(P8,286,960.00)
Taxable Income (Loss).............P8,286,960.00
Less:
1988 Tax Credit...............P185,001.00
1989 Tax Credit...............P112,491.00
TOTAL AMOUNT......................P297,492.00
REFUNDABLE
"It appears from the foregoing 1989 Income Tax Return that petitioner had a total refundable
amount of P297,492 inclusive of the P112,491.00 being claimed as tax refund in the present case.
However, petitioner declared in the same 1989 Income Tax Return that the said total refundable
amount of P297,492.00 will be applied as tax credit to the succeeding taxable year.
"On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00 with
the respondent Commissioner of Internal Revenue alleging that it did not apply the 1989
refundable amount of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax Return
or other tax liabilities due to the alleged business losses it incurred for the same year.
"Without waiting for respondent Commissioner of Internal Revenue to act on the claim for refund,
petitioner filed a petition for review with respondent Court of Tax Appeals, seeking the refund of
the amount of P112,491.00.
"The respondent Court of Tax Appeals dismissed petitioners petition on the ground that petitioner
failed to present as evidence its Corporate Annual Income Tax Return for 1990 to establish the fact
that petitioner had not yet credited the amount of P297,492.00 (inclusive of the amount
P112,491.00 which is the subject of the present controversy) to its 1990 income tax liability.
"Petitioner filed a motion for reconsideration, however, the same was denied by respondent court
in its Resolution dated May 6, 1994."[6]
As earlier noted, the CA affirmed the CTA. Hence, this Petition.[7]
Ruling of the Court of Appeals
In affirming the CTA, the Court of Appeals ruled as follows:
"It is incumbent upon the petitioner to show proof that it has not credited to its 1990 Annual
income Tax Return, the amount of P297,492.00 (including P112,491.00), so as to refute its previous
declaration in the 1989 Income Tax Return that the said amount will be applied as a tax credit in
the succeeding year of 1990. Having failed to submit such requirement, there is no basis to grant
the claim for refund. x x x
"Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of
sovereign authority and to be construed strictissimi juris against the person or entity claiming the
exemption. In other words, the burden of proof rests upon the taxpayer to establish by sufficient
and competent evidence its entitlement to the claim for refund."[8]
Issue
In their Memorandum, respondents identify the issue in this wise:
"The sole issue to be resolved is whether or not petitioner is entitled to the refund of P112,491.00,
representing excess creditable withholding tax paid for the taxable year 1989."[9]
The Courts Ruling
The Petition is meritorious.
Main Issue: Petitioner Entitled to Refund
It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus
entitled to a refund amounting to P112,491. Pursuant to Section 69[10] of the 1986 Tax Code
which states that a corporation entitled to a refund may opt either (1) to obtain such refund or (2)
to credit said amount for the succeeding taxable year, petitioner indicated in its 1989 Income Tax
Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990.
Subsequently, petitioner informed the Bureau of Internal Revenue (BIR) that it would claim the
amount as a tax refund, instead of applying it as a tax credit. When no action from the BIR was
forthcoming, petitioner filed its claim with the Court of Tax Appeals.
The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989
Income Tax Return that it would apply the excess withholding tax as a tax credit for the following
year, the Tax Court held that petitioner was presumed to have done so. The CTA and the CA ruled
that petitioner failed to overcome this presumption because it did not present its 1990 Return,
which would have shown that the amount in dispute was not applied as a tax credit. Hence, the CA
concluded that petitioner was not entitled to a tax refund.
We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are
binding on this Court. This rule, however, does not apply where, inter alia, the judgment is
premised on a misapprehension of facts, or when the appellate court failed to notice certain
relevant facts which if considered would justify a different conclusion.[11] This case is one such
exception.
In the first place, petitioner presented evidence to prove its claim that it did not apply the amount
as a tax credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioners
accounting department, testified to this fact. It likewise presented its claim for refund and a
certification issued by Mr. Gil Lopez, petitioners vice-president, stating that the amount of
P112,491 "has not been and/or will not be automatically credited/offset against any succeeding
quarters income tax liabilities for the rest of the calendar year ending December 31, 1990." Also
presented were the quarterly returns for the first two quarters of 1990.
The Bureau of Internal Revenue, for its part, failed to controvert petitioners claim. In fact, it
presented no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR
could have easily disproved petitioners claim. To repeat, it did not do so.
More important, a copy of the Final Adjustment Return for 1990 was attached to petitioners
Motion for Reconsideration filed before the CTA.[12] A final adjustment return shows whether a
corporation incurred a loss or gained a profit during the taxable year. In this case, that Return
clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have
applied the amount in dispute as a tax credit.
Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to
petitioners Motion and the 1990 Final Adjustment Return attached thereto. In denying the Motion
for Reconsideration, however, the CTA ignored the said Return. In the same vein, the CA did not
pass upon that significant document.
True, strict procedural rules generally frown upon the submission of the Return after the trial. The
law creating the Court of Tax Appeals, however, specifically provides that proceedings before it
"shall not be governed strictly by the technical rules of evidence."[13] The paramount
consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of
issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a
just determination of a controversy.
In the present case, the Return attached to the Motion for Reconsideration clearly showed that
petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner
could not have applied the amount as a tax credit. In failing to consider the said Return, as well as
the other documentary evidence presented during the trial, the appellate court committed a
reversible error.
It should be stressed that the rationale of the rules of procedure is to secure a just determination
of every action. They are tools designed to facilitate the attainment of justice.[14] But there can be
no just determination of the present action if we ignore, on grounds of strict technicality, the
Return submitted before the CTA and even before this Court.[15] To repeat, the undisputed fact is
that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax
credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the
tax refund which rightfully belongs to the petitioner.
Public respondents maintain that what was attached to petitioners Motion for Reconsideration was
not the final adjustment Return, but petitioners first two quarterly returns for 1990.[16] This
allegation is wrong. An examination of the records shows that the 1990 Final Adjustment Return
was attached to the Motion for Reconsideration. On the other hand, the two quarterly returns for
1990 mentioned by respondent were in fact attached to the Petition for Review filed before the
CTA. Indeed, to rebut respondents specific contention, petitioner submitted before us its
Surrejoinder, to which was attached the Motion for Reconsideration and Exhibit "A" thereof, the
Final Adjustment Return for 1990.[17]
CTA Case No. 4897
Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the claimant. Under the facts of this case, we hold that
petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of
procedure; it may have even been negligent. These circumstances, however, should not compel the
Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it
could not have applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms,
however exalted, should not be misused by the government to keep money not belonging to it and
thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to
observe fairness and honesty in paying their taxes, so must it apply the same standard against itself
in refunding excess payments of such taxes. Indeed, the State must lead by its own example of
honor, dignity and uprightness.

Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of the
rendered by the Tax Court in CTA Case No. 4897, involving its claim for refund for the year 1990. In Court of Appeals REVERSED and SET ASIDE. The Commissioner of Internal Revenue is ordered to
that case, the Tax Court held that "petitioner suffered a net loss for the taxable year 1990 x x refund to petitioner the amount of P112,491 as excess creditable taxes paid in 1989. No costs.
x."[18] Respondent, however, urges this Court not to take judicial notice of the said case.[19]
SO ORDERED.
As a rule, "courts are not authorized to take judicial notice of the contents of the records of other
cases, even when such cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been heard or are actually pending before the
same judge."[20]

Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought
to be known to judges because of their judicial functions. In this case, the Court notes that a copy
of the Decision in CTA Case No. 4897 was attached to the Petition for Review filed before this
Court. Significantly, respondents do not claim at all that the said Decision was fraudulent or
nonexistent. Indeed, they do not even dispute the contents of the said Decision, claiming merely
that the Court cannot take judicial notice thereof.

To our mind, respondents reasoning underscores the weakness of their case. For if they had really
believed that petitioner is not entitled to a tax refund, they could have easily proved that it did not
suffer any loss in 1990. Indeed, it is noteworthy that respondents opted not to assail the fact
appearing therein -- that petitioner suffered a net loss in 1990 in the same way that it refused to
controvert the same fact established by petitioners other documentary exhibits.

