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PLANTER PRODUCTS INC. v. FERTIPHIL

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of statutes, executive orders, presidential decrees and
other issuances. The Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.
The principle is relevant in this petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) affirming with modification that
of the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the levies it paid
under Letter of Instruction (LOI) No. 1465.
The Facts
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws. [3] They are both engaged in the
importation and distribution of fertilizers, pesticides and agricultural chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided, among others, for the
imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers in the Philippines.[4] The LOI provides:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution component of
not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.[5] (Underscoring supplied)
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA
then remitted the amount collected to the Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8,
1985 to January 24, 1986.[6]
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of democracy, Fertiphil demanded from
PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused to accede to the demand. [7]
Fertiphil filed a complaint for collection and damages[8] against FPA and PPI with the RTC in Makati. It questioned the constitutionality of LOI No.
1465 for being unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process of law.[9] Fertiphil alleged that
the LOI solely favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.
In its Answer,[10] FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a valid exercise of the police power of the State
in ensuring the stability of the fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI because the burden
imposed by the levy fell on the ultimate consumer, not the seller.
RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the defendant
Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.
SO ORDERED.[11]

Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of taxation, the RTC invalidated the levy for violating the basic
principle that taxes can only be levied for public purpose, viz.:
It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is purportedly in the exercise of the
power of taxation. It is a settled principle that the power of taxation by the state is plenary. Comprehensive and supreme, the principal
check upon its abuse resting in the responsibility of the members of the legislature to their constituents. However, there are two kinds of
limitations on the power of taxation: the inherent limitations and the constitutional limitations.
One of the inherent limitations is that a tax may be levied only for public purposes:
The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes
may not be levied for purely private purposes, for building up of private fortunes, or for the redress of private
wrongs. They cannot be levied for the improvement of private property, or for the benefit, and promotion of private
enterprises, except where the aid is incident to the public benefit. It is well-settled principle of constitutional law
that no general tax can be levied except for the purpose of raising money which is to be expended for public
use. Funds cannot be exacted under the guise of taxation to promote a purpose that is not of public
interest. Without such limitation, the power to tax could be exercised or employed as an authority to destroy the
economy of the people. A tax, however, is not held void on the ground of want of public interest unless the want of
such interest is clear. (71 Am. Jur. pp. 371-372)

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In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide Authority pursuant to the P10 per
bag of fertilizer sold imposition under LOI 1465 which, in turn, remitted the amount to the defendant Planters Products, Inc. thru the
latters depository bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil Corporation, which is a private
domestic corporation, became poorer by the amount of P6,698,144.00 and the defendant, Planters Product, Inc., another private
domestic corporation, became richer by the amount of P6,698,144.00.
Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is quite evident that LOI 1465 insofar
as it imposes the amount of P10 per fertilizer bag sold in the country and orders that the said amount should go to the defendant Planters
Product, Inc. is unlawful because it violates the mandate that a tax can be levied only for a public purpose and not to benefit, aid and
promote a private enterprise such as Planters Product, Inc.[12]
PPI moved for reconsideration but its motion was denied.[13] PPI then filed a notice of appeal with the RTC but it failed to pay the requisite appeal docket
fee. In a separate but related proceeding, this Court[14] allowed the appeal of PPI and remanded the case to the CA for proper disposition.
CA Decision
On November 28, 2003, the CA handed down its decision affirming with modification that of the RTC, with the following fallo:
IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED, subject to the MODIFICATION that the
award of attorneys fees is hereby DELETED.[15]
In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was the constitutionality of LOI No. 1465, thus:
The question then is whether it was proper for the trial court to exercise its power to judicially determine the constitutionality of
the subject statute in the instant case.
As a rule, where the controversy can be settled on other grounds, the courts will not resolve the constitutionality of a law (Lim v.
Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of
political departments are valid, absent a clear and unmistakable showing to the contrary.
However, the courts are not precluded from exercising such power when the following requisites are obtaining in a controversy
before it: First, there must be before the court an actual case calling for the exercise of judicial review. Second, the question must be ripe
for adjudication. Third, the person challenging the validity of the act must have standing to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity; and lastly, the issue of constitutionality must be the very lis mota of
the case (Integrated Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]).
Indisputably, the present case was primarily instituted for collection and damages. However, a perusal of the complaint also
reveals that the instant action is founded on the claim that the levy imposed was an unlawful and unconstitutional special
assessment. Consequently, the requisite that the constitutionality of the law in question be the very lis mota of the case is present,
making it proper for the trial court to rule on the constitutionality of LOI 1465.[16]
The CA held that even on the assumption that LOI No. 1465 was issued under the police power of the state, it is still unconstitutional because it did not
promote public welfare. The CA explained:
In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said law was an invalid exercise of
the States power of taxation inasmuch as it violated the inherent and constitutional prescription that taxes be levied only for public
purposes. It reasoned out that the amount collected under the levy was remitted to the depository bank of PPI, which the latter used to
advance its private interest.
On the other hand, appellant submits that the subject statutes passage was a valid exercise of police power. In addition, it disputes
the court a quos findings arguing that the collections under LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a
foundation created by law to hold in trust for millions of farmers, the stock ownership of PPI.
Of the three fundamental powers of the State, the exercise of police power has been characterized as the most essential, insistent
and the least limitable of powers, extending as it does to all the great public needs. It may be exercised as long as the activity or the
property sought to be regulated has some relevance to public welfare (Constitutional Law, by Isagani A. Cruz, p. 38, 1995 Edition).
Vast as the power is, however, it must be exercised within the limits set by the Constitution, which requires the concurrence of a
lawful subject and a lawful method. Thus, our courts have laid down the test to determine the validity of a police measure as follows: (1)
the interests of the public generally, as distinguished from those of a particular class, requires its exercise; and (2) the means employed
are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals (National Development
Company v. Philippine Veterans Bank, 192 SCRA 257 [1990]).
It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional. To be sure, ensuring
the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest. However, the method by
which LOI 1465 sought to achieve this is by no means a measure that will promote the public welfare. The governments commitment to
support the successful rehabilitation and continued viability of PPI, a private corporation, is an unmistakable attempt to mask the subject
statutes impartiality. There is no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest of the
countrys farmers or even the Filipino people in general. Well to stress, substantive due process exacts fairness and equal protection
disallows distinction where none is needed. When a statutes public purpose is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would
contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit
of private individuals.[17]