In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioners case. It is merely
one more bit of information showing the stark truth: petitioner did not use its 1989 refund to pay
its taxes for 1990.
5. G.R. No. L-68252 May 26, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT OF
TAX APPEALS, respondents.
PUNO, J.:
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund
or tax credit for amounts representing pre-payment of income and common carrier's taxes under
the National Internal Revenue Code, section 24 (b) (2), as amended.1
Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship
Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980,
NASUTRA2 chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines.3 On
December 23, 1980, Mr. Edilberto Lising, the operations supervisor of Soriamont Agency,4 paid the
required income and common carrier's taxes in the respective sums of FIFTY-NINE THOUSAND FIVE
HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75) and FORTY-SEVEN
THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED SEVEN
THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) based
on the expected gross receipts of the vessel.5 Upon arriving, however, at Guimaras Port of Iloilo,
the vessel found no sugar for loading. On January 10, 1981, NASUTRA and private respondent's
agent mutually agreed to have the vessel sail for Japan without any cargo.
Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was
realized from the charter agreement, private respondent instituted a claim for tax credit or refund
of the sum ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-
FIVE CENTAVOS (P107,142.75) before petitioner Commissioner of Internal Revenue on March 23,
1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent
filed a petition for review6 before public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that
taxes are presumed to have been collected in accordance with law; that in an action for refund, the
burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and
the taxpayer's failure to sustain said burden is fatal to the action for refund; and that claims for
refund are construed strictly against tax claimants.7
After trial, respondent tax court decided in favor of the private respondent. It held:
It has been shown in this case that 1) the petitioner has complied with the mentioned statutory
requirement by having filed a written claim for refund within the two-year period from date of
payment; 2) the respondent has not issued any deficiency assessment nor disputed the correctness
of the tax returns and the corresponding amounts of prepaid income and percentage taxes; and 3)
the chartered vessel sailed out of the Philippine port with absolutely no cargo laden on board as
cleared and certified by the Customs authorities; nonetheless 4) respondent's apparent bit of
reluctance in validating the legal merit of the claim, by and large, is tacked upon the "examiner
who is investigating petitioner's claim for refund which is the subject matter of this case has not yet
submitted his report. Whether or not respondent will present his evidence will depend on the said
report of the examiner." (Respondent's Manifestation and Motion dated September 7, 1982). Be
that as it may the case was submitted for decision by respondent on the basis of the pleadings and
records and by petitioner on the evidence presented by counsel sans the respective memorandum.
An examination of the records satisfies us that the case presents no dispute as to relatively simple
material facts. The circumstances obtaining amply justify petitioner's righteous indignation to a
more expeditious action. Respondent has offered no reason nor made effort to submit any
controverting documents to bash that patina of legitimacy over the claim. But as might well be,
towards the end of some two and a half years of seeming impotent anguish over the pendency, the
respondent Commissioner of Internal Revenue would furnish the satisfaction of ultimate solution
by manifesting that "it is now his turn to present evidence, however, the Appellate Division of the
BIR has already recommended the approval of petitioner's claim for refund subject matter of this
petition. The examiner who examined this case has also recommended the refund of petitioner's
claim. Without prejudice to withdrawing this case after the final approval of petitioner's claim, the
Court ordered the resetting to September 7, 1983." (Minutes of June 9, 1983 Session of the Court)
We need not fashion any further issue into an apparently settled legal situation as far be it from a
comedy of errors it would be too much of a stretch to hold and deny the refund of the amount of
prepaid income and common carrier's taxes for which petitioner could no longer be made
accountable.
On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this
petition for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to support its claim of
refund; (2) it failed to prove that it did not realize any receipt from its charter agreement; and (3) it
suppressed evidence when it did not present its charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal
Revenue Code which at that time provides as follows:
A corporation organized, authorized, or existing under the laws of any foreign country, engaged in
trade or business within the Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income derived in the preceding taxable year from all sources within the
Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per
cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing business in the
Philippines of passage documents sold therein, whether for passenger, excess baggage or mail,
provided the cargo or mail originates from the Philippines. The gross revenue realized from the said
cargo or mail include the gross freight charge up to final destination. Gross revenue from chartered
flights originating from the Philippines shall likewise form part of "Gross Philippine Billings"
regardless of the place or payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable
for taxes depending on the amount of income it derives from sources within the Philippines. Thus,
before such a tax liability can be enforced the taxpayer must be shown to have earned income
sourced from the Philippines.
We agree with petitioner that a claim for refund is in the nature of a claim for exemption8 and
should be construed in strictissimi juris against the taxpayer.9 Likewise, there can be no
disagreement with petitioner's stance that private respondent has the burden of proof to establish
the factual basis of its claim for tax refund.
The pivotal issue involves a question of fact — whether or not the private respondent was able to
prove that it derived no receipts from its charter agreement, and hence is entitled to a refund of
the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been adduced by the private respondent
proving that it derived no receipt from its charter agreement with NASUTRA. This finding of fact
rests on a rational basis, and hence must be sustained. Exhibits "E", "F," and "G" positively show
that the tramper vessel M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw
sugar to load and returned to Japan without any cargo laden on board. Exhibit "E" is the Clearance
Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo while Exhibit "F" is
the Certification by the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. The
correctness of the contents of these documents regularly issued by officials of the Bureau of
Customs cannot be doubted as indeed, they have not been contested by the petitioner. The
records also reveal that in the course of the proceedings in the court a quo, petitioner hedged and
hawed when its turn came to present evidence. At one point, its counsel manifested that the BIR
examiner and the appellate division of the BIR have both recommended the approval of private
respondent's claim for refund. The same counsel even represented that the government would
withdraw its opposition to the petition after final approval of private respondents' claim. The case
dragged on but petitioner never withdrew its opposition to the petition even if it did not present
evidence at all. The insincerity of petitioner's stance drew the sharp rebuke of respondent court in
its Decision and for good reason. Taxpayers owe honesty to government just as government owes
fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by the private respondent, petitioner
contends that private respondent suppressed evidence when it did not present its charter
agreement with NASUTRA. The contention cannot succeed. It presupposes without any basis that
the charter agreement is prejudicial evidence against the private respondent. 10 Allegedly, it will
show that private respondent earned a charter fee with or without transporting its supposed cargo
from Iloilo to Japan. The allegation simply remained an allegation and no court of justice will regard
it as truth. Moreover, the charter agreement could have been presented by petitioner itself thru
the proper use of a subpoena duces tecum. It never did either because of neglect or because it
knew it would be of no help to bolster its position. 11 For whatever reason, the petitioner cannot
take to task the private respondent for not presenting what it mistakenly calls "suppressed
evidence."
We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum
of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE
CENTAVOS (P107,142.75) erroneously prepaid by private respondent. The tax was paid way back in
1980 and despite the clear showing that it was erroneously paid, the government succeeded in
delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation,
the money that will be finally refunded to the private respondent is just worth a damaged nickel.
This is not, however, the kind of success the government, especially the BIR, needs to increase its
collection of taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands that
BIR should refund without any unreasonable delay what it has erroneously collected. Our ruling in
Roxas v. Court of Tax Appeals 12 is apropos to recall:
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."
And, in order to maintain the general public's trust and confidence in the Government this power
must be used justly and not treacherously.
IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15,
1983, is AFFIRMED in toto. No costs.
SO ORDERED.
6. G.R. No. L-54908 January 22, 1990
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
G.R. No. 80041 January 22, 1990
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
Gadioma Law Offices for respondents.
REGALADO, J.:
These cases, involving the same issue being contested by the same parties and having originated
from the same factual antecedents generating the claims for tax credit of private respondents, the
same were consolidated by resolution of this Court dated May 31, 1989 and are jointly decided
herein.
The records reflect that on April 17, 1970, Atlas Consolidated Mining and Development Corporation
(hereinafter, Atlas) entered into a Loan and Sales Contract with Mitsubishi Metal Corporation
(Mitsubishi, for brevity), a Japanese corporation licensed to engage in business in the Philippines,
for purposes of the projected expansion of the productive capacity of the former's mines in Toledo,
Cebu. Under said contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of
$20,000,000.00, United States currency, for the installation of a new concentrator for copper
production. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates produced
from said machine for a period of fifteen (15) years. It was contemplated that $9,000,000.00 of said
loan was to be used for the purchase of the concentrator machinery from Japan. 1
Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank for short)
obviously for purposes of its obligation under said contract. Its loan application was approved on
May 26, 1970 in the sum of ¥4,320,000,000.00, at about the same time as the approval of its loan
for ¥2,880,000,000.00 from a consortium of Japanese banks. The total amount of both loans is
equivalent to $20,000,000.00 in United States currency at the then prevailing exchange rate. The
records in the Bureau of Internal Revenue show that the approval of the loan by Eximbank to
Mitsubishi was subject to the condition that Mitsubishi would use the amount as a loan to Atlas
and as a consideration for importing copper concentrates from Atlas, and that Mitsubishi had to
pay back the total amount of loan by September 30, 1981. 2
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the
former to the latter totalling P13,143,966.79 for the years 1974 and 1975. The corresponding 15%
tax thereon in the amount of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and
Section 53 (b) (2) of the National Internal Revenue Code, as amended by Presidential Decree No.
131, and duly remitted to the Government. 3
On March 5, 1976, private respondents filed a claim for tax credit requesting that the sum of
P1,971,595.01 be applied against their existing and future tax liabilities. Parenthetically, it was later
noted by respondent Court of Tax Appeals in its decision that on August 27, 1976, Mitsubishi
executed a waiver and disclaimer of its interest in the claim for tax credit in favor of Atlas. 4
The petitioner not having acted on the claim for tax credit, on April 23, 1976 private respondents
filed a petition for review with respondent court, docketed therein as CTA Case No. 2801. 5 The
petition was grounded on the claim that Mitsubishi was a mere agent of Eximbank, which is a
financing institution owned, controlled and financed by the Japanese Government. Such
governmental status of Eximbank, if it may be so called, is the basis for private repondents' claim
for exemption from paying the tax on the interest payments on the loan as earlier stated. It was
further claimed that the interest payments on the loan from the consortium of Japanese banks
were likewise exempt because said loan supposedly came from or were financed by Eximbank. The
provision of the National Internal Revenue Code relied upon is Section 29 (b) (7) (A), 6 which
excludes from gross income:
(A) Income received from their investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on their deposits in banks in the Philippines by (1) foreign
governments, (2) financing institutions owned, controlled, or enjoying refinancing from them, and
(3) international or regional financing institutions established by governments.
Petitioner filed an answer on July 9, 1976. The case was set for hearing on April 6, 1977 but was
later reset upon manifestation of petitioner that the claim for tax credit of the alleged erroneous
payment was still being reviewed by the Appellate Division of the Bureau of Internal Revenue. The
records show that on November 16, 1976, the said division recommended to petitioner the
approval of private respondent's claim. However, before action could be taken thereon,
respondent court scheduled the case for hearing on September 30, 1977, during which trial private
respondents presented their evidence while petitioner submitted his case on the basis of the
records of the Bureau of Internal Revenue and the pleadings. 7
On April 18, 1980, respondent court promulgated its decision ordering petitioner to grant a tax
credit in favor of Atlas in the amount of P1,971,595.01. Interestingly, the tax court held that
petitioner admitted the material averments of private respondents when he supposedly prayed
"for judgment on the pleadings without off-spring proof as to the truth of his allegations." 8
Furthermore, the court declared that all papers and documents pertaining to the loan of
¥4,320,000,000.00 obtained by Mitsubishi from Eximbank show that this was the same amount
given to Atlas. It also observed that the money for the loans from the consortium of private
Japanese banks in the sum of ¥2,880,000,000.00 "originated" from Eximbank. From these,
respondent court concluded that the ultimate creditor of Atlas was Eximbank with Mitsubishi
acting as a mere "arranger or conduit through which the loans flowed from the creditor Export-
Import Bank of Japan to the debtor Atlas Consolidated Mining & Development Corporation." 9
A motion for reconsideration having been denied on August 20, 1980, petitioner interposed an
appeal to this Court, docketed herein as G.R. No. 54908.
While CTA Case No. 2801 was still pending before the tax court, the corresponding 15% tax on the
amount of P439,167.95 on the P2,927,789.06 interest payments for the years 1977 and 1978 was
withheld and remitted to the Government. Atlas again filed a claim for tax credit with the
petitioner, repeating the same basis for exemption.
On June 25, 1979, Mitsubishi and Atlas filed a petition for review with the Court of Tax Appeals
docketed as CTA Case No. 3015. Petitioner filed his answer thereto on August 14, 1979, and, in a
letter to private respondents dated November 12, 1979, denied said claim for tax credit for lack of
factual or legal basis. 10
On January 15, 1981, relying on its prior ruling in CTA Case No. 2801, respondent court rendered
judgment ordering the petitioner to credit Atlas the aforesaid amount of tax paid. A motion for
reconsideration, filed on March 10, 1981, was denied by respondent court in a resolution dated
September 7, 1987. A notice of appeal was filed on September 22, 1987 by petitioner with
respondent court and a petition for review was filed with this Court on December 19, 1987. Said
later case is now before us as G.R. No. 80041 and is consolidated with G.R. No. 54908.
The principal issue in both petitions is whether or not the interest income from the loans extended
to Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29 b) (7) (A) of
the tax code and, therefore, exempt from withholding tax. Apropos thereto, the focal question is
whether or not Mitsubishi is a mere conduit of Eximbank which will then be considered as the
creditor whose investments in the Philippines on loans are exempt from taxes under the code.
Prefatorily, it must be noted that respondent court erred in holding in CTA Case No. 2801 that
petitioner should be deemed to have admitted the allegations of the private respondents when it
submitted the case on the basis of the pleadings and records of the bureau. There is nothing to
indicate such admission on the part of petitioner nor can we accept respondent court's
pronouncement that petitioner did not offer to prove the truth of its allegations. The records of the
Bureau of Internal Revenue relevant to the case were duly submitted and admitted as petitioner's
supporting evidence. Additionally, a hearing was conducted, with presentation of evidence, and
the findings of respondent court were based not only on the pleadings but on the evidence
adduced by the parties. There could, therefore, not have been a judgment on the pleadings, with
the theorized admissions imputed to petitioner, as mistakenly held by respondent court.
Time and again, we have ruled that findings of fact of the Court of Tax Appeals are entitled to the
highest respect and can only be disturbed on appeal if they are not supported by substantial
evidence or if there is a showing of gross error or abuse on the part of the tax court. 11 Thus,
ordinarily, we could give due consideration to the holding of respondent court that Mitsubishi is a
mere agent of Eximbank. Compelling circumstances obtaining and proven in these cases, however,
warrant a departure from said general rule since we are convinced that there is a misapprehension
of facts on the part of the tax court to the extent that its conclusions are speculative in nature.
The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential
reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the
contract of loan and Atlas as the seller of the copper concentrates. From the categorical language
used in the document, one prestation was in consideration of the other. The specific terms and the
reciprocal nature of their obligations make it implausible, if not vacuous to give credit to the
cavalier assertion that Mitsubishi was a mere agent in said transaction.
Surely, Eximbank had nothing to do with the sale of the copper concentrates since all that
Mitsubishi stated in its loan application with the former was that the amount being procured would
be used as a loan to and in consideration for importing copper concentrates from Atlas. 12 Such an
innocuous statement of purpose could not have been intended for, nor could it legally constitute, a
contract of agency. If that had been the purpose as respondent court believes, said corporations
would have specifically so stated, especially considering their experience and expertise in financial
transactions, not to speak of the amount involved and its purchasing value in 1970.
A thorough analysis of the factual and legal ambience of these cases impels us to give weight to the
following arguments of petitioner:
The nature of the above contract shows that the same is not just a simple contract of loan. It is not
a mere creditor-debtor relationship. It is more of a reciprocal obligation between ATLAS and
MITSUBISHI where the latter shall provide the funds in the installation of a new concentrator at the
former's Toledo mines in Cebu, while ATLAS in consideration of which, shall sell to MITSUBISHI, for
a term of 15 years, the entire copper concentrate that will be produced by the installed
concentrator.
Suffice it to say, the selling of the copper concentrate to MITSUBISHI within the specified term was
the consideration of the granting of the amount of $20 million to ATLAS. MITSUBISHI, in order to
fulfill its part of the contract, had to obtain funds. Hence, it had to secure a loan or loans from
other sources. And from what sources, it is immaterial as far as ATLAS in concerned. In this case,
MITSUBISHI obtained the $20 million from the EXIMBANK, of Japan and the consortium of
Japanese banks financed through the EXIMBANK, of Japan.
When MITSUBISHI therefore secured such loans, it was in its own independent capacity as a private
entity and not as a conduit of the consortium of Japanese banks or the EXIMBANK of Japan. While
the loans were secured by MITSUBISHI primarily "as a loan to and in consideration for importing
copper concentrates from ATLAS," the fact remains that it was a loan by EXIMBANK of Japan to
MITSUBISHI and not to ATLAS.
Thus, the transaction between MITSUBISHI and EXIMBANK of Japan was a distinct and separate
contract from that entered into by MITSUBISHI and ATLAS. Surely, in the latter contract, it is not
EXIMBANK, that was intended to be benefited. It is MITSUBISHI which stood to profit. Besides, the
Loan and Sales Contract cannot be any clearer. The only signatories to the same were MITSUBISHI
and ATLAS. Nowhere in the contract can it be inferred that MITSUBISHI acted for and in behalf of
EXIMBANK, of Japan nor of any entity, private or public, for that matter.
Corollary to this, it may well be stated that in this jurisdiction, well-settled is the rule that when a
contract of loan is completed, the money ceases to be the property of the former owner and
becomes the sole property of the obligor (Tolentino and Manio vs. Gonzales Sy, 50 Phil. 558).
In the case at bar, when MITSUBISHI obtained the loan of $20 million from EXIMBANK, of Japan,
said amount ceased to be the property of the bank and became the property of MITSUBISHI.
The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the sole creditor of ATLAS, the
former being the owner of the $20 million upon completion of its loan contract with EXIMBANK of
Japan.
The interest income of the loan paid by ATLAS to MITSUBISHI is therefore entirely different from
the interest income paid by MITSUBISHI to EXIMBANK, of Japan. What was the subject of the 15%
withholding tax is not the interest income paid by MITSUBISHI to EXIMBANK, but the interest
income earned by MITSUBISHI from the loan to ATLAS. . . . 13
To repeat, the contract between Eximbank and Mitsubishi is entirely different. It is complete in
itself, does not appear to be suppletory or collateral to another contract and is, therefore, not to
be distorted by other considerations aliunde. The application for the loan was approved on May 20,
1970, or more than a month after the contract between Mitsubishi and Atlas was entered into on
April 17, 1970. It is true that under the contract of loan with Eximbank, Mitsubishi agreed to use
the amount as a loan to and in consideration for importing copper concentrates from Atlas, but all
that this proves is the justification for the loan as represented by Mitsubishi, a standard banking
practice for evaluating the prospects of due repayment. There is nothing wrong with such
stipulation as the parties in a contract are free to agree on such lawful terms and conditions as they
see fit. Limiting the disbursement of the amount borrowed to a certain person or to a certain
purpose is not unusual, especially in the case of Eximbank which, aside from protecting its financial
exposure, must see to it that the same are in line with the provisions and objectives of its charter.
Respondents postulate that Mitsubishi had to be a conduit because Eximbank's charter prevents it
from making loans except to Japanese individuals and corporations. We are not impressed. Not
only is there a failure to establish such submission by adequate evidence but it posits the unfair
and unexplained imputation that, for reasons subject only of surmise, said financing institution
would deliberately circumvent its own charter to accommodate an alien borrower through a
manipulated subterfuge, but with it as a principal and the real obligee.
The allegation that the interest paid by Atlas was remitted in full by Mitsubishi to Eximbank,
assuming the truth thereof, is too tenuous and conjectural to support the proposition that
Mitsubishi is a mere conduit. Furthermore, the remittance of the interest payments may also be
logically viewed as an arrangement in paying Mitsubishi's obligation to Eximbank. Whatever
arrangement was agreed upon by Eximbank and Mitsubishi as to the manner or procedure for the
payment of the latter's obligation is their own concern. It should also be noted that Eximbank's
loan to Mitsubishi imposes interest at the rate of 75% per annum, while Mitsubishis contract with
Atlas merely states that the "interest on the amount of the loan shall be the actual cost beginning
from and including other dates of releases against loan." 14
It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that laws
granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in
favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof
rests upon the party claiming exemption to prove that it is in fact covered by the exemption so
claimed, which onus petitioners have failed to discharge. Significantly, private respondents are not
even among the entities which, under Section 29 (b) (7) (A) of the tax code, are entitled to
exemption and which should indispensably be the party in interest in this case.
Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed
"broad, pragmatic analysis" alone without substantial supportive evidence, lest governmental
operations suffer due to diminution of much needed funds. Nor can we close this discussion
without taking cognizance of petitioner's warning, of pervasive relevance at this time, that while
international comity is invoked in this case on the nebulous representation that the funds involved
in the loans are those of a foreign government, scrupulous care must be taken to avoid opening the
floodgates to the violation of our tax laws. Otherwise, the mere expedient of having a Philippine
corporation enter into a contract for loans or other domestic securities with private foreign
entities, which in turn will negotiate independently with their governments, could be availed of to
take advantage of the tax exemption law under discussion.
WHEREFORE, the decisions of the Court of Tax Appeals in CTA Cases Nos. 2801 and 3015, dated
April 18, 1980 and January 15, 1981, respectively, are hereby REVERSED and SET ASIDE.
SO ORDERED.
7. [G.R. No. 112024. January 28, 1999]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
COURT OF TAX APPEALS and COURT OF APPEALS, respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Resolution[1] of the Court of Appeals dated September 22, 1993,
affirming the Decision[2] and Resolution[3] of the Court of Tax Appeals which denied the claims of
the petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The
Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are
hereby AFFIRMED in toto.
SO ORDERED.[4]
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for 1985 in the amount
of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986
claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all
likelihood automatically credited the same to the succeeding year. The petition for review is
dismissed for lack of merit.
SO ORDERED.[5]
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income tax returns for the first and second
quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due
were settled by applying PBComs tax credit memos and accordingly, the Bureau of Internal
Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,
615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns
for the year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby showing
no income tax liability. For the succeeding year, ending December 31, 1986, the petitioner likewise
reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for
a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second
quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their
lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner
instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The
petition was docketed as CTA Case No. 4309 entitled: Philippine Bank of Communications vs.
Commissioner of Internal Revenue.
The losses petitioner incurred as per the summary of petitioners claims for refund and tax credit
for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:
Net Income (Loss) Tax Due Quarterly tax Payments Made Tax Withheld at Source Excess Tax Payments
1985 (P25,317,228.00) NIL 5,016,954.00 282,795.50 P5,299,749.50*
1986 (P14,129,602.00) NIL --- 234,077.69 P234,077.69
*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five centavo difference
was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request
of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it
was filed beyond the two-year reglementary period provided for by law. The petitioners claim for
refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was
automatically credited by PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTAs decision but the same
was denied due course for lack of merit.[6]
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the
Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTAs
resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in good faith on the formal assurances of BIR in RMC
No. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax
credit of its 1985-86 excess quarterly income tax payments -- can be prejudiced by the subsequent
BIR rejection, applied retroactively, of its assurances in RMC No. 7-85 that the prescriptive period
for the refund/tax credit of excess quarterly income tax payments is not two years but ten (10).[7]
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied
PBComs claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation,
without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that
year.[8]
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea
for tax refund or tax credits on the ground of prescription, despite petitioners reliance on RMC No.
7-85, changing the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying
on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular
states that overpaid income taxes are not covered by the two-year prescriptive period under the
tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax
with the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of
the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX
RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code provide:
xxxxxxxxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which
provide:
xxxxxxxxx
It has been observed, however, that because of the excess tax payments, corporations file claims
for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from
the date of payment, in accordance with Sections 292 and 295 of the National Internal Revenue
Code. It is obvious that the filing of the case in court is to preserve the judicial right of the
corporation to claim the refund or tax credit.
It should be noted, however, that this is not a case of erroneously or illegally paid tax under the
provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the
overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual
income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this
Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing
the procedure in processing said returns. Under these procedures, the returns are merely pre-
audited which consist mainly of checking mathematical accuracy of the figures of the return. After
which, the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate
action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in
order to preserve the right to claim refund or tax credit within the two-year period. As already
stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income
tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income
tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of
payment considering that it is an obligation created by law (Article 1144 of the Civil Code).[9]
(Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared
circular if it would result to injustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs.
Court of Tax Appeals[10] petitioner claims that rulings or circulars promulgated by the
Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers.
In ABS-CBN case, the Court held that the government is precluded from adopting a position
inconsistent with one previously taken where injustice would result therefrom or where there has
been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this
rule as follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification, or reversal will be prejudicial to the taxpayers except in the following
cases:
a) where the taxpayer deliberately misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based;
c) where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the two-
year prescriptive period for filing tax cases in court concerning income tax payments of
Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is
generally done on April 15 following the close of the calendar year. As precedents, respondent
Commissioner cited cases which adhered to this principle, to wit: ACCRA Investments Corp. vs.
Court of Appeals, et al.,[11] and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al..[12]
Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the
petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only
until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that
when the petitioner filed the case before the CTA on November 18, 1988, the same was filed
beyond the time fixed by law, and such failure is fatal to petitioners cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that,
contrary to the petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not
warranted as it disregards the two-year prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal.[13] Due
process of law under the Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly relies to obtain the means
to carry on its operations and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little as possible.[14]
From the same perspective, claims for refund or tax credit should be exercised within the time
fixed by law because the BIR being an administrative body enforced to collect taxes, its functions
should not be unduly delayed or hampered by incidental matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997)
provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously
or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment; Provided however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Italics supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of
Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced.
The two-year prescriptive period provided, should be computed from the time of filing the
Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.,[15] this Court
explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time that the
refund is ascertained, which can only be determined after a final adjustment return is
accomplished. In the present case, this date is April 16, 1984, and two years from this date would
be April 16, 1986. x x x As we have earlier said in the TMX Sales case, Sections 68,[16] 69,[17] and
70[18] on Quarterly Corporate Income Tax Payment and Section 321 should be considered in
conjunction with it.[19]
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive
period of two years to ten years on claims of excess quarterly income tax payments, such circular
created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did
not simply interpret the law; rather it legislated guidelines contrary to the statute passed by
Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in
the sense of more specific and less general interpretations of tax laws) which are issued from time
to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great
respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if
judicially found to be erroneous.[20] Thus, courts will not countenance administrative issuances
that override, instead of remaining consistent and in harmony with, the law they seek to apply and
implement.[21]
In the case of People vs. Lim,[22] it was held that rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with
but is contrary to the provisions and spirit of Act. No. 4003 as amended, because whereas the
prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five
years duration, FAO No. 37-1 fixed no period, that is to say, it establishes an absolute ban for all
time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight
on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the
basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go
beyond the terms and provisions of the latter. x x x In this connection, the attention of the
technical men in the offices of Department Heads who draft rules and regulation is called to the
importance and necessity of closely following the terms and provisions of the law which they
intended to implement, this to avoid any possible misunderstanding or confusion as in the present
case.[23]
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors
of its officials or agents.[24] As pointed out by the respondent courts, the nullification of RMC No.
7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation
which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a
statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend
the statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85,
is estopped by the principle of non-retroactivity of BIR rulings. Again We do not agree. The
Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10
years from date of payment because this is an obligation created by law, was issued by the Acting
Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer
should still file a claim for a refund or tax credit and the corresponding petition for review within
the two-year prescription period, and that the lengthening of the period of limitation on refund
from two to ten years would be adverse to public policy and run counter to the positive mandate of
Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has
no application in the case at bar because it was not the Commissioner of Internal Revenue who
denied petitioners claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied
(albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner
of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to
the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to
do so would in effect amend the statute.[25]
Article 8 of the Civil Code[26] recognizes judicial decisions, applying or interpreting statutes as part
of the legal system of the country. But administrative decisions do not enjoy that level of
recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a
shield against judicial action. For there are no vested rights to speak of respecting a wrong
construction of the law by the administrative officials and such wrong interpretation could not
place the Government in estoppel to correct or overrule the same.[27] Moreover, the non-
retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case
because the nullity of RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a
claim for refund is in the nature of a claim for exemption and should be construed in strictissimi
juris against the taxpayer.[28]
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming
CTAs decision denying its claim for refund of P 234,077.69 (tax overpaid in 1986), based on mere
speculation, without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any excess of the total
quarterly payments over the actual income tax computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against
the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box
provided in the BIR form) its intention, whether to request for a refund or claim for an automatic
tax credit for the succeeding taxable year. To ease the administration of tax collection, these
remedies are in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 - the Court of Tax Appeals, after
examining the adjusted final corporate annual income tax return for taxable year 1986, found out
that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact
that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the
CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the
succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and
tax credit are alternative.[30]
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC,
as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must
respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as
evidence to controvert said fact. Thus, we are bound by the findings of fact by respondent courts,
there being no showing of gross error or abuse on their part to disturb our reliance thereon.[31]
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.
SO ORDERED.
8. G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of
Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on
the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional
infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code
of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation
income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank
deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share of individual partner in the net profits of taxable
partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he
would be unduly discriminated against by the imposition of higher rates of tax upon his income
arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or
salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class
legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a
transgression of both the equal protection and due process clauses 6 of the Constitution as well as
of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10
days from notice. Such an answer, after two extensions were granted the Office of the Solicitor
General, was filed on May 28, 1982. 8 The facts as alleged were admitted but not the allegations
which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the
truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then
affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities
and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The
prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason
was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to
private enterprise and initiative and which the government was called upon to enter optionally,
and only 'because it was better equipped to administer for the public welfare than is any private
individual or group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times." 11 Hence the need for more revenues. The
power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state
functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being
the lifeblood of the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, to be
admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due
process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in
appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803
dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a
separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual
fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot
and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude:
"The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr.
Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is
in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides
any legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision — as petitioner here alleges — fails to abide
by its command, then this Court must so declare and adjudge it null. The injury thus is centered on
the question of whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional
taint. Considering that petitioner here would condemn such a provision as void or its face, he has
not made out a case. This is merely to adhere to the authoritative doctrine that were the due
process and equal protection clauses are invoked, considering that they arc not fixed rules but
rather broad standards, there is a need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown
to amount to the confiscation of property. That would be a clear abuse of power. It then becomes
the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the Holmes dictum. It has also been held that
where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on
due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a
denial of this constitutional mandate whether the assailed act is in the exercise of the lice power or
the power of eminent domain is to demonstrated that the governmental act assailed, far from
being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at
the very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is
that equal protection and security shall be given to every person under circumtances which if not
Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within
a class should be treated in the same fashion, whatever restrictions cast on some in the group
equally binding on the rest." 20 That same formulation applies as well to taxation measures. The
equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of
the laws benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as
well as realism in these words of Justice Frankfurter: "The equality at which the 'equal protection'
clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal
protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units
A, B and C, but are expressions of policy arising out of specific difficulties, address to the
attainment of specific ends by the use of specific remedies. The Constitution does not require
things which are different in fact or opinion to be treated in law as though they were the same." 21
Hence the constant reiteration of the view that classification if rational in character is allowable. As
a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes,
went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'"
23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the
Constitution: "The rule of taxation shag be uniform and equitable." 24 This requirement is met
according to Justice Laurel in Philippine Trust Company v. Yatco,25 decided in 1940, when the tax
"operates with the same force and effect in every place where the subject may be found. " 26 He
likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable." 27 The problem of classification did not present itself in that
case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity
in taxation means that all taxable articles or kinds of property of the same class shall be taxed at
the same rate. The taxing power has the authority to make reasonable and natural classifications
for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory
within the meaning of this clause and is therefore uniform." 29 There is quite a similarity then to
the standard of equal protection for all that is required is that the tax "applies equally to all
persons, firms and corporations placed in similar situation."30
8. Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it.
is enough that the classification must rest upon substantial distinctions that make real differences.
In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible
basis of classification is the susceptibility of the income to the application of generalized rules
removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates
to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as
a class. As there is practically no overhead expense, these taxpayers are e not entitled to make
deductions for income tax purposes because they are in the same situation more or less. On the
other hand, in the case of professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It would not be just then to
disregard the disparities by giving all of them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to compensation income, while
continuing the system of net income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the
(1) lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the
force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3)
the reasonableness of the distinction between compensation and taxable net income of
professionals and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente
and Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.
Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on
the basis of net income will pay less taxes because they claim all sort of deduction justified or not I
vote for dismissal.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on
the basis of net income will pay less taxes because they claim all sort of deduction justified or not I
vote for dismissal.
9. G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed and
Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,
ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting Members
of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his capacity as City
Assessor of Manila, respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-
A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v.
City Assessor of Manila" upholding the classification and assessments made by the City Assessor of
Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of
lands on which another's dwelling is located, where such rentals do not exceed three hundred
pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The
said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its
effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal
period of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by
making absolute the prohibition to increase monthly rentals below P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code, excepting leases with a definite period.
Consequently, the Reyeses, petitioners herein, were precluded from raising the rentals and from
ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the
value of the subject properties based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax rates
prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment
Appeals. They averred that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded
the annual income derived from their properties. They argued that the income approach should
have been used in determining the land values instead of the comparable sales approach which the
City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however,
considered the assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete evidence which
could overcome the presumptive regularity of the classification and assessments appear to be in
accordance with the base schedule of market values and of the base schedule of building unit
values, as approved by the Secretary of Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals.1âwphi1 They submitted,
among others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject
properties of petitioners are located. To better appreciate the locational and physical features of
the land, the Board of Hearing Commissioners conducted an ocular inspection with the presence of
two representatives of the City Assessor prior to the healing of the case. Neither the owners nor
their authorized representatives were present during the said ocular inspection despite proper
notices served them. It was found that certain parcels of land were below street level and were
affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots covered by
Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the
appealed Decision is modified by allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH" METHOD IN
FIXING THE ASSESSED VALUE OF APPELLANTS' PROPERTIES.

The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as
revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and
study of land values as in the case of properties affected by the Rent Control Law for they do not
project the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead
for the "Comparable Sales Approach" on the ground that the value estimate of the properties
predicated upon prices paid in actual, market transactions would be a uniform and a more credible
standards to use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public
respondents would have this Court completely ignore the effects of the restrictions of P.D. No. 20
on the market value of properties within its coverage. In any event, it is unquestionable that both
the "Comparable Sales Approach" and the "Income Approach" are generally acceptable methods of
appraisal for taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon,
1988 Edition). However, it is conceded that the propriety of one as against the other would of
course depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila
v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the circumstances and elements of value and
must exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not
only be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of
the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If
it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the
power to tax involves the power to destroy." The web or unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not
the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130
SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that
it finds no support in the Constitution. An obvious example is where it can be shown to amount to
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the
same manner, the conditions not being different both in the privileges conferred and the liabilities
imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much
lesser market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing
can justify or support their view as it is of judicial notice that for properties covered by P.D. 20
especially during the time in question, there were hardly any willing buyers. As a general rule, there
were no takers so that there can be no reasonable basis for the conclusion that these properties
were comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxations, which is the promotion of the common good, may be achieved (Commissioner of
Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359
and P.D. 20) under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and eventually result in
the forfeiture of their properties.

By the public respondents' own computation the assessment by income approach would amount
to only P10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals of
Manila and the City Assessor of Manila are ordered to make a new assessment by the income
approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).

SO ORDERED.
10. G.R. No. 78780 July 23, 1987
DAVID G. NITAFAN, WENCESLAO M. POLO, and MAXIMO A. SAVELLANO, JR., petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and THE FINANCIAL OFFICER, SUPREME COURT OF THE
PHILIPPINES, respondents.
RESOLUTION
MELENCIO-HERRERA, J.:
Petitioners, the duly appointed and qualified Judges presiding over Branches 52, 19 and 53,
respectively, of the Regional Trial Court, National Capital Judicial Region, all with stations in Manila,
seek to prohibit and/or perpetually enjoin respondents, the Commissioner of Internal Revenue and
the Financial Officer of the Supreme Court, from making any deduction of withholding taxes from
their salaries.
In a nutshell, they submit that "any tax withheld from their emoluments or compensation as
judicial officers constitutes a decrease or diminution of their salaries, contrary to the provision of
Section 10, Article VIII of the 1987 Constitution mandating that "(d)uring their continuance in
office, their salary shall not be decreased," even as it is anathema to the Ideal of an independent
judiciary envisioned in and by said Constitution."
It may be pointed out that, early on, the Court had dealt with the matter administratively in
response to representations that the Court direct its Finance Officer to discontinue the withholding
of taxes from salaries of members of the Bench. Thus, on June 4, 1987, the Court en banc had
reaffirmed the Chief Justice's directive as follows:
RE: Question of exemption from income taxation. — The Court REAFFIRMED the Chief
Justice's previous and standing directive to the Fiscal Management and Budget Office of this Court
to continue with the deduction of the withholding taxes from the salaries of the Justices of the
Supreme Court as well as from the salaries of all other members of the judiciary.
That should have resolved the question. However, with the filing of this petition, the Court has
deemed it best to settle the legal issue raised through this judicial pronouncement. As will be
shown hereinafter, the clear intent of the Constitutional Commission was to delete the proposed
express grant of exemption from payment of income tax to members of the Judiciary, so as to "give
substance to equality among the three branches of Government" in the words of Commissioner
Rigos. In the course of the deliberations, it was further expressly made clear, specially with regard
to Commissioner Joaquin F. Bernas' accepted amendment to the amendment of Commissioner
Rigos, that the salaries of members of the Judiciary would be subject to the general income tax
applied to all taxpayers.
This intent was somehow and inadvertently not clearly set forth in the final text of the Constitution
as approved and ratified in February, 1987 (infra, pp. 7-8). Although the intent may have been
obscured by the failure to include in the General Provisions a proscription against exemption of any
public officer or employee, including constitutional officers, from payment of income tax, the Court
since then has authorized the continuation of the deduction of the withholding tax from the
salaries of the members of the Supreme Court, as well as from the salaries of all other members of
the Judiciary. The Court hereby makes of record that it had then discarded the ruling in Perfecto vs.
Meer and Endencia vs. David, infra, that declared the salaries of members of the Judiciary exempt
from payment of the income tax and considered such payment as a diminution of their salaries
during their continuance in office. The Court hereby reiterates that the salaries of Justices and
Judges are properly subject to a general income tax law applicable to all income earners and that
the payment of such income tax by Justices and Judges does not fall within the constitutional
protection against decrease of their salaries during their continuance in office.
A comparison of the Constitutional provisions involved is called for. The 1935 Constitution
provided:
... (The members of the Supreme Court and all judges of inferior courts) shall receive such
compensation as may be fixed by law, which shall not be diminished during their continuance in
office ... 1 (Emphasis supplied).
Under the 1973 Constitution, the same provision read:
The salary of the Chief Justice and of the Associate Justices of the Supreme court, and of judges of
inferior courts shall be fixed by law, which shall not be decreased during their continuance in office.
... 2 (Emphasis ours).
And in respect of income tax exemption, another provision in the same 1973 Constitution
specifically stipulated:
No salary or any form of emolument of any public officer or employee, including constitutional
officers, shall be exempt from payment of income tax. 3
The provision in the 1987 Constitution, which petitioners rely on, reads:
The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of judges of
lower courts shall be fixed by law. During their continuance in office, their salary shall not be
decreased. 4 (Emphasis supplied).
The 1987 Constitution does not contain a provision similar to Section 6, Article XV of the 1973
Constitution, for which reason, petitioners claim that the intent of the framers is to revert to the
original concept of "non-diminution "of salaries of judicial officers.
The deliberations of the 1986 Constitutional Commission relevant to Section 10, Article VIII, negate
such contention.
The draft proposal of Section 10, Article VIII, of the 1987 Constitution read:
Section 13. The salary of the Chief Justice and the Associate Justices of the Supreme Court
and of judges of the lower courts shall be fixed by law. During their continuance in office, their
salary shall not be diminished nor subjected to income tax. Until the National Assembly shall
provide otherwise, the Chief Justice shall receive an annual salary of _____________ and each
Associate Justice ______________ pesos. 5 (Emphasis ours)
During the debates on the draft Article (Committee Report No. 18), two Commissioners presented
their objections to the provision on tax exemption, thus:
MS. AQUINO. Finally, on the matter of exemption from tax of the salary of justices, does this not
violate the principle of the uniformity of taxation and the principle of equal protection of the law?
After all, tax is levied not on the salary but on the combined income, such that when the judge
receives a salary and it is comingled with the other income, we tax the income, not the salary. Why
do we have to give special privileges to the salary of justices?
MR. CONCEPCION. It is the independence of the judiciary. We prohibit the increase or decrease of
their salary during their term. This is an indirect way of decreasing their salary and affecting the
independence of the judges.
MS. AQUINO. I appreciate that to be in the nature of a clause to respect tenure, but the special
privilege on taxation might, in effect, be a violation of the principle of uniformity in taxation and
the equal protection clause. 6
xxx xxx xxx
MR. OPLE. x x x
Of course, we share deeply the concern expressed by the sponsor, Commissioner Roberto
Concepcion, for whom we have the highest respect, to surround the Supreme Court and the
judicial system as a whole with the whole armor of defense against the executive and legislative
invasion of their independence. But in so doing, some of the citizens outside, especially the humble
government employees, might say that in trying to erect a bastion of justice, we might end up with
the fortress of privileges, an island of extra territoriality under the Republic of the Philippines,
because a good number of powers and rights accorded to the Judiciary here may not be enjoyed in
the remotest degree by other employees of the government.
An example is the exception from income tax, which is a kind of economic immunity, which is, of
course, denied to the entire executive department and the legislative. 7
And during the period of amendments on the draft Article, on July 14, 1986, Commissioner Cirilo A.
Rigos proposed that the term "diminished" be changed to "decreased" and that the words "nor
subjected to income tax" be deleted so as to "give substance to equality among the three branches
in the government.
Commissioner Florenz D. Regalado, on behalf of the Committee on the Judiciary, defended the
original draft and referred to the ruling of this Court in Perfecto vs. Meer 8 that "the independence
of the judges is of far greater importance than any revenue that could come from taxing their
salaries." Commissioner Rigos then moved that the matter be put to a vote. Commissioner Joaquin
G. Bernas stood up "in support of an amendment to the amendment with the request for a
modification of the amendment," as follows:
FR. BERNAS. Yes. I am going to propose an amendment to the amendment saying that it is not
enough to drop the phrase "shall not be subjected to income tax," because if that is all that the
Gentleman will do, then he will just fall back on the decision in Perfecto vs. Meer and in Dencia vs.
David [should be Endencia and Jugo vs. David, etc., 93 Phil. 696[ which excludes them from income
tax, but rather I would propose that the statement will read: "During their continuance in office,
their salary shall not be diminished BUT MAY BE SUBJECT TO GENERAL INCOME TAX."IN support of
this position, I would say that the argument seems to be that the justice and judges should not be
subjected to income tax because they already gave up the income from their practice. That is true
also of Cabinet members and all other employees. And I know right now, for instance, there are
many people who have accepted employment in the government involving a reduction of income
and yet are still subject to income tax. So, they are not the only citizens whose income is reduced
by accepting service in government.
Commissioner Rigos accepted the proposed amendment to the amendment. Commissioner Rustico
F. de los Reyes, Jr. then moved for a suspension of the session. Upon resumption, Commissioner
Bernas announced:
During the suspension, we came to an understanding with the original proponent, Commissioner
Rigos, that his amendment on page 6,. line 4 would read: "During their continuance in office, their
salary shall not be DECREASED."But this is on the understanding that there will be a provision in the
Constitution similar to Section 6 of Article XV, the General Provisions of the 1973 Constitution,
which says:
No salary or any form of emolument of any public officer or employee, including constitutional
officers, shall be exempt from payment of income tax.
So, we put a period (.) after "DECREASED" on the understanding that the salary of justices is subject
to tax.
When queried about the specific Article in the General Provisions on non-exemption from tax of
salaries of public officers, Commissioner Bernas replied:
FR BERNAS. Yes, I do not know if such an article will be found in the General Provisions. But at any
rate, when we put a period (.) after "DECREASED," it is on the understanding that the doctrine in
Perfecto vs. Meer and Dencia vs. David will not apply anymore.
The amendment to the original draft, as discussed and understood, was finally approved without
objection.
receiving at the time of enactment, or if lower, it would be applicable only to those appointed after
its approval. It would be a strained construction to read into the provision an exemption from
taxation in the light of the discussion in the Constitutional Commission.
With the foregoing interpretation, and as stated heretofore, the ruling that "the imposition of
income tax upon the salary of judges is a dimunition thereof, and so violates the Constitution" in
Perfecto vs. Meer,13 as affirmed in Endencia vs. David 14 must be declared discarded. The framers
of the fundamental law, as the alter ego of the people, have expressed in clear and unmistakable
terms the meaning and import of Section 10, Article VIII, of the 1987 Constitution that they have
adopted
Stated otherwise, we accord due respect to the intent of the people, through the discussions and
deliberations of their representatives, in the spirit that all citizens should bear their aliquot part of
the cost of maintaining the government and should share the burden of general income taxation
equitably.

THE PRESIDING OFFICER (Mr. Bengzon). The understanding, therefore, is that there will be a WHEREFORE, the instant petition for Prohibition is hereby dismissed.
provision under the Article on General Provisions. Could Commissioner Rosario Braid kindly take
note that the salaries of officials of the government including constitutional officers shall not be
exempt from income tax? The amendment proposed herein and accepted by the Committee now
reads as follows: "During their continuance in office, their salary shall not be DECREASED"; and the
phrase "nor subjected to income tax" is deleted.9

The debates, interpellations and opinions expressed regarding the constitutional provision in
question until it was finally approved by the Commission disclosed that the true intent of the
framers of the 1987 Constitution, in adopting it, was to make the salaries of members of the
Judiciary taxable. The ascertainment of that intent is but in keeping with the fundamental principle
of constitutional construction that the intent of the framers of the organic law and of the people
adopting it should be given effect.10 The primary task in constitutional construction is to ascertain
and thereafter assure the realization of the purpose of the framers and of the people in the
adoption of the Constitution.11 it may also be safely assumed that the people in ratifying the
Constitution were guided mainly by the explanation offered by the framers.12 1avvphi1

Besides, construing Section 10, Articles VIII, of the 1987 Constitution, which, for clarity, is again
reproduced hereunder:

The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of judges of
lower courts shall be fixed by law. During their continuance in office, their salary shall not be
decreased. (Emphasis supplied).

it is plain that the Constitution authorizes Congress to pass a law fixing another rate of
compensation of Justices and Judges but such rate must be higher than that which they are
11. G.R. No. 115455 October 30, 1995 MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"),
FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
ARTURO M. TOLENTINO, petitioner, TAÑADA, petitioners,
vs. vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents. THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL
REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115525 October 30, 1995
G.R. No. 115852 October 30, 1995
JUAN T. DAVID, petitioner,
vs. PHILIPPINE AIRLINES, INC., petitioner,
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of vs.
Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115873 October 30, 1995
G.R. No. 115543 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners, vs.
vs. HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE
INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents. OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115544 October 30, 1995 G.R. No. 115931 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA,
petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO
T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR.,
JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE
L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL,
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational Publishers Association,
Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In 1. R.A. NO. 7642
turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply. AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).
On June 27, 1995 the matter was submitted for resolution.
House Bill No. 2165, October 5, 1992
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners Senate Bill No. 32, December 7, 1992
(Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and
Builders Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not 2. R.A. NO. 7643
"originate exclusively" in the House of Representatives as required by Art. VI, §24 of the AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
where it passed three readings and that afterward it was sent to the Senate where after first VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL
reading it was referred to the Senate Ways and Means Committee, they complain that the Senate REVENUE CODE (December 28, 1992)
did not pass it on second and third readings. Instead what the Senate did was to pass its own
version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the House Bill No. 1503, September 3, 1992
Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill Senate Bill No. 968, December 7, 1992
and substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a House bill
and the Senate version just becomes the text (only the text) of the House bill." 3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
The contention has no merit. PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment 1993)
to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in House Bill No. 1470, October 20, 1992
consolidation with House bills earlier passed, became the enrolled bills. These were: Senate Bill No. 35, November 19, 1992

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING 4. R.A. NO. 7649
FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
ON CAPITAL EQUIPMENT) which was approved by the President on April 10, 1992. This Act is INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED
actually a consolidation of H. No. 34254, which was approved by the House on January 29, 1992, CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE
and S. No. 1920, which was approved by the Senate on February 3, 1992. OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX PERCENT
(6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6, 1993)
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President House Bill No. 5260, January 26, 1993
on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by the House of Senate Bill No. 1141, March 30, 1993
Representatives on August 2, 1989, and S. No. 807, which was approved by the Senate on October
21, 1991. 5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE
On the other hand, the Ninth Congress passed revenue laws which were also the result of the DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER
consolidation of House and Senate bills. These are the following, with indications of the dates on PURPOSES (November 9, 1993)
which the laws were approved by the President and dates the separate bills of the two chambers of
Congress were respectively passed: House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY
STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of
its power to propose amendments to bills required to originate in the House, passed its own
version of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630,
petitioners Tolentino and Roco, as members of the Senate, voted to approve it on second and third
readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would
make if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as
a substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
§69. No amendment which seeks the inclusion of a legislative provision foreign to the subject
matter of a bill (rider) shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be amended by substituting it with another which covers a
subject distinct from that proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may
propose or concur with amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate"
and "the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to
be like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of
constitutional intent are nothing but the relics of an unsuccessful attempt to limit the power of the
Senate. It will be recalled that the 1935 Constitution originally provided for a unicameral National
Assembly. When it was decided in 1939 to change to a bicameral legislature, it became necessary
to provide for the procedure for lawmaking by the Senate and the House of Representatives. The
work of proposing amendments to the Constitution was done by the National Assembly, acting as a
constituent assembly, some of whose members, jealous of preserving the Assembly's lawmaking
powers, sought to curtail the powers of the proposed Senate. Accordingly they proposed the
following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills
shall originate exclusively in the Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass the
same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed
enacted and may be submitted to the President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the
opening of the next regular session of the same legislative term, reapprove the same with a vote of
two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be deemed
enacted and may be submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the
proposal. It deleted everything after the first sentence. As rewritten, the proposal was approved by
the National Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to
the people and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text
from which the framers of the Philippine Constitution borrowed and why the phrase "as on other
Bills" was not copied. Considering the defeat of the proposal, the power of the Senate to propose
amendments must be understood to be full, plenary and complete "as on other Bills." Thus,
because revenue bills are required to originate exclusively in the House of Representatives, the
Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed
and sent over to it by the House, however, the Senate certainly can pass its own version on the
same subject matter. This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is
clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently without restriction.
It would seem that by virtue of this power, the Senate can practically re-write a bill required to
come from the House and leave only a trace of the original bill. For example, a general revenue bill
passed by the lower house of the United States Congress contained provisions for the imposition of
an inheritance tax . This was changed by the Senate into a corporation tax. The amending authority
of the Senate was declared by the United States Supreme Court to be sufficiently broad to enable it
to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives because it
is more numerous in membership and therefore also more representative of the people.
Moreover, its members are presumed to be more familiar with the needs of the country in regard
to the enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose or concur
with amendments to the bills initiated by the House of Representatives. Thus, in one case, a bill
introduced in the U.S. House of Representatives was changed by the Senate to make a proposed
inheritance tax a corporation tax. It is also accepted practice for the Senate to introduce what is
known as an amendment by substitution, which may entirely replace the bill initiated in the House
of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill
is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding
sections or altering its language; (3) to make and endorse an entirely new bill as a substitute, in
which case it will be known as a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause must
be preserved although the text of the Senate amendment may be incorporated in place of the
original body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing
this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No.
11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they
assume that S. No. 1630 is an independent and distinct bill. Hence their repeated references to its
certification that it was passed by the Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is something substantially
different between the reference to S. No. 1129 and the reference to H. No. 11197. From this
premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and that
it is the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed
by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates
that the provisions of the Senate bill were precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was
a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the
Senate on second and three readings. It was enough that after it was passed on first reading it was
referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be
passed by the House of Representatives before the two bills could be referred to the Conference
Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When
the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank
deposits), were referred to a conference committee, the question was raised whether the two bills
could be the subject of such conference, considering that the bill from one house had not been
passed by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed
by the House but not passed by the Senate, and a Senate bill of a similar nature is passed in the
Senate but never passed in the House, can the two bills be the subject of a conference, and can a
law be enacted from these two bills? I understand that the Senate bill in this particular instance
does not refer to investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of deposits in banks
but also investigation of investments in government securities. Now, since the two bills differ in
their subject matter, I believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like
this where a conference should be had. If the House bill had been approved by the Senate, there
would have been no need of a conference; but precisely because the Senate passed another bill on
the same subject matter, the conference committee had to be created, and we are now
considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are
distinct and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's)
contention that because the President separately certified to the need for the immediate
enactment of these measures, his certification was ineffectual and void. The certification had to be
made of the version of the same revenue bill which at the moment was being considered.
Otherwise, to follow petitioners' theory, it would be necessary for the President to certify as many
bills as are presented in a house of Congress even though the bills are merely versions of the bill he
has already certified. It is enough that he certifies the bill which, at the time he makes the
certification, is under consideration. Since on March 22, 1994 the Senate was considering S. No.
1630, it was that bill which had to be certified. For that matter on June 1, 1993 the President had
earlier certified H. No. 9210 for immediate enactment because it was the one which at that time
was being considered by the House. This bill was later substituted, together with other bills, by H.
No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main
decision that the phrase "except when the President certifies to the necessity of its immediate
enactment, etc." in Art. VI, §26 (2) qualifies not only the requirement that "printed copies [of a bill]
in its final form [must be] distributed to the members three days before its passage" but also the
requirement that before a bill can become a law it must have passed "three readings on separate
days." There is not only textual support for such construction but historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies
thereof in its final form furnished its Members at least three calendar days prior to its passage,
except when the President shall have certified to the necessity of its immediate enactment. Upon
the last reading of a bill, no amendment thereof shall be allowed and the question upon its passage
shall be taken immediately thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to the Members three days before its
passage, except when the Prime Minister certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on
separate days are required and a bill has to be printed in final form before it can be passed, the
need for a law may be rendered academic by the occurrence of the very emergency or public
calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case,
an enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the
situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the call
of the President by voting on the bill on second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance of the President's certification, the
respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the
judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where
it was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24,
1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). These purposes were substantially achieved in
the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation
of the constitutional policy of full public disclosure and the people's right to know (Art. II, §28 and
Art. III, §7) the Conference Committee met for two days in executive session with only the
conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new
rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
staff members were present. These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not stenographers as in this case
who on the last two days of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes
of their meetings. Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing versions of
the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of a
statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a
point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the
conference committee regarding House Bill No. 2557 by reason of the provision of Section 11,
Article XII, of the Rules of this House which provides specifically that the conference report must be
accompanied by a detailed statement of the effects of the amendment on the bill of the House.
This conference committee report is not accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point
of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but
this provision applies to those cases where only portions of the bill have been amended. In this
case before us an entire bill is presented; therefore, it can be easily seen from the reading of the
bill what the provisions are. Besides, this procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions
of the Rules, and the reason for the requirement in the provision cited by the gentleman from
Pangasinan is when there are only certain words or phrases inserted in or deleted from the
provisions of the bill included in the conference report, and we cannot understand what those
words and phrases mean and their relation to the bill. In that case, it is necessary to make a
detailed statement on how those words and phrases will affect the bill as a whole; but when the
entire bill itself is copied verbatim in the conference report, that is not necessary. So when the
reason for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained
by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as
long as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving differences between the Senate
and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill,
no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an amendment
was made upon the last reading of the bill that eventually became R.A. No. 7354 and that copies
thereof in its final form were not distributed among the members of each House. Both the enrolled
bill and the legislative journals certify that the measure was duly enacted i.e., in accordance with
Article VI, Sec. 26 (2) of the Constitution. We are bound by such official assurances from a
coordinate department of the government, to which we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a
1979 study:
Conference committees may be of two types: free or instructed. These committees may be given
instructions by their parent bodies or they may be left without instructions. Normally the
conference committees are without instructions, and this is why they are often critically referred to
as "the little legislatures." Once bills have been sent to them, the conferees have almost unlimited
authority to change the clauses of the bills and in fact sometimes introduce new measures that
were not in the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it this way: "I
killed a bill on export incentives for my interest group [copra] in the conference committee but I
could not have done so anywhere else." The conference committee submits a report to both
houses, and usually it is accepted. If the report is not accepted, then the committee is discharged
and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only
to say that conference committees here are no different from their counterparts in the United
States whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events,
under Art. VI, §16(3) each house has the power "to determine the rules of its proceedings,"
including those of its committees. Any meaningful change in the method and procedures of
Congress or its committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art.
VI, §26 (1) of the Constitution which provides that "Every bill passed by Congress shall embrace
only one subject which shall be expressed in the title thereof." PAL contends that the amendment
of its franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the
law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature,
or description, imposed, levied, established, assessed or collected by any municipal, city, provincial
or national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by §103 of the National
Internal Revenue Code, which provides as follows:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to which
the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
§103, as follows:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention
to amend any provision of the NIRC which stands in the way of accomplishing the purpose of the
law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent
provisions of the NIRC, among which is §103(q), in order to widen the base of the VAT. Actually, it
is the bill which becomes a law that is required to express in its title the subject of legislation. The
titles of H. No. 11197 and S. No. 1630 in fact specifically referred to §103 of the NIRC as among the
provisions sought to be amended. We are satisfied that sufficient notice had been given of the
pendency of these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE
INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing
all franking privileges. It was contended that the withdrawal of franking privileges was not
expressed in the title of the law. In holding that there was sufficient description of the subject of
the law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general objectives of the
statute to be expressed in its title would not only be unreasonable but would actually render
legislation impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been correctly
explained:
The details of a legislative act need not be specifically stated in its title, but matter germane to the
subject as expressed in the title, and adopted to the accomplishment of the object in view, may
properly be included in the act. Thus, it is proper to create in the same act the machinery by which
the act is to be enforced, to prescribe the penalties for its infraction, and to remove obstacles in
the way of its execution. If such matters are properly connected with the subject as expressed in
the title, it is unnecessary that they should also have special mention in the title. (Southern Pac. Co.
v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general
proposition, the press is not exempt from the taxing power of the State and that what the
constitutional guarantee of free press prohibits are laws which single out the press or target a
group belonging to the press for special treatment or which in any way discriminate against the
press on the basis of the content of the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed.
660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts only
of newspapers whose weekly circulation was over 20,000, with the result that the tax applied only
to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who
controlled the state legislature which enacted the license tax. The censorial motivation for the law
was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have
been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using,
storing or consuming tangible goods, the press was not. Instead, the press was exempted from
both taxes. It was, however, later made to pay a special use tax on the cost of paper and ink which
made these items "the only items subject to the use tax that were component of goods to be sold
at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests that
the goal of regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn
"absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those
previously granted to PAL, petroleum concessionaires, enterprises registered with the Export
Processing Zone Authority, and many more are likewise totally withdrawn, in addition to
exemptions which are partially withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine and
forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish,
prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay,
corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the
manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) or for professional use, like professional instruments and implements,
by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
petroleum products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock v.
Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the
First Amendment is not so restricted. A license tax certainly does not acquire constitutional validity
because it classifies the privileges protected by the First Amendment along with the wares and
merchandise of hucksters and peddlers and treats them all alike. Such equality in treatment does
not save the ordinance. Freedom of press, freedom of speech, freedom of religion are in preferred
position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with
the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court
put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing
to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more
than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to
those who cannot afford to pay so that to tax the sales would be to increase the price, while
reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it difficult to differentiate it from any other economic
imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow
the petitioner's argument, to increase the tax on the sale of vestments would be to lay an
impermissible burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by
§7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration
and enforcement of provisions such as those relating to accounting in §108 of the NIRC. That the
PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the
payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the
VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of
Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule
on taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing
contracts of the sale of real property by installment or on deferred payment basis would result in
substantial increases in the monthly amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the buyer did not anticipate at the time he
entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning
of the Constitution. Even though such taxation may affect particular contracts, as it may increase
the debt of one person and lessen the security of another, or may impose additional burdens upon
one class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read
into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor
General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in
reference to the possible exercise of the rightful authority of the government and no obligation of
contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed.
885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime
that they cannot yet buy their own homes. The two social classes are thus differently situated in
life. "It is inherent in the power to tax that the State be free to select the subjects of taxation, and it
has been repeatedly held that 'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654,
663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371
(1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI,
§28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI, §28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public,
which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-
sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of
the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are
the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
§17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are
also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted
from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine and
forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish,
prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay,
corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the
manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) and or professional use, like professional instruments and implements,
by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
petroleum products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods
and services which are used or availed of mainly by higher income groups. These include real
properties held primarily for sale to customers or for lease in the ordinary course of trade or
business, the right or privilege to use patent, copyright, and other similar property or right, the
right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes
and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and
similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and
other common carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed
record which can impart to adjudication the impact of actuality. There is no factual foundation to
show in the concrete the application of the law to actual contracts and exemplify its effect on
property rights. For the fact is that petitioner's members have not even been assessed the VAT.
Petitioner's case is not made concrete by a series of hypothetical questions asked which are no
different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here, does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void on its face, he has not
made out a case. This is merely to adhere to the authoritative doctrine that where the due process
and equal protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not
really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made that
"there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part
of any branch or instrumentality of the government." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, §5 our jurisdiction is defined in terms of "cases" and all
that Art. VIII, §1, ¶2 can plausibly mean is that in the exercise of that jurisdiction we have the
judicial power to determine questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, §5, or by statute, as in
the case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980
(B.P. Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the
power conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all
others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other
departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative
Union of the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to
adopt a definite policy of granting tax exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject cooperatives to the VAT would therefore be to
infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated
exempting cooperatives from the payment of income taxes and sales taxes but in 1984, because of
the crisis which menaced the national economy, this exemption was withdrawn by P.D. No. 1955;
that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and sales taxes
until December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally
in 1987 the framers of the Constitution "repudiated the previous actions of the government
adverse to the interests of the cooperatives, that is, the repeated revocation of the tax exemption
to cooperatives and instead upheld the policy of strengthening the cooperatives by way of the
grant of tax exemptions," by providing the following in Art. XII:
§1. The goals of the national economy are a more equitable distribution of opportunities,
income, and wealth; a sustained increase in the amount of goods and services produced by the
nation for the benefit of the people; and an expanding productivity as the key to raising the quality
of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural
development and agrarian reform, through industries that make full and efficient use of human
and natural resources, and which are competitive in both domestic and foreign markets. However,
the State shall protect Filipino enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given
optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and
similar collective organizations, shall be encouraged to broaden the base of their ownership.
§15. The Congress shall create an agency to promote the viability and growth of cooperatives
as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, §5.
What P.D. No. 1955, §1 did was to withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in general, in view of the economic crisis which
then beset the nation. It is true that after P.D. No. 2008, §2 had restored the tax exemptions of
cooperatives in 1986, the exemption was again repealed by E.O. No. 93, §1, but then again
cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and private entities. In the second place, the
Constitution does not really require that cooperatives be granted tax exemptions in order to
promote their growth and viability. Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of vacillation, as far as the grant of tax
privileges was concerned, and that it was to put an end to this indecision that the constitutional
provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted tax
exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and
there is no discrimination to cooperatives, no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are
exempt from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, §28
(3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the
equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that
there is greater need to provide cheaper electric power to as many people as possible, especially
those living in the rural areas, than there is to provide them with other necessities in life. We
cannot say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution
of these cases. We have now come to the conclusion that the law suffers from none of the
infirmities attributed to it by petitioners and that its enactment by the other branches of the
government does not constitute a grave abuse of discretion. Any question as to its necessity,
desirability or expediency must be addressed to Congress as the body which is electorally
responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians
of the liberties and welfare of the people in quite as great a degree as are the courts." (Missouri,
Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of
legislators, that those who took part in passing the law in question by voting for it in Congress
should later thrust to the courts the burden of reviewing measures in the flush of enactment. This
Court does not sit as a third branch of the legislature, much less exercise a veto power over
legislation.

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

SO ORDERED.
12. G.R. No. 168056, September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT
S. ALBANO
- versus –
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEA III
- versus -
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO;
PETRON DEALERS ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERS OF THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA;
ROSARIO ANTONIO doing business under the name and style of ANB NORTH SHELL SERVICE
STATION; LOURDES MARTINEZ doing business under the name and style of SHELL GATE N.
DOMINGO; BETHZAIDA TAN doing business under the name and style of ADVANCE SHELL STATION;
REYNALDO P. MONTOYA doing business under the name and style of NEW LAMUAN SHELL SERVICE
STATION; EFREN SOTTO doing business under the name and style of RED FIELD SHELL SERVICE
STATION; DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI
doing business under the name and style of R&R PETRON STATION; PETER M. UNGSON doing
business under the name and style of CLASSIC STAR GASOLINE SERVICE STATION; MARIAN SHEILA
A. LEE doing business under the name and style of NTE GASOLINE & SERVICE STATION; JULIAN
CESAR P. POSADAS doing business under the name and style of STARCARGA ENTERPRISES;
ADORACION MAEBO doing business under the name and style of CMA MOTORISTS CENTER; SUSAN
M. ENTRATA doing business under the name and style of LEONAS GASOLINE STATION and SERVICE
CENTER; CARMELITA BALDONADO doing business under the name and style of FIRST CHOICE
SERVICE CENTER; MERCEDITAS A. GARCIA doing business under the name and style of LORPED
SERVICE CENTER; RHEAMAR A. RAMOS doing business under the name and style of RJRAM PTT GAS
STATION; MA. ISABEL VIOLAGO doing business under the name and style of VIOLAGO-PTT SERVICE
CENTER; MOTORISTS HEART CORPORATION represented by its Vice-President for Operations,
JOSELITO F. FLORDELIZA; MOTORISTS HARVARD CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its
Vice-President for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL doing
business under the name and style of ROMMAN GASOLINE STATION; ANTHONY ALBERT CRUZ III
doing business under the name and style of TRUE SERVICE STATION-
-versus -
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of Internal Revenue
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA, RODOLFO
G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR.
JUAN EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C.
LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIO
- versus -
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his
capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as
Executive Secretary
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.
- versus -
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in
his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC
Commissioner of the Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity
as the OIC Commissioner of the Bureau of Customs
x-----------------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by
everyone, and the more man enjoys the advantages of society, the more he ought to hold himself
honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for full value-added tax benefits these are the
reasons why Republic Act No. 9337 (R.A. No. 9337)[1] was enacted. Reasons, the wisdom of which,
the Court even with its extensive constitutional power of review, cannot probe. The petitioners in
these cases, however, question not only the wisdom of the law, but also perceived constitutional
infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No.
9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950.
House Bill No. 3555[2] was introduced on first reading on January 7, 2005. The House Committee
on Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative
(Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7,
2005 for immediate enactment. On January 27, 2005, the House of Representatives approved the
bill on second and third reading.
House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105 introduced by Rep.
Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its mother bill is
House Bill No. 3555. The House Committee on Ways and Means approved the bill on February 2,
2005. The President also certified it as urgent on February 8, 2005. The House of Representatives
approved the bill on second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 1950[4] on March
7, 2005, in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House
Bill Nos. 3555 and 3705. Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill
Nos. 1838 and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis
N. Pangilinan. The President certified the bill on March 11, 2005, and was approved by the Senate
on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of
Representatives for a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555,
House Bill No. 3705, and Senate Bill No. 1950, after having met and discussed in full free and
conference, recommended the approval of its report, which the Senate did on May 10, 2005, and
with the House of Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted
to the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5
oclock in the afternoon. But before that, there was a lot of complaints aired on television and on
radio. Some people in a gas station were complaining that the gas prices went up by 10%. Some
people were complaining that their electric bill will go up by 10%. Other times people riding in
domestic air carrier were complaining that the prices that theyll have to pay would have to go up
by 10%. While all that was being aired, per your presentation and per our own understanding of
the law, thats not true. Its not true that the e-vat law necessarily increased prices by 10% uniformly
isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the
Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of
the Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to
petroleum dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to
cover the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would
probably be in the neighborhood of 7%? We are not going into exact figures I am just trying to
deliver a point that different industries, different products, different services are hit differently. So
its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.

J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present
imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a
mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best 7%,
correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day,
were being increased arbitrarily by 10%. And thats one reason among many others this Court had
to issue TRO because of the confusion in the implementation. Thats why we added as an issue in
this case, even if its tangentially taken up by the pleadings of the parties, the confusion in the
implementation of the E-vat. Our people were subjected to the mercy of that confusion of an
across the board increase of 10%, which you yourself now admit and I think even the Government
will admit is incorrect. In some cases, it should be 3% only, in some cases it should be 6%
depending on these mitigating measures and the location and situation of each product, of each
service, of each company, isnt it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification
of all these and we wish the government will take time to clarify all these by means of a more
detailed implementing rules, in case the law is upheld by this Court. . . .[6]
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT
on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of
properties. These questioned provisions contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1,
2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate
to 12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also
contend that the increase in the VAT rate to 12% contingent on any of the two conditions being
satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it
imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is
ambiguous because it does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure
of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is
supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP
of the previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
Bicameral Conference Committee is a violation of the no-amendment rule upon last reading of a
bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas
Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable
goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT
components, exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input
tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final
withholding tax on gross payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of properties)
of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or
property without due process of law under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of input tax that may be
claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law. Petitioners further contend that
like any other property or property right, the input tax credit may be transferred or disposed of,
and that by limiting the same, the government gets to tax a profit or value-added even if there is
no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal
protection of the law under Article III, Section 1 of the Constitution, as the limitation on the
creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment;
or (3) has several transactions with the government, is not based on real and substantial
differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI,
Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to
output tax ratio that will suffer the consequences thereof for it wipes out whatever meager
margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this
petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the
following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in
violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on
provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121,
125,[7] 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI,
Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on
July 20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the
creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes
they collect, thus violating the principle that tax collection and revenue should be solely allocated
for public purposes and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section
28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and
petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is complete and leaves no
discretion to the President but to increase the rate to 12% once any of the two conditions provided
therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70%
limitation on the creditable input tax, the 60-month amortization on the purchase or importation
of capital goods exceeding P1,000,000.00, and the 5% final withholding tax by government
agencies, is arbitrary, oppressive, and confiscatory, and that it violates the constitutional principle
on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt
the balance towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions
of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added
tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of
goods or properties and services.[8] Being an indirect tax on expenditure, the seller of goods or
services may pass on the amount of tax paid to the buyer,[9] with the seller acting merely as a tax
collector.[10] The burden of VAT is intended to fall on the immediate buyers and ultimately, the
end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business
it engages in, without transferring the burden to someone else.[11] Examples are individual and
corporate income taxes, transfer taxes, and residence taxes.[12]
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the cost
deduction method and was payable only by the original sellers. The single-stage system was
subsequently modified, and a mixture of the cost deduction method and tax credit method was
used to determine the value-added tax payable.[13] Under the tax credit method, an entity can
credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its
purchases, inputs and imports.[14]
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the
VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the
tax credit method.[15]
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,[16] R.A. No. 8241 or the
Improved VAT Law,[17] R.A. No. 8424 or the Tax Reform Act of 1997,[18] and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee
exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against
the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of
taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, [i]f the power did not exist, it would
be utterly impracticable to transact the business of the nation, either at all, or at least with
decency, deliberation, and order.[19] Thus, Article VI, Section 16 (3) of the Constitution provides
that each House may determine the rules of its proceedings. Pursuant to this inherent
constitutional power to promulgate and implement its own rules of procedure, the respective rules
of each house of Congress provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the
amendment to any bill or joint resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to
and support the House Bill. If the differences with the Senate are so substantial that they materially
impair the House Bill, the panel shall report such fact to the House for the latters appropriate
action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior
to the voting thereon. The House shall vote on the Conference Committee Report in the same
manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference committee
of both Houses which shall meet within ten (10) days after their composition. The President shall
designate the members of the Senate Panel in the conference committee with the approval of the
Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of
the changes in, or amendments to the subject measure, and shall be signed by a majority of the
members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled
version thereof with the explanatory statement of the conference committee shall be attached to
the report.
...
The creation of such conference committee was apparently in response to a problem, not
addressed by any constitutional provision, where the two houses of Congress find themselves in
disagreement over changes or amendments introduced by the other house in a legislative bill.
Given that one of the most basic powers of the legislative branch is to formulate and implement its
own rules of proceedings and to discipline its members, may the Court then delve into the details
of how Congress complies with its internal rules or how it conducts its business of passing
legislation? Note that in the present petitions, the issue is not whether provisions of the rules of
both houses creating the bicameral conference committee are unconstitutional, but whether the
bicameral conference committee has strictly complied with the rules of both houses, thereby
remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,[20] the Court En Banc, unanimously
reiterated and emphasized its adherence to the enrolled bill doctrine, thus, declining therein
petitioners plea for the Court to go behind the enrolled copy of the bill. Assailed in said case was
Congresss creation of two sets of bicameral conference committees, the lack of records of said
committees proceedings, the alleged violation of said committees of the rules of both houses, and
the disappearance or deletion of one of the provisions in the compromise bill submitted by the
bicameral conference committee. It was argued that such irregularities in the passage of the law
nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the enrolled bill doctrine, the signing of a bill by the Speaker of the House and the Senate
President and the certification of the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Courts consistent adherence to the
rule. The Court finds no reason to deviate from the salutary rule in this case where the irregularities
alleged by the petitioners mostly involved the internal rules of Congress, e.g., creation of the 2nd
or 3rd Bicameral Conference Committee by the House. This Court is not the proper forum for the
enforcement of these internal rules of Congress, whether House or Senate. Parliamentary rules are
merely procedural and with their observance the courts have no concern. Whatever doubts there
may be as to the formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court
reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the
power to inquire into allegations that, in enacting a law, a House of Congress failed to comply with
its own rules, in the absence of showing that there was a violation of a constitutional provision or
the rights of private individuals. In Osmea v. Pendatun, it was held: At any rate, courts have
declared that the rules adopted by deliberative bodies are subject to revocation, modification or
waiver at the pleasure of the body adopting them. And it has been said that Parliamentary rules are
merely procedural, and with their observance, the courts have no concern. They may be waived or
disregarded by the legislative body. Consequently, mere failure to conform to parliamentary usage
will not invalidate the action (taken by a deliberative body) when the requisite number of members
have agreed to a particular measure.[21] (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting
provisions in the House and Senate bills. Akin to the Farias case,[22] the present petitions also raise
an issue regarding the actions taken by the conference committee on matters regarding Congress
compliance with its own internal rules. As stated earlier, one of the most basic and inherent power
of the legislature is the power to formulate rules for its proceedings and the discipline of its
members. Congress is the best judge of how it should conduct its own business expeditiously and in
the most orderly manner. It is also the sole concern of Congress to instill discipline among the
members of its conference committee if it believes that said members violated any of its rules of
proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding only
the internal operation of Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance,[23] the Court already made the pronouncement that [i]f a change is desired in the
practice [of the Bicameral Conference Committee] it must be sought in Congress since this question
is not covered by any constitutional provision but is only an internal rule of each house. [24] To
date, Congress has not seen it fit to make such changes adverted to by the Court. It seems,
therefore, that Congress finds the practices of the bicameral conference committee to be very
useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court
observes that there was a necessity for a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other,
reveals that there were indeed disagreements. As pointed out in the petitions, said disagreements
were as follows:
(1)House Bill No. 3555 (2)House Bill No.3705 (3)Senate Bill No. 1950
With regard to Stand-By Authority in favor of President
(1)Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12%
VAT on importation of goods (amending Sec. 107 of NIRC); and 12% VAT on sale of services and use
or lease of properties (amending Sec. 108 of NIRC)
(2)Provides for 12% VAT in general on sales of goods or properties and reduced rates for sale of
certain locally manufactured goods and petroleum products and raw materials to be used in the
manufacture thereof (amending Sec. 106 of NIRC); 12% VAT on importation of goods and reduced
rates for certain imported products including petroleum products (amending Sec. 107 of NIRC); and
12% VAT on sale of services and use or lease of properties and a reduced rate for certain services
including power generation (amending Sec. 108 of NIRC)
(3) Provides for a single rate of 10% VAT on sale of goods or properties (amending Sec. 106 of
NIRC), 10% VAT on sale of services including sale of electricity by generation companies,
transmission and distribution companies, and use or lease of properties (amending Sec. 108 of
NIRC)
With regard to the no pass-on provision
(1)No similar provision
(2)Provides that the VAT imposed on power generation and on the sale of petroleum products shall
be absorbed by generation companies or sellers, respectively, and shall not be passed on to
consumers
(3)Provides that the VAT imposed on sales of electricity by generation companies and services of
transmission companies and distribution companies, as well as those of franchise grantees of
electric utilities shall not apply to residential end-users. VAT shall be absorbed by generation,
transmission, and distribution companies.
With regard to 70% limit on input tax credit
(1)Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of such capital goods; the input tax credit for goods
and services other than capital goods shall not exceed 5% of the total amount of such goods and
services; and for persons engaged in retail trading of goods, the allowable input tax credit shall not
exceed 11% of the total amount of goods purchased.
(2)No similar provision
(3)Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of such capital goods; the input tax credit for goods
and services other than capital goods shall not exceed 90% of the output VAT.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
(1)No similar provision
(2)No similar provision
(3)Provided for amendments to several NIRC provisions regarding corporate income, percentage,
franchise and excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard
to (1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity
generation, transmission and distribution companies should not be passed on to consumers, as
proposed in the Senate bill, or both the VAT imposed on electricity generation, transmission and
distribution companies and the VAT imposed on sale of petroleum products should not be passed
on to consumers, as proposed in the House bill; (3) in what manner input tax credits should be
limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, franchise and
excise taxes should be amended.

There being differences and/or disagreements on the foregoing provisions of the House and Senate
bills, the Bicameral Conference Committee was mandated by the rules of both houses of Congress
to act on the same by settling said differences and/or disagreements. The Bicameral Conference
Committee acted on the disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in
the difference between the 10% VAT rate proposed by the Senate, and the various rates with 12%
as the highest VAT rate proposed by the House, by striking a compromise whereby the present 10%
VAT rate would be retained until certain conditions arise, i.e., the value-added tax collection as a
percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National
Government deficit as a percentage of GDP of the previous year exceeds 1%, when the President,
upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective
January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers or whether both
the VAT imposed on electricity generation, transmission and distribution companies and the VAT
imposed on sale of petroleum products may be passed on to consumers, the Bicameral Conference
Committee chose to settle such disagreement by altogether deleting from its Report any no pass-
on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the
Bicameral Conference Committee decided to adopt the position of the House by putting a
limitation on the amount of input tax that may be credited against the output tax, although it
crafted its own language as to the amount of the limitation on input tax credits and the manner of
computing the same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds one million Pesos
(P1,000,000.00): PROVIDED, however, that if the estimated useful life of the capital good is less
than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such
shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax
inclusive of input VAT carried over from the previous quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input
tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or
credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax,
franchise, percentage and excise taxes, the conference committee decided to include such
amendments and basically adopted the provisions found in Senate Bill No. 1950, with some
changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the
Bicameral Conference Committee is mandated to settle the differences between the disagreeing
provisions in the House bill and the Senate bill. The term settle is synonymous to reconcile and
harmonize.[25] To reconcile or harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill would be carried
into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions for
it did not inject any idea or intent that is wholly foreign to the subject embraced by the original
provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by
the Senate is retained until such time that certain conditions arise when the 12% VAT wanted by
the House shall be imposed, appears to be a compromise to try to bridge the difference in the rate
of VAT proposed by the two houses of Congress. Nevertheless, such compromise is still totally
within the subject of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the
Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate
Panel, explained the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no
sector should be a beneficiary of legislative grace, neither should any sector be discriminated on.
The VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and simple. Lets not confuse the
bill and put a no pass-on provision. Two-thirds of the world have a VAT system and in this two-
thirds of the globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of the
Senate is basically simple, lets keep the VAT simple.[26] (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision never really
enjoyed the support of either House.[27]
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
Committee came to a compromise on the percentage rate of the limitation or cap on such input tax
credit, but again, the change introduced by the Bicameral Conference Committee was totally within
the intent of both houses to put a cap on input tax that may be credited against the output tax.
From the inception of the subject revenue bill in the House of Representatives, one of the major
objectives was to plug a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . . and [b]y introducing limitations on the
claiming of tax credit, we are capping a major leakage that has placed our collection efforts at an
apparent disadvantage.[28]
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in
Senate Bill No. 1950, since said provisions were among those referred to it, the conference
committee had to act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were
germane to subjects of the provisions referred to it for reconciliation. Such being the case, the
Court does not see any grave abuse of discretion amounting to lack or excess of jurisdiction
committed by the Bicameral Conference Committee. In the earlier cases of Philippine Judges
Association vs. Prado[29] and Tolentino vs. Secretary of Finance,[30] the Court recognized the long-
standing legislative practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate bill. If the committee can
propose an amendment consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an amendment in the nature of a substitute,
so long as such amendment is germane to the subject of the bills before the committee. After all,
its report was not final but needed the approval of both houses of Congress to become valid as an
act of the legislative department. The charge that in this case the Conference Committee acted as a
third legislative chamber is thus without any basis.[31] (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the No-
Amendment Rule
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto
shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and
nays entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add
or delete provisions in the House bill and the Senate bill after these had passed three readings is in
effect a circumvention of the no amendment rule (Sec. 26 (2), Art. VI of the 1987 Constitution), fails
to convince the Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have
undergone three readings in each of the two houses. If that be the case, there would be no end to
negotiation since each house may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in
either house of Congress, not to the conference committee report.[32] (Emphasis supplied)
The Court reiterates here that the no-amendment rule refers only to the procedure to be followed
by each house of Congress with regard to bills initiated in each of said respective houses, before
said bill is transmitted to the other house for its concurrence or amendment. Verily, to construe
said provision in a way as to proscribe any further changes to a bill after one house has voted on it
would lead to absurdity as this would mean that the other house of Congress would be deprived of
its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing provisions in bills that have been
acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination
of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on
corporate income taxes and percentage, excise taxes. Petitioners refer to the following provisions,
to wit:
Section 27
Rates of Income Tax on Domestic Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from
the House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106,
107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to
Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the
Senate amended but which amendments were not found in the House bills are not intended to be
amended by the House of Representatives. Hence, they argue that since the proposed
amendments did not originate from the House, such amendments are a violation of Article VI,
Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives but
the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that
initiated the move for amending provisions of the NIRC dealing mainly with the value-added tax.
Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950
proposing amendments not only to NIRC provisions on the value-added tax but also amendments
to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of provisions not
dealing directly with the value- added tax, which is the only kind of tax being amended in the
House bills, still within the purview of the constitutional provision authorizing the Senate to
propose or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held,
thus:
. . . To begin with, it is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole. . . . At this point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist that a revenue statute and not only the bill
which initiated the legislative process culminating in the enactment of the law must substantially
be the same as the House bill would be to deny the Senates power not only to concur with
amendments but also to propose amendments. It would be to violate the coequality of legislative
power of the two houses of Congress and in fact make the House superior to the Senate.
Given, then, the power of the Senate to propose amendments, the Senate can propose its own
version even with respect to bills which are required by the Constitution to originate in the House.
..
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills,
bills authorizing an increase of the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local needs and problems. On
the other hand, the senators, who are elected at large, are expected to approach the same
problems from the national perspective. Both views are thereby made to bear on the enactment of
such laws.[33] (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on
the extent of the amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the subject
revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on
the floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of
solving the countrys serious financial problems. To do this, government expenditures must be
strictly monitored and controlled and revenues must be significantly increased. This may be easier
said than done, but our fiscal authorities are still optimistic the government will be operating on a
balanced budget by the year 2009. In fact, several measures that will result to significant
expenditure savings have been identified by the administration. It is supported with a credible
package of revenue measures that include measures to improve tax administration and control the
leakages in revenues from income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged
that on top of our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a
balanced budget by the year 2009, we need to seize windows of opportunities which might seem
poignant in the beginning, but in the long run prove effective and beneficial to the overall status of
our economy. One such opportunity is a review of existing tax rates, evaluating the relevance given
our present conditions.[34] (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is
to bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control
of the leakages in revenues from income taxes and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the measures from the point of national
perspective, can introduce amendments within the purposes of those bills. It can provide for ways
that would soften the impact of the VAT measure on the consumer, i.e., by distributing the burden
across all sectors instead of putting it entirely on the shoulders of the consumers. The sponsorship
speech of Sen. Ralph Recto on why the provisions on income tax on corporation were included is
worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in
additional revenues annually even while by mitigating prices of power, services and petroleum
products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT
on twelve goods and services. The rest of the tab P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer.
Why should the latter bear all the pain? Why should the fiscal salvation be only on the burden of
the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35
percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide back,
not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency
provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal
medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
sacrifice brief. We would like to assure them that not because there is a light at the end of the
tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be
there to share the burden.[35]
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills
which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to
the reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.
Considering that certain goods and services which were subject to percentage tax and excise tax
would no longer be VAT-exempt, the consumer would be burdened more as they would be paying
the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the
impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker
fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the
VAT chain, we will however bring down the excise tax on socially sensitive products such as diesel,
bunker, fuel and kerosene.
..
What do all these exercises point to? These are not contortions of giving to the left hand what was
taken from the right. Rather, these sprang from our concern of softening the impact of VAT, so that
the people can cushion the blow of higher prices they will have to pay as a result of VAT.
The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and
purposes of the house bills, which is to supplement our countrys fiscal deficit, among others. Thus,
the Senate acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10%
to 12% when a certain condition is met, constitutes undue delegation of the legislative power to
tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor: provided, that the President, upon the recommendation
of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a value-
added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs
in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other
charges, such tax to be paid by the importer prior to the release of such goods from customs
custody: Provided, That where the customs duties are determined on the basis of the quantity or
volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if
any: provided, further, that the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any
of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services:
provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate
is a virtual abdication by Congress of its exclusive power to tax because such delegation is not
within the purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as
well as on the sale or exchange of services, which cannot be included within the purview of tariffs
under the exempted delegation as the latter refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on goods or merchandise imported or
exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility
and transparency should dictate the actions of Congress and they should not pass to the President
the decision to impose taxes. They also argue that the law also effectively nullified the Presidents
power of control, which includes the authority to set aside and nullify the acts of her subordinates
like the Secretary of Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create
the conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected
bureaucrat, contrary to the principle of no taxation without representation. They submit that the
Secretary of Finance is not mandated to give a favorable recommendation and he may not even
give his recommendation. Moreover, they allege that no guiding standards are provided in the law
on what basis and as to how he will make his recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside by the President since the
former is a mere alter ego of the latter, such that, ultimately, it is the President who decides
whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government
has exclusive cognizance of and is supreme in matters falling within its own constitutionally
allocated sphere.[37] A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means what has been
delegated, cannot be delegated.[38] This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through
the instrumentality of his own judgment and not through the intervening mind of another.[39]
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that the
Legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate
and a House of Representatives. The powers which Congress is prohibited from delegating are
those which are strictly, or inherently and exclusively, legislative. Purely legislative power, which
can never be delegated, has been described as the authority to make a complete law complete as
to the time when it shall take effect and as to whom it shall be applicable and to determine the
expediency of its enactment.[40] Thus, the rule is that in order that a court may be justified in
holding a statute unconstitutional as a delegation of legislative power, it must appear that the
power involved is purely legislative in nature that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability of its use or the manner of its
exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the
Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid.
It is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate;[41] and (b) fixes a standard the limits of which are
sufficiently determinate and determinable to which the delegate must conform in the performance
of his functions.[42] A sufficient standard is one which defines legislative policy, marks its limits,
maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances
under which the legislative command is to be effected.[43] Both tests are intended to prevent a
total transference of legislative authority to the delegate, who is not allowed to step into the shoes
of the legislature and exercise a power essentially legislative.[44]
In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel, expounded on the
concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all its terms and provisions when it left the hands of
the legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the law,
which necessarily involves a discretion as to what it shall be, and conferring an authority or
discretion as to its execution, to be exercised under and in pursuance of the law. The first cannot
be done; to the latter no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a particular community. In Wayman
vs. Southard, the Supreme Court of the United States ruled that the legislature may delegate a
power not legislative which it may itself rightfully exercise. The power to ascertain facts is such a
power which may be delegated. There is nothing essentially legislative in ascertaining the existence
of facts or conditions as the basis of the taking into effect of a law. That is a mental process
common to all branches of the government. Notwithstanding the apparent tendency, however, to
relax the rule prohibiting delegation of legislative authority on account of the complexity arising
from social and economic forces at work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United States in the following language speaking of
declaration of legislative power to administrative agencies: The principle which permits the
legislature to provide that the administrative agent may determine when the circumstances are
such as require the application of a law is defended upon the ground that at the time this authority
is granted, the rule of public policy, which is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the administrative
official is not the legislative determination of what public policy demands, but simply the
ascertainment of what the facts of the case require to be done according to the terms of the law by
which he is governed. The efficiency of an Act as a declaration of legislative will must, of course,
come from Congress, but the ascertainment of the contingency upon which the Act shall take
effect may be left to such agencies as it may designate. The legislature, then, may provide that a
law shall take effect upon the happening of future specified contingencies leaving to some other
person or body the power to determine when the specified contingency has arisen. (Emphasis
supplied).[46]
In Edu vs. Ericta,[47] the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and
repeal them; the test is the completeness of the statute in all its terms and provisions when it
leaves the hands of the legislature. To determine whether or not there is an undue delegation of
legislative power, the inquiry must be directed to the scope and definiteness of the measure
enacted. The legislative does not abdicate its functions when it describes what job must be done,
who is to do it, and what is the scope of his authority. For a complex economy, that may be the
only way in which the legislative process can go forward. A distinction has rightfully been made
between delegation of power to make the laws which necessarily involves a discretion as to what it
shall be, which constitutionally may not be done, and delegation of authority or discretion as to its
execution to be exercised under and in pursuance of the law, to which no valid objection can be
made. The Constitution is thus not to be regarded as denying the legislature the necessary
resources of flexibility and practicability. (Emphasis supplied).[48]
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain
facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its
terms, made to depend, but the legislature must prescribe sufficient standards, policies or
limitations on their authority.[49] While the power to tax cannot be delegated to executive
agencies, details as to the enforcement and administration of an exercise of such power may be
left to them, including the power to determine the existence of facts on which its operation
depends.[50]
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty
of correlating information and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to others to perform.
Intelligent legislation on the complicated problems of modern society is impossible in the absence
of accurate information on the part of the legislators, and any reasonable method of securing such
information is proper.[51] The Constitution as a continuously operative charter of government
does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to
particular facts and circumstances impossible for Congress itself properly to investigate.[52]
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5
and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 %).
The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the
law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the
12% rate upon factual matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the
fact that the word shall is used in the common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the
idea of discretion.[53] Where the law is clear and unambiguous, it must be taken to mean exactly
what it says, and courts have no choice but to see to it that the mandate is obeyed.[54]
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by
the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the 12% VAT rate when the
specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the ascertainment of certain facts or
conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the
law effectively nullified the Presidents power of control over the Secretary of Finance by mandating
the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance.
The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase upon
the recommendation of the Secretary of Finance. Neither does the Court find persuasive the
submission of petitioners Escudero, et al. that any recommendation by the Secretary of Finance
can easily be brushed aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that
as head of the Department of Finance he is the assistant and agent of the Chief Executive. The
multifarious executive and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such departments, such as
the Department of Finance, performed and promulgated in the regular course of business, are,
unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is subject to the direction of the
President."[55]
In the present case, in making his recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even
her subordinate. In such instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect.[56] The Secretary of Finance becomes the
means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out by Congress is present. His personality
in such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress
and not of the President, the President cannot alter or modify or nullify, or set aside the findings of
the Secretary of Finance and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the
national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12% VAT rate must be imposed
by the President effective January 1, 2006. There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This is constitutionally permissible.[57] Congress
does not abdicate its functions or unduly delegate power when it describes what job must be done,
who must do it, and what is the scope of his authority; in our complex economy that is frequently
the only way in which the legislative process can go forward.[58]
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President
the legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the mere implementation of the law.
The intent and will to increase the VAT rate to 12% came from Congress and the task of the
President is to simply execute the legislative policy. That Congress chose to do so in such a manner
is not within the province of the Court to inquire into, its task being to interpret the law.[59]
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause,
influence or create the conditions to bring about either or both the conditions precedent does not
deserve any merit as this argument is highly speculative. The Court does not rule on allegations
which are manifestly conjectural, as these may not exist at all. The Court deals with facts, not
fancies; on realities, not appearances. When the Court acts on appearances instead of realities,
justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on
any of the 2 conditions set forth in the contested provisions, is ambiguous because it does not state
if the VAT rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners
also argue that such rate is unfair and unreasonable, as the people are unsure of the applicable
VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set
forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the
law are clear. It does not provide for a return to the 10% rate nor does it empower the President to
so revert if, after the rate is increased to 12%, the VAT collection goes below the 24/5 of the GDP of
the previous year or that the national government deficit as a percentage of GDP of the previous
year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or
limitations be introduced where none is provided for. Rewriting the law is a forbidden ground that
only Congress may tread upon.[60]
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the
Court finds none, petitioners argument is, at best, purely speculative. There is no basis for
petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The
rule is that where the provision of the law is clear and unambiguous, so that there is no occasion
for the court's seeking the legislative intent, the law must be taken as it is, devoid of judicial
addition or subtraction.[61]
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be
based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is
another condition, i.e., the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is
less than 2.8%, it means that government has weak or no capability of implementing the VAT or
that VAT is not effective in the function of the tax collection. Therefore, there is no value to
increase it to 12% because such action will also be ineffectual.
2. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is towards the direction of a balanced
budget position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a
relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need
to increase the VAT rate.[62]
That the first condition amounts to an incentive to the President to increase the VAT collection
does not render it unconstitutional so long as there is a public purpose for which the law was
passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for
a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the
people as little as possible over and above what it brings into the public treasury of the state.[63]
It simply means that sources of revenues must be adequate to meet government expenditures and
their variations.[64]
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During
the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted
the countrys gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position
where 90 percent of our revenue is used for debt service. So, for every peso of revenue that we
currently raise, 90 goes to debt service. Thats interest plus amortization of our debt. So clearly, this
is not a sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries
that borrow money from that international financial markets. Our debt to GDP is approximately
equal to our GDP. Again, that shows you that this is not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating in is not
as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically global
growth and low interest rates. The past few months, we have seen an inching up, in fact, a rapid
increase in the interest rates in the leading economies of the world. And, therefore, our ability to
borrow at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability
to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now,
at least based on the forecast of most financial institutions. So, we were assuming that raising 80
billion would put us in a position where we can then convince them to improve our ability to
borrow at lower rates. But conditions have changed on us because the interest rates have gone up.
In fact, just within this room, we tried to access the market for a billion dollars because for this year
alone, the Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5
billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying to access last
week and the market was not as favorable and up to now we have not accessed and we might pull
back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end
our deficit reduction. Because it is deficit that is causing the increase of the debt and we are in
what we call a debt spiral. The more debt you have, the more deficit you have because interest and
debt service eats and eats more of your revenue. We need to get out of this debt spiral. And the
only way, I think, we can get out of this debt spiral is really have a front-end adjustment in our
revenue base.[65]
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not for
the Court to judge. In the Farias case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act),
pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive
dominion of the political branches of the government. It is not for this Court to look into the
wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or unwise,
whether it is based on sound economic theory, whether it is the best means to achieve the desired
results, whether, in short, the legislative discretion within its prescribed limits should be exercised
in a particular manner are matters for the judgment of the legislature, and the serious conflict of
opinions does not suffice to bring them within the range of judicial cognizance.[66]
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency
of legislation.
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions
of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C)
of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on
the constitutional right against deprivation of life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal
protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering
that they are not fixed rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption
of validity must prevail.[68]
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the
amount of input tax that may be credited against the output tax. It states, in part: [P]rovided, that
the input tax inclusive of the input VAT carried over from the previous quarter that may be credited
in every quarter shall not exceed seventy percent (70%) of the output VAT:
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due
from or paid by a VAT-registered person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or business, from a VAT-
registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods
or properties or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that
may be claimed. In effect, a portion of the input tax that has already been paid cannot now be
credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax,
and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the
input tax is less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which
provides that if the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters. In addition, Section 112(B) allows a VAT-registered person to apply
for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against the output taxes. Such unused input tax may be
used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-
sided. It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given
quarter. It does not proceed further to the fact that such unapplied/unutilized input tax may be
credited in the subsequent periods as allowed by the carry-over provision of Section 110(B) or that
it may later on be refunded through a tax credit certificate under Section 112(B).

Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in
effect allows VAT-registered establishments to retain a portion of the taxes they collect, which
violates the principle that tax collection and revenue should be for public purposes and
expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he
buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing
the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess,
which has to be paid to the Bureau of Internal Revenue (BIR);[69] and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated
transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes, at the taxpayers option.[70]
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can
credit his input tax only up to the extent of 70% of the output tax. In laymans term, the value-
added taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up
to 70% of the value-added taxes that is due to him on a taxable transaction. There is no retention
of any tax collection because the person/taxpayer has already previously paid the input tax to a
seller, and the seller will subsequently remit such input tax to the BIR. The party directly liable for
the payment of the tax is the seller.[71] What only needs to be done is for the person/taxpayer to
apply or credit these input taxes, as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes
the nature of a property that may not be confiscated, appropriated, or limited without due process
of law.
The input tax is not a property or a property right within the constitutional purview of the due
process clause. A VAT-registered persons entitlement to the creditable input tax is a mere statutory
privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons
have no vested rights in statutory privileges. The state may change or take away rights, which were
created by the law of the state, although it may not take away property, which was vested by
virtue of such rights.[72]
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from
the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all
sales, it was then that the crediting of the input tax paid on purchase or importation of goods and
services by VAT-registered persons against the output tax was introduced.[73] This was adopted by
the Expanded VAT Law (R.A. No. 7716),[74] and The Tax Reform Act of 1997 (R.A. No. 8424).[75]
The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege
that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No.
9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade
or business for which deduction for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos
(P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is less
than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such
a shorter period: Provided, finally, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax
on purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of
the VAT component. Such spread out only poses a delay in the crediting of the input tax.
Petitioners argument is without basis because the taxpayer is not permanently deprived of his
privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this
case amounts to a 4-year interest-free loan to the government.[76] In the same breath, Congress
also justified its move by saying that the provision was designed to raise an annual revenue of 22.6
billion.[77] The legislature also dispelled the fear that the provision will fend off foreign
investments, saying that foreign investors have other tax incentives provided by law, and citing the
case of China, where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.[78] Again, for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government
for taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC,
reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods and services which are subject
to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final
value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident owners shall be subject to
ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor
or person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following
the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more
simplified VAT withholding system. The government in this case is constituted as a withholding
agent with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be
withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for services
supplied by contractors other than by public works contractors; 8.5% on gross payments for
services supplied by public work contractors; or 10% on payment for the lease or use of properties
or property rights to nonresident owners. Under the present Section 114(C), these different rates,
except for the 10% on lease or property rights payment to nonresidents, were deleted, and a
uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed
to creditable, means full. Thus, it is provided in Section 114(C): final value-added tax at the rate of
five percent (5%).
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax
withheld by the withholding agent is constituted as full and final payment of the income tax due
from the payee on the said income. The liability for payment of the tax rests primarily on the payor
as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on
certain income payments are intended to equal or at least approximate the tax due of the payee on
said income. Taxes withheld on income payments covered by the expanded withholding tax
(referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78
also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are
subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This
represents the net VAT payable of the seller. The other 5% effectively accounts for the standard
input VAT (deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable
transaction.[79]
The Court need not explore the rationale behind the provision. It is clear that Congress intended to
treat differently taxable transactions with the government.[80] This is supported by the fact that
under the old provision, the 5% tax withheld by the government remains creditable against the tax
liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods from sellers and services
rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108
of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the
gross payment for the purchase of goods and six percent (6%) on gross receipts for services
rendered by contractors on every sale or installment payment which shall be creditable against the
value-added tax liability of the seller or contractor: Provided, however, That in the case of
government public works contractors, the withholding rate shall be eight and one-half percent
(8.5%): Provided, further, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment.
For this purpose, the payor or person in control of the payment shall be considered as the
withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following
the end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congresss
intention to treat transactions with the government differently. Since it has not been shown that
the class subject to the 5% final withholding tax has been unreasonably narrowed, there is no
reason to invalidate the provision. Petitioners, as petroleum dealers, are not the only ones
subjected to the 5% final withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments, the excess may form part
of the cost. Equally, should the actual input tax be less than 5%, the difference is treated as
income.[81]
Petitioners also argue that by imposing a limitation on the creditable input tax, the government
gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not
engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain.
Any disquisition by the Court on this point will only be, as Shakespeare describes life in
Macbeth,[82] full of sound and fury, signifying nothing.
Whats more, petitioners contention assumes the proposition that there is no profit or value-added.
It need not take an astute businessman to know that it is a matter of exception that a business will
sell goods or services without profit or value-added. It cannot be overstressed that a business is
created precisely for profit.
The equal protection clause under the Constitution means that no person or class of persons shall
be deprived of the same protection of laws which is enjoyed by other persons or other classes in
the same place and in like circumstances.[83]
The power of the State to make reasonable and natural classifications for the purposes of taxation
has long been established. Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of assessment, valuation and
collection, the States power is entitled to presumption of validity. As a rule, the judiciary will not
interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.[84]
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of
input tax, or invests in capital equipment, or has several transactions with the government, is not
based on real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the
subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the
methods of assessment, valuation and collection. Petitioners alleged distinctions are based on
variables that bear different consequences. While the implementation of the law may yield varying
end results depending on ones profit margin and value-added, the Court cannot go beyond what
the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or
things without distinction. This might in fact sometimes result in unequal protection. What the
clause requires is equality among equals as determined according to a valid classification. By
classification is meant the grouping of persons or things similar to each other in certain particulars
and different from all others in these same particulars.[85]
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R.
Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep.
Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same
to 90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed legislations. Until Congress
amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation
stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate
is uniform on the same class everywhere with all people at all times.[86]
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of properties. These same sections also
provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital
goods or the 5% final withholding tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only
demands uniformity within the particular class.[87]
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not
exceeding P1,500,000.00.[88] Also, basic marine and agricultural food products in their original
state are still not subject to the tax,[89] thus ensuring that prices at the grassroots level will remain
accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.
Tan:[90]
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-
sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the
weighty burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-
exempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the
tax on those previously exempt. Excise taxes on petroleum products[91] and natural gas[92] were
reduced. Percentage tax on domestic carriers was removed.[93] Power producers are now exempt
from paying franchise tax.[94]
Aside from these, Congress also increased the income tax rates of corporations, in order to
distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now
subject to a 35% income tax rate, from a previous 32%.[95] Intercorporate dividends of non-
resident foreign corporations are still subject to 15% final withholding tax but the tax credit
allowed on the corporations domicile was increased to 20%.[96] The Philippine Amusement and
Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.[97] Even the sale by an
artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would
otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is
equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive.
It is the smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also
lifted from Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as
nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue
which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person
affected.[98]
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed is the same regardless of income.
In other words, the VAT paid eats the same portion of an income, whether big or small. The
disparity lies in the income earned by a person or profit margin marked by a business, such that the
higher the income or profit margin, the smaller the portion of the income or profit that is eaten by
VAT. A converso, the lower the income or profit margin, the bigger the part that the VAT eats away.
At the end of the day, it is really the lower income group or businesses with low-profit margins that
is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation." The
Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall evolve a progressive system of taxation.
The constitutional provision has been interpreted to mean simply that direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized. (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not
to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the
oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17 (1)
of the 1973 Constitution from which the present Art. VI, 28 (1) was taken. Sales taxes are also
regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC)[99]
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a
deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law
seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply
because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature
may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies
for all political or social ills; We should not forget that the Constitution has judiciously allocated the
powers of government to three distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the independence of the three, and a zealous
regard of the prerogatives of each, knowing full well that one is not the guardian of the others and
that, for official wrong-doing, each may be brought to account, either by impeachment, trial or by
the ballot box.[100]
The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds true now. All things
considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No.
9337, the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of
herein decision.
SO ORDERED.
GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA
and ED VINCENT S. ALBANO v. THE HON. EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.)
GR No. 168207 (AQUILINO Q. PIMENTEL, JR., ET. AL. v. EXECUTIVE SECRETARY EDUARDO R.
ERMITA, ET. AL.)
GR No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President,
ROSARIO ANTONIO, ET AL. v. CESAR V. PURISIMA, in his capacity as Secretary of the Department of
Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue.
GR No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V. PURISIMA, in his capacity as
Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, and EDUARDO R. ERMITA, in his capacity as Executive Secretary.
GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. HON. EDUARDO R. ERMITA, in his
capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as Secretary of
Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of
Customs.
x-------------------------------------------------------------------x
DISSENTING OPINION
TINGA, J.:
Once again, the majority has refused to engage and refute in any meaningful fashion the
arguments raised by the petitioners in G.R. No. 168461. The de minimis appreciation exhibited by
the majority of the issues of 70% cap, the 60-month amortization period, and 5% withholding VAT
on transactions made with the national government is regrettable, with ruinous consequences for
the nation. I see no reason to turn back from any of the views expressed in my Dissenting Opinion,
and I accordingly dissent from the denial of the Motion for Reconsideration filed by the petitioners
in G.R. No. 168461.[1]
The reasons for my vote have been comprehensively discussed in my previous Dissenting Opinion,
and I do not see the need to replicate them herein. However, I wish to stress a few points.
Tax Statutes May Be Invalidated If They Pose a Clear and Present Danger To the Deprivation of Life,
Liberty and Property Without Due Process of Law
The majority again dismisses the arguments of the petitioners as theoretical, conjectural or merely
anticipatory, notwithstanding that the injury to the taxpayers resulting from Section 8 and 12 of
the E-VAT Law is ascertainable with mathematical certainty. In support of this view, the majority
cites the Courts Resolution dated 15 June 2005 in Information Technology Foundation v.
COMELEC,[2] one of the rulings issued in that case subsequent to the main Decision rendered on
13 January 2004. The reference is grievously ironic, considering that in the 13 January 2004
Decision, the Court, over vigorous dissents, chose anyway to intervene and grant the petition
despite the fact that the petitioners therein did not allege any violation of any constitutional
provision or letter of statute.[3] In this case, the petitioners have squarely invoked the violation of
the Bill of Rights of the Constitution, and yet the majority is suddenly timid, unlike in Infotech.
Still, the formulation of the majority unfortunately leaves the impression that any statute, taxing or
otherwise, is beyond judicial attack prior to its implementation. If the tax measure in question
provided that the taxpayer shall remit all income earned to the government beginning 1 January
2008, would this mean that the Court can take cognizance of the legal challenge only starting 2
January 2008?
I do not share the majoritys penchant for awaiting the blood spurts before taking action even when
the knifes edge already dangles. As I maintained in my Dissenting Opinion, a tax measure may be
validly challenged and stricken down even before its implementation if it poses a clear and present
danger to the deprivation of life, liberty or property of the taxpayer without due process of law.
This is the expectation of every citizen who wishes to maintain trust in all the branches of
government. In the enforcement of the constitutional rights of all persons, the commonsense
expectation is that the Court, as guardian of these rights, is empowered to step in even before the
prospective violation takes place. Hence, the evolution of the clear and present danger doctrine
and other analogous principles, without which, the Court would be seen as inutile in the face of
constitutional violation.
Of course, not every anticipatory threat to constitutional liberties can be assailed prior to
implementation, hence the employment of the clear and present danger standard to separate the
wheat from the chaff. Still, the Court should not be so readily dismissive of the petitioners posture
herein merely because it is anticipatory. There should have been a meaningful engagement by the
majority of the facts and formulae presented by the petitioners before the reasonable conclusion
could have been reached on the maturity of the claim. That the majority has not bothered to do so
is ultimately of tragic consequence.
70% Input VAT Credit An Impaired Asset
The ponencia, joined by Justices Panganiban and Chico-Nazario, express the belief that no property
rights attach to the input VAT paid by the taxpayer. This is a bizarre view that assumes that all
income earned by private persons preternaturally belongs to the government, and whatever is
retained by the person after taxes is acquired as a matter of privilege. This is the sort of thinking
that has fermented revolutions throughout history, such as the American Revolution of 1776.
I pointed out in my Dissenting Opinion that under current accepted international accounting
standards, the 30% prepaid input VAT would be recorded as a loss in the accounting books, since
the possibility of its recovery is improbable, considering that the E-VAT Law allows its recovery only
after the business has ceased to exist. Even the Bureau of Internal Revenue itself has long
recognized the unutilized input VAT as an asset.
The majority fails to realize that even under the new E-VAT Law, the State recognizes that the
persons who pre-pay that input VAT, usually the dealers or retailers, are not the persons who are
liable to pay for the tax. The VAT system, as implemented through the previous VAT law and the
new E-VAT Law, squarely holds the end consumer as the taxpayer liable to shoulder the input VAT.
Nonetheless, under the mechanism foisted in the new E-VAT Law, the dealer or retailer who pre-
pays the input VAT is virtually precluded from recovering the pre-paid input VAT, since the law only
allows such recovery upon the cessation of the business. Indeed, the only way said class of
taxpayers can recover this pre-paid input VAT was if it were to cease operations at the end of every
quarter.
The illusion that blinds the majority to this state of affairs is the claim that the pre-paid input VAT
may anyway be carried over into the succeeding quarter, a chimera enhanced by the grossly
misleading presentation of the Office of the Solicitor General. What this deception fosters, and
what the majority fails to realize, is that since the taxpayer is perpetually obliged to remit the 30%
input VAT every quarter, there would be a continuous accumulation of excess input VAT. It is not
true then that the input VAT prepaid for the first quarter can be recovered in the second, third or
fourth quarter of that year, or at any time in the next year for that matter since the amount of
prepaid input VAT accumulates with every succeeding prepayment of input VAT. Moreover, the
accumulation of the prepaid input VAT diminishes the actual value of the refundable amounts,
considering the established principle of time-value of money, as explained in my Dissenting
Opinion.
Thus, the pre-paid input VAT, for which the petitioners and other similarly situated taxpayers are
not even ultimately liable in the first place, represents in tangible terms an actual loss. To put it
more succinctly, when the taxpayer prepays the 30% input VAT, there is no chance for its recovery
except until after the taxpayer ceases to be such. This point is crucial, as it goes in the heart of the
constitutional challenge raised by the petitioners. A recognition that the input VAT is a property
asset places it squarely in the ambit of the due process clause.
The majority now stresses that prior to Executive Order No. 273 sales taxes paid by the retailer or
dealers were not recoverable. The nature of a sales tax precisely is that it is shouldered by the
seller, not the consumer. In that case, the clear legislative intent is to encumber the retailer with
the end tax. Under the VAT system, as enshrined under Rep. Act No. 9337, the new E-VAT Law,
there is precisely a legislative recognition that it is the end user, not the seller, who shoulders the
E-VAT. The problem with the new E-VAT law is that it correspondingly imposes a defeatist
mechanism that obviates this entitlement of the seller by forcibly withholding in perpetua this pre-
paid input VAT.
The majority cites with approval Justice Chico-Nazarios argument, as expressed in her concurring
opinion, that prior to the new E-VAT Law, the petroleum dealers in particular had no input VAT
credits to speak of, and therefore, could not assert any property rights to the input VAT credits
under the new law. Of course the petroleum dealers had no input VAT credits prior to the E-VAT
Law because precisely they were not covered by the VAT system in the first place. What would now
be classified as input VAT credits was, in real terms, profit obtainable by the petroleum dealers
prior to the new E-VAT Law. The E-VAT Law stands to diminish such profit, not by outright taking
perhaps, but by ad infinitum confiscation with the illusory promise of eventual return. Obviously,
there is a deprivation of property in such case; yet is it seriously contended that such deprivation is
ipso facto sheltered if it is not classified as a taking, but instead reclassified as a credit?
It is highly distressful that the Court, in its haste to decree petitioners as bereft of any vested
property rights, rejects the notion that a person has a vested right to the earnings and profits
incurred in business. Before, no legal basis could be found to prop up such a palpably outlandish
claim; but the Decision, as affirmed by the majoritys Resolution, now enshrines a temerarious
proposition with doctrinal status.
In the Decision, and also in Justice Panganibans Separate Opinion therein, the case of United
Paracale Mining Co. v. De la Rosa[4] was cited in support of the proposition that there is no vested
right to the input VAT credit. Justice Panganiban went as far as to cite that case to support the
contention that [t]here is no vested right in a deferred input tax account; it is a mere statutory
privilege. Reliance on the case is quite misplaced. First, as pointed out in my Dissenting Opinion, it
does not even pertain to tax credits involving as it does, questions on the jurisdiction of the Bureau
of Mines.[5] Second, the putative vested rights therein pertained to mining claims, yet all mineral
resources indisputably belong to the State. Herein, the rights pertain to profit incurred by private
enterprise, and certainly the majority cannot contend that such profits actually belong to the State.
As stated in my Dissenting Opinion, the Constitution itself recognizes a right to income and profit
when it recognizes the right of enterprises to reasonable returns on investments, and to expansion
and growth.[6] Section 20, Article II of the Constitution further mandates that the State recognize
the indispensable role of the private sector, the encouragement of private enterprise, and the
provision of incentives to needed investments.[7] Indeed, there is a fundamental recognition in any
form of democratic government that recognizes a capitalist economy that the enterprise has a right
to its profits. Today, the Court instead affirms that there is no such right. Should capital flight
ensue, the phenomenom should not be blamed on investors in view of our judicial systems
rejection of capitalisms fundamental precept.
Mainstream Denunciation of 70% Cap
The fact that petitioners are dealers of petroleum products may have left the impression that the
70% cap singularly affects the petroleum industry; or that other classes of dealers or retailers do
not pose the same objections to these innovations in the E-VAT law. This is far from the truth.
In fact, the clamor against the 70% cap has been widespread among the players and components in
the financial mainstream. Denunciations have been registered by the Philippine Chamber of
Commerce and Industry[8], the Joint Foreign Chambers of the Philippines (comprising of the
American Chamber of Commerce in the Philippines, the Australian-New Zealand Chamber
Commerce of the Philippines, Inc., the Canadian Chamber of Commerce of the Philippines, Inc., the
European Chamber of Commerce of the Philippines, Inc., the Japanese Chamber of Commerce of
the Philippines, Inc., the Korean Chamber of Commerce and Industry of the Philippines, and the
Philippine Association of Multinational Companies Regional Headquarters, Inc.),[9] the Filipino-
Chinese Chamber of Commerce and Industry,[10] the Federation of Philippine Industries,[11] the
Consumer and Oil Price Watch,[12] the Association of Certified Public Accountants in Public
Practice,[13] the Philippine Tobacco Institute,[14] and the auditing firm of
PricewaterhouseCooper.[15]
Even newly installed Finance Secretary Margarito Teves has expressed concern that the 70% input
VAT may not work across all industries because of varying profit margins.[16] Other experts who
have voiced concerns on the 70% input VAT are former NEDA Directors Cielito Habito[17] and
Solita Monsod,[18] Peter Wallace of the Wallace Business Forum,[19] and Paul R. Cooper, director
of PricewaterhouseCooper.
In fact, Mr. Cooper published in the Philippine Daily Inquirer a lengthy disquisition on the problems
surrounding the 70% cap, portions of which I replicate below:
Policy concerns on the cap
When the idea of putting a cap was originally introduced on the floor of the Senate. The idea was
to address to some extent the under-reporting of output VAT by non-complaint taxpayers. The
original suggestion was a 90 percent cap, or effectively a 1-percent minimum VAT. At that level, the
rule should not impact adversely on complaint taxpayers, but would result in non-complaint
taxpayers having to account for closer to their true tax liability.
As a general policy consideration, one should question why our legislators are penalizing complaint
taxpayers when the fundamental issue is at the apparent inability of the Bureau of Internal
Revenue (BIR) to implement tax law effectively.
At a 90-percent cap, the measure might still have been defensible as a rough proxy for VAT.
However, somewhere in the bicameral process, the rule has become even more punitive with a 70-
percent cap. As with most amendments introduced at the bicameral stage, there is no public
indication about what lawmakers were thinking when they put the travesty in place.
xxx
One of the arguments in Senate debates for taxing the power and petroleum sectors was that if it
was good enough for mom-and-pop stores to have to account for the VAT, it was good enough for
the biggest companies in the country to do the same. A similar argument here is that if small
businesses have to pay a minimum 3-percent tax, why should larger VAT-registered persons get
away with paying less?
The problem with this thinking is threefold:
The percentage tax applies to small businesses in the hard-to-tax sector and a few believe the
BIR collects close to what it should from this. Nor should we be overly concerned if this is the
casethe revenues are small, and the BIRs efforts would be a lot better focused on larger taxpayers
where more significant revenues will be at issue.
VAT-registered persons incur compliance costs. The 3-percent tax might be better conceived as
a slightly more expensive option to allow taxpayers to opt out of the VAT, rather than a punitive
rule for small businesses. (If the percentage tax is considered unduly punitive, why is it not just
repealed?)
Ironically, one of the new measures in the Senate bill was to allow taxpayers with turnovers
below, the registration threshold to register voluntarily for VAT if they believe the 3-percent tax
imposition to be excessive. Without the minimum VAT, smaller taxpayers might have been
encouraged to enter the more formalized VAT sector.
Potential consequences of the cap
The minimum VAT will distort the way taxpayers conduct business. A 3-percent minimum VAT is
more likely to impact on sellers of goods than on sellers of services, as their proportion of taxable
inputs are lower (there is no VAT paid when using labor, but there is VAT on the purchase of
goods). Consequently, there will be a bias toward consuming services over goods. Businesses may
have an incentive to obtain goods from the informal (and potentially tax-evading) sector as there
will be no input tax paid for the purchasein other words, the bill may actively encourage less tax
complaint behavior. Business structures may change; expect buy-sell distributors to convent into
commission agents, as this reduces the risk that they will need to pay more than should be paid
under a VAT system to cover the 3-percent minimum VAT.[20]
These objections are voiced by members of the sensible center, and not those reflexively against
VAT or any tax imposition of the current administration. These objections are raised by the people
who stand to be directly affected on a daily punitive basis by the imposition of the 70% cap, the 60-
month amortization period and the 5% withholding VAT. Indeed, Justice Chico-Nazario has
expressed her disbelief over, or at least has asserted as unproven, the claimed impact of the input
VAT on the petroleum dealers.[21] Of course there can be no tangible gauge as of yet on the
impact of these changes in the VAT law, since they have yet to be implemented. However, the
prevalent adverse reaction within the business sector should be sufficiently expressive of the actual
fears of the people who should know better. It is sad that the majority, by maintaining a blithely
nave view of the input VAT, perpetuates the disconnect between the Court and the business
sector, unnecessarily considering that in this instance, the concerns of the financial community can
be translated into a viable constitutional challenge.
Reliance on Legislative Amendments
An Abdication of the Courts Constitutional Duty
Justice Panganiban has already expressed the view that the remedy to the inequities caused by the
new input VAT system would be amending the law, and not an outright declaration of
unconstitutionality. I can only hazard a guess on how many members of the Court or the legal
community are similarly reliant on that remedy as a means of assuaging their fears on the impact
of the input VAT innovations.
As I stated in my Dissenting Opinion, it is this Court, and not the legislature, which has the duty to
strike down unconstitutional laws. Congress may amend unconstitutional laws to remedy such
legal infirmities, but it is under no constitutional or legal obligation to do so. The same does not
hold true with this Court. The essence of judicial review mandates that the Court strike down
unconstitutional laws.
Another corollary prospect has also arisen, that the Executive Department itself will mitigate the
implementation of the 70% cap by not fully implementing the law.
This prospect of course is speculative, the sort of speculation that is wholly dependent on the whim
of the officials of the executive branch and one that cannot be quantified by mathematical formula.
This cannot be the basis for any judicial action or vote. Moreover, such resort may actually be
illegal.
For one, Article 239 of the Revised Penal Code imposes the penalty of prision correccional on public
officers who shall encroach upon the powers of the legislative branch of the Government, either by
making general rules or regulations beyond the scope of his authority, or by attempting to repeal a
law or suspending the execution thereof. Certainly, the remedy to the inequities of the E-VAT Law
cannot be left to administrative pussy-footing, considering that these officials may be jailed for
refusing to implement the law, or obfuscating the legislative will.
Second, it is a cardinal rule that an administrative agency such as the Bureau of Internal Revenue or
even the Department of Finance cannot amend an act of Congress. Whatever administrative
regulations they may adopt under legislative authority must be in harmony with the provisions of
the law they are intended to carry into effect. They cannot widen or diminish its scope.[22]
Finally, it must be remembered that one of the central doctrines enforced in the disposition of the
joint petitions is that the power to tax belongs solely to the legislative branch of government. If the
legislative will were to be frustrated by haphazard implementation by the executive branch, all our
disquisitions on this matter, as well as the key constitutional principle on the inherent, non-
delegable nature of the legislative power of taxation, will be for naught.

Indeed, I truly fear the scenario when, after the deluge, the executive branch of government
suspends the implementation of the 70% cap, or increases the cap to a higher amount such as 90%.
Any taxpayer will have standing to attack such remedial measure, considering that the net effect
would be to diminish the governments collection of cash at hand. Following the law, the proper
judicial action would be to uphold the clear legislative intent over the reengineering of the taxing
provisions by the executive branch of government. Yet if the courts instead uphold the power of
the executive branch of government to reinvent the tax statute, then the end concession would be
that the power to enact tax laws ultimately belongs to the executive branch of government.

I hesitate to say this, but there will be confusion, instability, and multiple fatalities within the
business sector with the enforcement of the amendments of Section 8 and 12 of the E-VAT Law. It
could have been stopped through the allowance of the petition in G.R. No. 168461, but regrettably
the Court did not act.

I respectfully dissent.
14. G.R. Nos. L-21633-34 June 29, 1967
COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners,
vs.
BOTELHO SHIPPING CORPORATION and GENERAL SHIPPING CO., INC., respondents.
Appeal by the Government from a decision of the Court of Tax Appeals, reversing of the decisions
of the Commissioner of Internal Revenue and the Commissioner of Customs, in Cases No. 956 and
957 of said Court, holding Botelho Shipping Corporation and General Shipping Co., Inc. —
hereinafter referred to collectively as the Buyers — liable for the payment of the sum of
P483,433.00 and P494,824.00, respectively, as compensating taxes on the vessels "M/S Maria
Rosello" and "M/S General Lim."
On August 30, 1960, the Reparations Commission of the Philippines — hereinafter referred to as
the Commission — and Botelho Shipping Corporation — hereinafter referred to as Botelho —
entered into a "Contract of Conditional Purchase and Sale of Reparations Goods," whereby the
former agreed to sell to Botelho for P6,798,888.88 the vessel "M/S Maria Rosello," procured by the
Commission from Japan, pursuant to the provisions of the Philippine-Japanese Reparations
Agreement of May 9, 1956. On September 19, 1960, the Commission signed a similar contract with
General Shipping Co., Inc. — hereinafter referred to as General Shipping — for the sale thereto of
"M/S General Lim" at the price of P6,951,666.66. Both agreements, couched in identical terms,
except as to price, stipulated that:
a) The Reparations Commission "retains title to and ownership of the above described vessel until
it is fully paid for." (Exh. "A", p. 2, both cases)
b) The stipulated purchase price of the M/S MARIA ROSELLO was to be paid by Botelho to the
Commission under a deferred payment plan in 10 equal yearly installments of P717,333.49, bearing
3% interest per annum, beginning August 31, 1962 and August 31 of every year thereafter until the
year 1972, while the purchase price of the M/S GENERAL LIM was to be paid by General Shipping to
the Commission under a deferred payment plan in 10 equal yearly installments of P723,132.68,
bearing 3% interest per annum beginning September 30 of every year until the year 1972. (Exhs. 9,
p. 4 and A-2, both cases) (See Respondents' brief, p. 4.)
Delivered in Japan to its respective buyers, acting on behalf of the Commission, the vessels, upon
their departure from Tokyo, on the maiden trip thereof to the Philippines, were issued, by the
Philippine Vice-Consul in said city, provisional certificates of Philippine registry in the name of the
Commission, so that the vessels could proceed to the Philippines and secure therein the respective
final registration document.
Upon arrival at the port of Manila, the Buyer filed the corresponding applications for registration of
the vessels, but, the Bureau of Customs placed the same under custody and refused to give due
course to said applications, unless the aforementioned sums of P483,433 and P494,824 be paid as
compensating tax. As the Commissioner of Customs refused to reconsider the stand taken by his
office, the Buyers simultaneously filed with the Court of Tax Appeals their respective petitions for
review, against the Commissioner of Customs and the Commissioner of Internal Revenue —
hereinafter referred to collectively as Appellants — with urgent motion for suspension of the
collection of said tax. After a joint hearing on this motion, the same was, on October 31, 1960,
granted by the Tax Court, upon the sum of a P500,000.00 bond by each one of the Buyers.
On June 17, 1961, while these cases were pending trial in said Court, Republic Act No. 3079
amended Republic Act No. 1789 — the Original Reparations Act, under which the aforementioned
contracts with the Buyers had been executed — by exempting buyers of reparations goods
acquired from the Commission, from liability for the compensating tax. Moreover, section 20 of
Republic Act No. 3079, provides:
x x x This Act shall take effect upon its approval, except that the amendment contained in Section
seven hereof relating to the requirements of procurement orders including the requirement of
down payment by private applicant end-users shall not apply to procurement orders already duty
issued and verified at the time of the passage of this amendatory Act, and except further that the
amendment contained in Section ten relating to the insurance of the reparations goods by the end-
users upon delivery shall apply also to goods covered by contracts already entered into by the
Commission and end-user prior to the approval of this amendatory Act as well as goods already
delivered to the end-user, and except further that the amendments contained in Sections eleven
and twelve hereof relating to the terms of installment payments on capital goods disposed of to
private parties, and the execution of a performance bond before delivery of reparations goods,
shall not apply to contracts for the utilization of reparations goods already entered into by the
Commission and the end-users prior to the approval of this amendatory Act: Provided, That any
end-user may apply for the renovation of his utilization contract with the Commission in order to
avail of any provision of this amendatory Act which is more favorable to an applicant end-user than
has heretofore been granted in like manner and to the same extent as an end-user filing his
application after the approval of this amendatory Act, and the Commission may agree to such
renovation on condition that the end-user shall voluntarily assume all the new obligations provided
for in this amendatory Act.
Invoking the provisions of this section 20, the Buyers applied, therefore, for the renovation of their
utilizations contracts with the Commission, which granted the application, and, then, filed with the
Tax Court, their supplemental petitions for review. Subsequently, the parties submitted
Stipulations of Fact and, after a joint trial, at which they introduced additional evidence, said Court
rendered the appealed decision, reversing the decisions herein Appellants, and declared said
Buyers exempt from the compensating tax sought to be assessed against the vessels
aforementioned. Hence, these appeals by the Government G.R. No. L-21633 refers to the case as
regards "M/S Maria Rosello," whereas "M/S General Lim" is the subject-matter of G.R. No. L-21634.
It seems clear that, under Republic Act No. 1789 — pursuant to which the contracts of Conditional
Purchase and Sale in question had been executed — the vessels "M/S Maria Rosello" and "M/S
General Lim" were subject to compensating tax. Indeed, Section 14 of said Act provides that
"reparations goods obtained by private parties shall be exempt only from the payment of customs
duties, consular fees and the special import tax." Although this Section was amended by R.A. No.
3079, to include the compensating tax" among the exemptions enumerated therein, such
amendment took place, not only after the contracts involved in these appeals had been perfected
and partly consummated, but, also, after the corresponding compensating tax had become due
and payment thereof demanded by Appellants herein. It is, moreover, obvious that said additional
exemption should not and cannot be given retroactive operation, in the absence of a manifest
intent of Congress to do this effect. The issue in the cases at bar hinges on whether or not such
intent is clear.
Appellants maintain the negative, upon the ground that a tax exemption must be clear and explicit;
that there is no express provision for the retroactivity of the exemption, established by Republic
Act No. 3079, from the compensating tax; that the favorable provisions, which are referred to in
section 20 thereof, cannot include the exemption from compensating tax; and, that Congress could
not have intended any retroactive exemption, considering that the result thereof would be
prejudicial to the Government.
The inherent weakness of the last ground becomes manifest when we consider that, if true, there
could be no tax exemption of any kind whatsoever, even if Congress should wish to create one,
because every such exemption implies a waiver of the right to collect what otherwise would be due
to the Government, and, in this sense, is prejudicial thereto. In fact, however, tax exemptions may
and do exist, such as the one prescribed in section 14 of Republic Act No. 1789, as amended by
Republic Act No. 3079, which, by the way, is "clear and explicit," thus, meeting the first ground of
appellant's contention. It may not be amiss to add that no tax exemption — like any other legal
exemption or exception — is given without any reason therefor. In much the same way as other
statutory commands, its avowed purpose is some public benefit or interest, which the law-making
body considers sufficient to offset the monetary loss entitled in the grant of the exemption.
Indeed, section 20 of Republic Act No. 3079 exacts a valuable consideration for the retroactivity of
its favorable provisions, namely, the voluntary assumption, by the end-user who bought
reparations goods prior to June 17, 1961 of "all the new obligations provided for in" said Act.
The argument adduced in support of the third ground is that the view adopted by the Tax Court
would operate to grant exemption to particular persons, the Buyers herein. It should be noted,
however, that there is no constitutional injunction against granting tax exemptions to particular
persons. In fact, it is not unusual to grant legislative franchises to specific individuals or entities,
conferring tax exemptions thereto. What the fundamental law forbids is the denial of equal
protection, such as through unreasonable discrimination or classification.1äwphï1.ñët
Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating
tax, not particular persons, but persons belonging to a particular class. Indeed, appellants do not
assail the constitutionality of said section 14, insofar as it grants exemptions to end-users who,
after the approval of Republic Act No. 3079, on June 17, 1961, purchased reparations goods
procured by the Commission. From the viewpoint of Constitutional Law, especially the equal
protection clause, there is no difference between the grant of exemption to said end-users, and the
extension of the grant to those whose contracts of purchase and sale mere made before said date,
under Republic Act No. 1789.
It is true that Republic Act No. 3079 does not explicitly declare that those who purchased
reparations goods prior to June 17, 1961, are exempt from the compensating tax. It does not say
so, because they do not really enjoy such exemption, unless they comply with the proviso in
Section 20 of said Act, by applying for the renovation of their respective utilization contracts, "in
order to avail of any provision of the Amendatory Act which is more favorable" to the applicant. In
other words, it is manifest, from the language of said section 20, that the same intended to give
such buyers the opportunity to be treated "in like manner and to the same extent as an end-user
filing his application after this approval of this Amendatory Act." Like the "most-favored-nation-
clause" in international agreements, the aforementioned section 20 thus seeks, not to discriminate
or to create an exemption or exception, but to abolish the discrimination, exemption or exception
that would otherwise result, in favor of the end-user who bought after June 17, 1961 and against
one who bought prior thereto. Indeed, it is difficult to find a substantial justification for the
distinction between the one and the other. As correctly held by the Tax Court in Philippine Ace
Lines, Inc. v. Commissioner of Internal Revenue (C.T.A. Nos. 964 and 984, January 25, 1963), and
reiterated in the cases under consideration:
x x x In providing that the favorable provision of Republic Act No. 3079 shall be available to
applicants for renovation of their utilization contracts, on condition that said applicants shall
voluntarily assume all the new obligations provided in the new law, the law intends to place
persons who acquired reparations goods before the enactment of the amendatory Act on the same
footing as those who acquire reparations goods after its enactment. This is so because of the
provision that once an application for renovation of a utilization contract has been approved, the
favorable provisions of said Act shall be available to the applicant "in like manner and to the same
extent, as an end-user filing his application alter the approval of this amendatory Act." To deny
exemption from compensating tax to one whose utilization contract has been renovated, while
granting the exemption to one who files an application for acquisition of reparations goods after
the approval of the new law, would be contrary to the express mandate of the new law, that they
both be subject to the same privileges in like manner and to the same extent. It would be manifest
distortion of the literal meaning and purpose of the new law.
Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed in toto, without
any pronouncement as to costs. It is so ordered.
15. G.R. No. 109289 October 3, 1994 Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor
shall any person be denied the equal protection of the laws.
RUFINO R. TAN, petitioner,
vs. In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF public respondents have exceeded their rule-making authority in applying SNIT to general
INTERNAL REVENUE, respondents. professional partnerships.

G.R. No. 109446 October 3, 1994 The Solicitor General espouses the position taken by public respondents.

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O.
CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his
capacity as COMMISSIONER OF INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.
The Court has given due course to both petitions. The parties, in compliance with the Court's
directive, have filed their respective memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a
misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme
for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

VITUG, J.:
An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income National Internal Revenue Code, as Amended.
Taxation Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and,
in The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public Code, as now amended, provide:
respondents pursuant to said law.
Sec. 21. Tax on citizens or residents. —
Petitioners claim to be taxpayers adversely affected by the continued implementation of the
amendatory legislation. xxx xxx xxx

In G.R. No. 109289, it is asserted that the enactment of Republic Act (f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the
No. 7496 violates the following provisions of the Constitution: Practice of Profession. — A tax is hereby imposed upon the taxable net income as determined in
Section 27 received during each taxable year from all sources, other than income covered by
Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which paragraphs (b), (c), (d) and (e) of this section by every individual whether
shall be expressed in the title thereof. a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices
his profession herein, determined in accordance with the following schedule:
Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation. Not over P10,000 3%
Over P10,000 but not over P30,000 P300 + 9% of excess over P10,000
Over P30,000 but not over P120,00 P2,100 + 15% of excess over P30,000
Over P120,000 but not over P350,000 P15,600 + 20% of excess over P120,000
Over P350,000 P61,600 + 30% of excess over P350,000
Sec. 29. Deductions from gross income. — In computing taxable income subject to tax under
Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items
specified in paragraphs (a) to (i) of this section: Provided, however, That in computing taxable
income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice
of profession, only the following direct costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or pursuant to the
business or practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for the
rehabilitation of calamity stricken areas declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted from accredited
financial institutions which must be proven to have been incurred in connection with the conduct
of a taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of
forty per cent (40%) of their gross receipts shall be allowed as deductions to answer for business or
professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept petitioner's view that
the amendatory law should be considered as having now adopted a gross income, instead of as
having still retained the net income, taxation scheme. The allowance for deductible items, it is true,
may have significantly been reduced by the questioned law in comparison with that which has
prevailed prior to the amendment; limiting, however, allowable deductions from gross income is
neither discordant with, nor opposed to, the net income tax concept. The fact of the matter is still
that various deductions, which are by no means inconsequential, continue to be well provided
under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling
legislation intended to unite the members of the legislature who favor any one of unrelated
subjects in support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and
(c) to fairly apprise the people, through such publications of its proceedings as are usually made, of
the subjects of legislation.1 The above objectives of the fundamental law appear to us to have
been sufficiently met. Anything else would be to require a virtual compendium of the law which
could not have been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that
taxation "shall be uniform and equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it imposes the tax on corporations
and partnerships. The contention clearly forgets, however, that such a system of income taxation
has long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend
classification as long as: (1) the standards that are used therefor are substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things
being equal, to both present and future conditions, and (4) the classification applies equally well to
all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR,
197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular approach2 in the income taxation
of individual taxpayers and to maintain, by and large, the present global treatment3 on taxable
corporations. We certainly do not view this classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process,
what he believes to be an imbalance between the tax liabilities of those covered by the
amendatory law and those who are not. With the legislature primarily lies the discretion to
determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. This court cannot freely delve into those matters which, by constitutional fiat, rightly rest
on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as
to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its
plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has
not been demonstrated to have been reached within any appreciable distance in this controversy
before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional
for being violative of due process must perforce fail. The due process clause may correctly be
invoked only when there is a clear contravention of inherent or constitutional limitations in the
exercise of the tax power. No such transgression is so evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question of whether or not
public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations
No. 2-93, to carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the
partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of
the partnership, only the direct costs mentioned in said law are to be deducted from partnership
income. Also, the expenses paid or incurred by partners in their individual capacities in the practice
of their profession which are not reimbursed or paid by the partnership but are not considered as
direct cost, are not deductible from his gross income.
The real objection of petitioners is focused on the administrative interpretation of public
respondents that would apply SNIT to partners in general professional partnerships. Petitioners cite
the pertinent deliberations in Congress during its enactment of Republic Act No. 7496, also quoted
by the Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in the
latter's privilege speech by way of commenting on the questioned implementing regulation of
public respondents following the effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do we speak
here of individuals who are earning, I mean, who earn through business enterprises and therefore,
should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies only to
individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this bill is
intended to increase collections as far as individuals are concerned and to make collection of taxes
equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS,
it is categorically stated, thus:
This bill, Mr. President, is not applicable to business corporations or to partnerships; it is only with
respect to individuals and professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent misconception that general professional
partnerships are subject to the payment of income tax or that there is a difference in the tax
treatment between individuals engaged in business or in the practice of their respective
professions and partners in general professional partnerships. The fact of the matter is that a
general professional partnership, unlike an ordinary business partnership (which is treated as a
corporation for income tax purposes and so subject to the corporate income tax), is not itself an
income taxpayer. The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity computed on their distributive
shares of partnership profits. Section 23 of the Tax Code, which has not been amended at all by
Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional partnerships. — (a) Persons exercising a
common profession in general partnership shall be liable for income tax only in their individual
capacity, and the share in the net profits of the general professional partnership to which any
taxable partner would be entitled whether distributed or otherwise, shall be returned for taxation
and the tax paid in accordance with the provisions of this Title.
(b) In determining his distributive share in the net income of the partnership, each partner
—
(1) Shall take into account separately his distributive share of the partnership's income, gain,
loss, deduction, or credit to the extent provided by the pertinent provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability between a person who practices his
profession alone or individually and one who does it through partnership (whether registered or
not) with others in the exercise of a common profession. Indeed, outside of the gross
compensation income tax and the final tax on passive investment income, under the present
income tax system all individuals deriving income from any source whatsoever are treated in
almost invariably the same manner and under a common set of rules.
We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic
Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The
view can easily become myopic, however, when the law is understood, as it should be, as only
forming part of, and subject to, the whole income tax concept and precepts long obtaining under
the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all
embracing term used in the Tax Code, and it practically covers all persons who derive taxable
income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and
residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject
to income tax liability on their income from all sources) and of the generally accepted and
internationally recognized income taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine sources). In the process, the Code
classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates
under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to
income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships."
Ordinarily, partnerships, no matter how created or organized, are subject to income tax (and thus
alluded to as "taxable partnerships") which, for purposes of the above categorization, are by law
assimilated to be within the context of, and so legally contemplated as, corporations. Except for
few variances, such as in the application of the "constructive receipt rule" in the derivation of
income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not intended
or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on
Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently
subject to the payment of income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even
considered as independent taxable entities for income tax purposes. A general professional
partnership is such an example.4 Here, the partners themselves, not the partnership (although it is
still obligated to file an income tax return [mainly for administration and data]), are liable for the
payment of income tax in their individual capacity computed on their respective and distributive
shares of profits. In the determination of the tax liability, a partner does so as an individual, and
there is no choice on the matter. In fine, under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism or a flow-through entity
in the generation of income by, and the ultimate distribution of such income to, respectively, each
of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing
rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions
applicable to all individual income taxpayers on their non-compensation income. There is no
evident intention of the law, either before or after the amendatory legislation, to place in an
unequal footing or in significant variance the income tax treatment of professionals who practice
their respective professions individually and of those who do it through a general professional
partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

SO ORDERED.
16. G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President,
HON. VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.
NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this matter of indirect
tax exemption of the private respondent National Power Corporation (NPC) is brought to this Court
a second time. Unfazed by the Decision We promulgated on May 31, 19911 petitioner Ernesto
Maceda asks this Court to reconsider said Decision. Lest We be criticized for denying due process to
the petitioner. We have decided to take a second look at the issues. In the process, a hearing was
held on July 9, 1992 where all parties presented their respective arguments. Etched in this Court's
mind are the paradoxical claims by both petitioner and private respondents that their respective
positions are for the benefit of the Filipino people.
I taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power
Corporation, a public corporation, mainly to develop hydraulic power from all water sources in the
Philippines.2 The sum of P250,000.00 was appropriated out of the funds in the Philippine Treasury
for the purpose of organizing the NPC and conducting its preliminary work.3 The main source of
funds for the NPC was the flotation of bonds in the capital markets4 and these bonds
. . . issued under the authority of this Act shall be exempt from the payment of all taxes by the
Commonwealth of the Philippines, or by any authority, branch, division or political subdivision
thereof and subject to the provisions of the Act of Congress, approved March 24, 1934, otherwise
known as the Tydings McDuffle Law, which facts shall be stated upon the face of said bonds. . . . .5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the
initial operations of the NPC and reiterating the provision of the flotation of bonds as soon as the
first construction of any hydraulic power project was to be decided by the NPC Board.6 The
provision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor
deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the
bond's principal and interest in "gold coins" but adding that payment could be made in United
States dollars.7 The provision on tax exemption in relation to the issuance of the NPC bonds was
neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to
guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC
loans.8 He was also authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate
objectives9 and for the reconstruction and development of the economy of the country. 10 It was
expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and
restrictions of the Republic of the Philippines, its provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to
incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to
the pertinent tax exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, the
President of the Philippines was authorized to negotiate, contract and guarantee loans with the
Export-Import Bank of of Washigton, D.C., U.S.A., or any other international financial institution. 14
The tax provision for repayment of these loans, as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real
estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of the
Republic of the Philippines, its provinces, cities, and municipalities.15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by
the increased indebtedness 16 should bear the National Economic Council's stamp of approval. The
tax exemption provision related to the payment of this total indebtedness was not amended nor
deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was
authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17
The tax provision related to the repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31,
2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were
expressly repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a
stock corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000
shares having a par value of P100.00 each, with said capital stock wholly subscribed to by the
Government. 20 No tax exemption was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital
stock to P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax
provision was incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to
P300,000,000.00, the increase to be wholly subscribed by the Government. No tax provision was
incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120,
as amended. Declared as primary objectives of the nation were:
Declaration of Policy. — Congress hereby declares that (1) the comprehensive development,
utilization and conservation of Philippine water resources for all beneficial uses, including power
generation, and (2) the total electrification of the Philippines through the development of power
from all sources to meet the needs of industrial development and dispersal and the needs of rural
electrification are primary objectives of the nation which shall be pursued coordinately and
supported by all instrumentalities and agencies of the government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority
to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt from the payment of all
taxes by the Republic of the Philippines, or by any authority, branch, division or political subdivision
thereof which facts shall be stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as
follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the
principal, interest and other charges thereon, as well as the importation of machinery, equipment,
materials and supplies by the Corporation, paid from the proceeds of any loan, credit or
indebtedeness incurred under this Act, shall also be exempt from all taxes, fees, imposts, other
charges and restrictions, including import restrictions, by the Republic of the Philippines, or any of
its agencies and political subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares
the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any
court or administrative proceedings in which it may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities, and municipalities and other government agencies
and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring that the electrification of
the entire country was one of the primary concerns of the country. And in connection with this, it
was specifically stated that:
The setting up of transmission line grids and the construction of associated generation facilities in
Luzon, Mindanao and major islands of the country, including the Visayas, shall be the responsibility
of the National Power Corporation (NPC) as the authorized implementing agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and operate as a single integrated
system all generating facilities supplying electric power to the entire area embraced by any grid set
up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill
its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to P2,000,000,000.00,
29 its total domestic indebtedness was pegged at a maximum of P3,000,000,000.00 at any one
time, 30 and the NPC was authorized to borrow a total of US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the
principal, interest and other charges thereon, as well as the importation of machinery, equipment,
materials, supplies and services, by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees,
imposts, other charges and restrictions, including import restrictions previously and presently
imposed, and to be imposed by the Republic of the Philippines, or any of its agencies and political
subdivisions. 32 (Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to the
Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities including the taxes, duties, fees, imposts and other charges provided for under
the Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen Hundred Thirty-
Seven, as amended, and as further amended by Presidential Decree No. 34 dated October 27,
1972, and Presidential Decree No. 69, dated November 24, 1972, and costs and service fees in any
court or administrative proceedings in which it may be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of
electricity to its different customers. 34 No tax exemption provision was amended, deleted or
added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated
annually to cover the unpaid subscription of the Government in the NPC authorized capital stock,
which amount would be taken from taxes accruing to the General Funds of the Government,
proceeds from loans, issuance of bonds, treasury bills or notes to be issued by the Secretary of
Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation and transmission facilities which
includes nuclear power generation, the present capitalization of National Power Corporation (NPC)
and the ceilings for domestic and foreign borrowings are deemed insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption provisions of the Revised Charter, the non-profit character
of NPC has not been fully utilized because of restrictive interpretation of the taxing agencies of the
government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and attain the declared objective of total
electrification of the country, further amendments of certain sections of Republic Act No. 6395, as
amended by Presidential Decrees Nos. 380, 395 and 758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness
ceiling was increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to read as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay to its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared
exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service
fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177,
1931 and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to
imports as follows:
WHEREAS, importations by certain government agencies, including government-owned or
controlled corporation, are exempt from the payment of customs duties and compensating tax;
and
WHEREAS, in order to reduce foreign exchange spending and to protect domestic industries, it is
necessary to restrict and regulate such tax-free importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers
vested in me by the Constitution, and do hereby decree and order the following:
Sec. 1. All importations of any government agency, including government-owned or controlled
corporations which are exempt from the payment of customs duties and internal revenue taxes,
shall be subject to the prior approval of an Inter-Agency Committee which shall insure compliance
with the following conditions:
(a) That no such article of local manufacture are available in sufficient quantity and
comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed and will be used
exclusively by the grantee of the exemption for its operations and projects or in the conduct of its
functions; and
(c) The shipping documents covering the importation are in the name of the grantee to
whom the goods shall be delivered directly by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control the tax-free importation of
government agencies in accordance with the conditions set forth in Section 1 hereof and the
regulations to be promulgated to implement the provisions of this Decree. Provided, however, That
any government agency or government-owned or controlled corporation, or any local
manufacturer or business firm adversely affected by any decision or ruling of the Inter-Agency
Committee may file an appeal with the Office of the President within ten days from the date of
notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all general and
special laws and decrees are hereby amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a National Budget that is an
instrument of national development, reflective of national objectives, strategies and plans. The
budget shall be supportive of and consistent with the socio-economic development plan and shall
be oriented towards the achievement of explicit objectives and expected results, to ensure that
funds are utilized and operations are conducted effectively, economically and efficiently. The
national budget shall be formulated within a context of a regionalized government structure and of
the totality of revenues and other receipts, expenditures and borrowings of all levels of
government-owned or controlled corporations. The budget shall likewise be prepared within the
context of the national long-term plan and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations, shall pay income
taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that
organizations otherwise exempted by law from the payment of such taxes/duties may ask for a
subsidy from the General Fund in the exact amount of taxes/duties due: provided, further, that a
procedure shall be established by the Secretary of Finance and the Commissioner of the Budget,
whereby such subsidies shall automatically be considered as both revenue and expenditure of the
General Fund. 44
The law also declared that —
[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are inconsistent
with the provisions of the Decree are hereby repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself in after the
Aquino assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of tax privileges
to any government-owned or controlled corporation and all other units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all other units of government
enjoying tax privileges to share in the requirements of development, fiscal or otherwise, by paying
the duties, taxes and other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptions
from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of
government-owned or controlled corporations including their subsidiaries, are hereby withdrawn.
 It was thus ordered that:
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under Presidential Decree No. 776, Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax and
is hereby empowered to restore, partially or totally, the exemptions withdrawn by Section 1 above, duty incentives granted to government and private entities are hereby withdrawn, except:
any applicable tax and duty, taking into account, among others, any or all of the following:
a) those covered by the non-impairment clause of the Constitution;
1) The effect on the relative price levels; b) those conferred by effective internation agreement to which the Government of the
2) The relative contribution of the corporation to the revenue generation effort; Republic of the Philippines is a signatory;
3) The nature of the activity in which the corporation is engaged in; or c) those enjoyed by enterprises registered with:
4) In general the greater national interest to be served.
(i) the Board of Investment pursuant to Presidential Decree No. 1789, as amended;
xxx xxx xxx (ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66 as amended;
(iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees, Presidential Decree No. 538, was amended.
executive orders, administrative orders, rules, regulations or parts thereof which are inconsistent
with this Decree are hereby repealed, amended or modified accordingly. d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instructions No. 1416;
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration
or grant of tax exemption to other government and private entities without benefit of review by e) those conferred under the four basic codes namely:
the Fiscal Incentives Review Board, to wit:
(i) the Tariff and Customs Code, as amended;
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and October 14, 1984, (ii) the National Internal Revenue Code, as amended;
respectively, withdrew the tax and duty exemption privileges, including the preferential tax (iii) the Local Tax Code, as amended;
treatment, of government and private entities with certain exceptions, in order that the (iv) the Real Property Tax Code, as amended;
requirements of national economic development, in terms of fiscals and other resources, may be
met more adequately; f) those approved by the President upon the recommendation of the Fiscal Incentives
Review Board.
xxx xxx xxx
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
WHEREAS, in addition to those tax and duty exemption privileges were restored by the Fiscal amended, is hereby authorized to:
Incentives Review Board (FIRB), a number of affected entities, government and private, had their
tax and duty exemption privileges restored or granted by Presidential action without benefit or a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
review by the Fiscal Incentives Review Board (FIRB); b) revise the scope and coverage of tax and/or duty exemption that may be restored;
c) impose conditions for the restoration of tax and/or duty exemption;
xxx xxx xxx d) prescribe the date of period of effectivity of the restoration of tax and/or duty
exemption;
Since it was decided that: e) formulate and submit to the President for approval, a complete system for the grant of
subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and
[A]ssistance to government and private entities may be better provided where necessary by duty exemptions or preferential treatment in taxation, indicating the source of funding therefor,
explicit subsidy and budgetary support rather than tax and duty exemption privileges if only to eligible beneficiaries and the terms and conditions for the grant thereof taking into consideration
improve the fiscal monitoring aspects of government operations. the international commitment of the Philippines and the necessary precautions such that the grant
of subsidies does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take
into account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and
regulations, to be issued by the Ministry of Finance. 49 Said rules and regulations were
promulgated and published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn
in their TAXATION I course, which fro convenient reference, is as follows:
Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden:
a. Direct Tax — the where the person supposed to pay the tax really pays it. WITHOUT
transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's tax),
residence tax, immigration tax
b. Indirect Tax — that where the tax is imposed upon goods BEFORE reaching the consumer
who ultimately pays for it, not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and the tariff
and customs indirect taxes (import duties, special import tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced
to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all
forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No.
380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's intention that the
NPC was to be completely tax exempt from all forms of taxes — direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its
operations upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained
were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds — aside issuance of bonds —
it was again specifically exempted from all types of taxes "to facilitate payment of its
indebtedness." Even when the ceilings for domestic and foreign borrowings were periodically
increased, the tax exemption privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No.
987, as above stated. The exemption was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions
allowed NPC. Its section 13(d) is the starting point of this bone of contention among the parties.
For easy reference, it is reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph
as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared
exempt from the payment of ALL FORMS OF taxes, duties, fees, imposts as well as costs and service
fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380 and 938 were issued by one man,
acting as such the Executive and Legislative. 53
xxx xxx xxx
[S]ince both presidential decrees were made by the same person, it would have been very easy for
him to retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his intention were to
preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his
fault were. It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the
following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,",
included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax
exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above in part I hereof. President Marcos must have considered
all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and
P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No. 6395, as amended by P.D.
No. 938.
One common theme in all these laws is that the NPC must be enable to pay its indebtedness 56
which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4
Billion in total foreign loans at any one time. The NPC must be and has to be exempt from all forms
of taxes if this goal is to be achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that
to pay the government share in its capital stock P.D. No. 758 was issued mandating that P200
Million would be appropriated annually to cover the said unpaid subscription of the Government in
NPC's authorized capital stock. And significantly one of the sources of this annual appropriation of
P200 million is TAX MONEY accruing to the General Fund of the Government. It does not stand to
reason then that former President Marcos would order P200 Million to be taken partially or totally
from tax money to be used to pay the Government subscription in the NPC, on one hand, and then
order the NPC to pay all its indirect taxes, on the other.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the
phrase "All FORMS OF" is supported by the fact that he did not do the same for the tax exemption
provision for the foreign loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:
The loans, credits and indebtedness contracted under this subsection and the payment of the
principal, interest and other charges thereon, as well as the importation of machinery, equipment,
materials and supplies by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all taxes, fees, imposts, other
charges and restrictions, including import restrictions, by the Republic of the Philippines, or any of
its agencies and political subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the payment of the principal,
interest and other charges thereon, as well as the importation of machinery, equipment, materials,
supplies and services, by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees,
imposts, other charges and restrictions, including import restrictions previously and presently
imposed, and to be imposed by the Republic of the Philippines, or any of its agencies and political
subdivisions. 58 (Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A.
No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular
Section 8 (b) had to do only with loans and machinery imported, paid for from the proceeds of
these foreign loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax
exemption stood as is — with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to
"taxes, fees, imposts, other charges . . . to be imposed" in the future — surely, an indication that
the lawmakers wanted the NPC to be exempt from ALL FORMS of taxes — direct and indirect.
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and
indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government decided to rationalize
government receipts and expenditures by formulating and implementing a National Budget. 60 The
NPC, being a government owned and controlled corporation had to be shed off its tax exemption
status privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy from the
General Fund in the exact amount of taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It
allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-
free importation privileges under its Section 1, subject to the prior approval of an Inter-Agency
Committed created by virtue of said P.D. No. 882. It is presumed that the NPC, being the special
creation of the State, was allowed to continue its tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the matter of the abolition
of NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to
private Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four (4) months
AFTER the motion for Reconsideration had been filed. During oral arguments heard on July 9, 1992,
he proceeded to discuss this tax exemption withdrawal as explained by then Secretary of Justice
Vicente Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate Blue
Ribbon Committee Report No. 474, the basis of the petition at bar, fails to yield any mention of said
P.D. No. 1177's effect on NPC's tax exemption privileges. 63 Applying by analogy Pulido vs. Pablo,
64 the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption privileges
was not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption
privileges as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax
privileges of any government-owned or controlled corporation (GOCC). NPC included, was
reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The subsidy provided for in
Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D. No. 1931, was deemed repealed
as the Fiscal Incentives Revenue Board was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in
Section 23, P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had
to submit to the Office of the President its request for the P200 million mandated by P.D. No. 758
to be appropriated annually by the Government to cover its unpaid subscription to the NPC
authorized capital stock and that under Section 22, of the same P.D. No. NPC had to likewise
submit to the Office of the President its internal operating budget for review due to capital inputs
of the government (P.D. No. 758) and to the national government's guarantee of the domestic and
foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly
found themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated
that the Secretary of Finance and the Commissioner of the Budget had to establish the necessary
procedure to accomplish the tax payment/tax subsidy scheme of the Government. In effect, NPC,
did not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay
different revenue collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty and tax
exemptions, whether direct or indirect. And so there was nothing to be withdrawn or to be
restored under P.D. No. 1931, issued on June 11, 1984. This is evident from sections 1 and 2 of said
P.D. No. 1931, which reads:
"Section 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, imports and other charges heretofore granted
in favor of government-owned or controlled corporations including their subsidiaries are hereby
withdrawn."
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under P.D. No. 776, is hereby
empowered to restore partially or totally, the exemptions withdrawn by section 1 above. . . .

Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it had already lost
all its tax exemptions privilege with the issuance of P.D. No. 1177 seven (7) years earlier or on July
30, 1977, there were no tax exemptions to be withdrawn by section 1 which could later be restored
by the Minister of Finance upon the recommendation of the FIRB under Section 2 of P.D. No. 1931.
Consequently, FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued since FIRB
acted beyond their statutory authority by creating and not merely restoring the tax exempt status
of NPC. The same is true for FIRB Res. No. 17-87 which restored NPC's tax exemption under E.O.
No. 93 which likewise abolished all duties and tax exemptions but allowed the President upon
recommendation of the FIRB to restore those abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or substantially the same terms the
provisions of the act or acts so revised and consolidated, the revision and consolidation shall be
taken to be a continuation of the former act or acts, although the former act or acts may be
expressly repealed by the revised and consolidated act; and all rights
and liabilities under the former act or acts are preserved and may be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section
23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No.
1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had
been expressly repealed by Section 2 with its institution of the FIRB recommendation of
partial/total restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax
exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy
for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its
tax exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-
85 67 and 1-86 68 as approved by the Minister of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both
legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax
exemption status but merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now
rather infamous Amendment No. 6 70 as there was no showing that President Marcos'
encroachment on legislative prerogatives was justified under the then prevailing condition that he
could legislate "only if the Batasang Pambansa 'failed or was unable to act inadequately on any
matter that in his judgment required immediate action' to meet the 'exigency'. 71
Actually under said Amendment No. 6, then President Marcos could issue decrees not only when
the Interim Batasang Pambansa failed or was unable to act adequately on any matter for any
reason that in his (Marcos') judgment required immediate action, but also when there existed a
grave emergency or a threat or thereof. It must be remembered that said Presidential Decree was
issued only around nine (9) months after the Philippines unilaterally declared a moratorium on its
foreign debt payments 72 as a result of the economic crisis triggered by loss of confidence in the
government brought about by the Aquino assassination. The Philippines was then trying to
reschedule its debt payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1
billion white elephant of a Bataan Nuclear Power Plant on its back. 75 From all indications, it must
have been this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No.
1931, under his Amendment 6 power. 76
The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be
passed without the concurrence of a majority of all the members of the Batasang Pambansa" 77
does not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then
President Marcos under His Amendment No. 6 power.
P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6
authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President
Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges.
The same was granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored
NPC's tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No.
93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no
indication, however, from the records of the case whether or not similar approvals were given by
then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to
believe that a "travesty of justice" might have occurred when the Minister of Finance approved his
own recommendation as Chairman of the Fiscal Incentives Review Board as what happened in
Zambales Chromate vs. Court of Appeals 80 when the Secretary of Agriculture and Natural
Resources approved a decision earlier rendered by him when he was the Director of Mines, 81 and
in Anzaldo vs. Clave 82 where Presidential Executive Assistant Clave affirmed, on appeal to
Malacañang, his own decision as Chairman of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about "due process" being
violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance
when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives
Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and
scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed.
In the case of the tax exemption restoration of NPC, there is no other comparable entity — not
even a single public or private corporation — whose rights would be violated if NPC's tax
exemption privileges were to be restored. While there might have been a MERALCO before Martial
Law, it is of public knowledge that the MERALCO generating plants were sold to the NPC in line
with the State policy that NPC was to be the State implementing arm for the electrification of the
entire country. Besides, MERALCO was limited to Manila and its environs. And as of 1984, there
was no more MERALCO — as a producer of electricity — which could have objected to the
restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges for the first
time. It was just asking that its tax exemption privileges be restored. It is for these reasons that, at
least in NPC's case, the recommendation and approval of NPC's tax exemption privileges under
FIRB Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as
Chairman of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate
procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on
October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93
(S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative
powers. Thus, there was no power delegated to her, rather it was she who was delegating her
power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the
legislature. Clearly, she was not sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy to be
carried out 85 and it fixed the standard to which the delegate had to conform in the performance
of his functions, 86 both qualities having been enunciated by this Court in Pelaez vs. Auditor
General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from
June 11, 1984 up to the present.
VII
The next question that projects itself is — who pays the tax?
The answer to the question could be gleamed from the manner by which the Commissaries of the
Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their
defendants but groceries and other goods free of all taxes and duties if bought from any AFP
Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and
other taxes on the goods earmarked for AFP Commissaries as an added cost of operation and
distribute it over the total units of goods sold as it would any other cost. Thus, even the ordinary
supermarket buyer probably pays for the specific, ad valorem and other taxes which theses
suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb the
taxes they add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders
an opinion, 90 wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties, fees,
imposts, charges, and restrictions of the Republic of the Philippines and its provinces, cities, and
municipalities." This exemption is broad enough to include all taxes, whether direct or indirect,
which the National Power Corporation may be required to pay, such as the specific tax on
petroleum products. That it is indirect or is of no amount [should be of no moment], for it is the
corporation that ultimately pays it. The view which refuses to accord the exemption because the
tax is first paid by the seller disregards realities and gives more importance to form than to
substance. Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as knowledge that
many impositions taxpayers have to pay are in the nature of indirect taxes. To limit the exemption
granted the National Power Corporation to direct taxes notwithstanding the general and broad
language of the statue will be to thwrat the legislative intention in giving exemption from all forms
of taxes and impositions without distinguishing between those that are direct and those that are
not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies which supply
bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the
very nature of indirect taxation, the economic burden of such taxation is expected to be passed on
through the channels of commerce to the user or consumer of the goods sold. Because, however,
the NPC has been exempted from both direct and indirect taxation, the NPC must beheld
exempted from absorbing the economic burden of indirect taxation. This means, on the one hand,
that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the
taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from
indirect taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the
"normal" purchase price of bunker fuel oil which represents all or part of the taxes previously paid
by the oil companies to BIR. If NPC nonetheless purchases such oil from the oil companies —
because to do so may be more convenient and ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from overseas — NPC is entitled to be reimbursed by the
BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the
oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes
HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of
which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said E.O.
no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED BY REVISING THE EXCISE TAX RATES OF CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as amended, is
hereby amended to read as follows:
Par. (b) — For products subject to ad valorem tax only:
PRODUCTAD VALOREM TAX RATE
1. ...
2. ...
3. ...
4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the
same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen hundred and
eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is
going to bear the economic burden of the ad valorem taxes. What this Court will now dispose of
are petitioner's complaints that some indirect tax money has been illegally refunded by the Bureau
of Internal Revenue to the NPC and that more claims for refunds by the NPC are being processed
for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC
last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes
during the period from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax
Credit Memo illegal as the PNC did not have indirect tax exemptions with the enactment of P.D.
No. 938. As We have already ruled otherwise, the only questions left are whether NPC Is entitled to
a tax refund for the tax component of the price of the bunker fuel oil purchased from Caltex (Phils.)
Inc. and whether the Bureau of Internal Revenue properly refunded the amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs — NPC included, it was only on May 8, 1985 when the BIR issues its
letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil
companies pursuant to FIRB Resolution No. 10-85. 92 Since the tax exemption restoration was
retroactive to June 11, 1984 there was a need. therefore, to recover said amount as Caltex (PhiIs.)
Inc. had already paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC during
the period above indicated and had billed NPC correspondingly. 93 It should be noted that the NPC,
in its letter-claim dated September 11, 1985 to the Commissioner of the Bureau of Internal
Revenue DID NOT CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79
as part of the bunker fuel oil price it purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National
Internal Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. — No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any Manner
wrongfully collected. until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been NPC, assuming that NPC's claim had been made seasonably, and assuming the amounts covered
paid under protest or duress. had actually been paid previously by the oil companies to the BIR.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby
date of payment of the tax or penalty regardless of any supervening cause that may arise after DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby
payment; Provided, however, That the Commissioner may, even without a written claim therefor, AFFIRMED.
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly, to have been erroneously paid. SO ORDERED.

xxx xxx xxx

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the Commissioner
correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the
BIR from June 11, 1984 to the early part of 1986. 96

A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when
the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of
the Deed of Assignment 97 executed by and between NPC and Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal Revenue
amounting to P442,887,716.16. P58.020,110.79 of which is due to Assignor's oil purchases from the
Assignee (Caltex [Phils.] Inc.)

Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the
BIR from refunding said amount because of Our ruling that NPC has both direct and indirect tax
exemption privileges. Neither can We order the BIR to refund said amount to NPC as there is no
pending petition for review on certiorari of a suit for its collection before Us. At any rate, at this
point in time, NPC can no longer file any suit to collect said amount EVEN IF lt has previously filed a
claim with the BIR because it is time-barred under Section 230 of the National Internal Revenue
Code of 1977. as amended, which states:

In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty REGARDLESS of any supervening cause that may arise after
payment. . . . (Emphasis supplied)

The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by
NPC for the amount of P410,580,000.00 had been made on said date. it is clear that more than two
(2) years had already elapsed from said date. At the same time, We should note that there is no
legal obstacle to the BIR granting, even without a suit by NPC, the tax credit or refund claimed by