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The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the benefit of Planters Foundation, Inc., a foundation created to hold
in trust the stock ownership of PPI. The CA stated:
Appellant next claims that the collections under LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a
foundation created by law to hold in trust for millions of farmers, the stock ownership of PFI on the strength of Letter of Undertaking
(LOU) issued by then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice in an Opinion dated October
12, 1987, to wit:
2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing formula a
capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid portion of the outstanding
capital stock of Planters presently held in trust by Planters Foundation, Inc. (Planters Foundation), which unpaid capital is estimated at
approximately P206 million (subject to validation by Planters and Planters Foundation) (such unpaid portion of the outstanding capital
stock of Planters being hereafter referred to as the Unpaid Capital), and subsequently for such capital increases as may be required for
the continuing viability of Planters.
The capital recovery component shall be in the minimum amount of P10 per bag, which will be added to the price of all domestic
sales of fertilizer in the Philippines by any importer and/or fertilizer mother company. In this connection, the Republic hereby
acknowledges that the advances by Planters to Planters Foundation which were applied to the payment of the Planters shares now held in
trust by Planters Foundation, have been assigned to, among others, the Creditors. Accordingly, the Republic, through FPA, hereby agrees
to deposit the proceeds of the capital recovery component in the special trust account designated in the notice dated April 2, 1985,
addressed by counsel for the Creditors to Planters Foundation. Such proceeds shall be deposited by FPA on or before the 15 th day of each
month.

The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital and/or (b)
any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on the amounts which may be
outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables and (d) the capital increases contemplated in
paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost shall be at such rate as will represent the full and
reasonable cost to Planters of servicing its debts, taking into account both its peso and foreign currency-denominated obligations.
(Records, pp. 42-43)
Appellants proposition is open to question, to say the least. The LOU issued by then Prime Minister Virata taken together with the
Justice Secretarys Opinion does not preponderantly demonstrate that the collections made were held in trust in favor of millions of
farmers. Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this Court is constrained to rely on what
is explicitly provided in LOI 1465 that one of the primary aims in imposing the levy is to support the successful rehabilitation and
continued viability of PPI.[18]
PPI moved for reconsideration but its motion was denied.[19] It then filed the present petition with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:
I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE DECREED VIA A DEFAULT JUDGMENT IN A
CASE FILED FOR COLLECTIONAND DAMAGES WHERE THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE
CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN THE
COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK
OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT TO THE EXERCISE OF TAXATION AND POLICE POWER FOR
PUBLIC PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO THE GOVERNMENT, AND BECAME
GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED
RIGHTS BY VIRTUE OF THE PRINCIPLE OF OPERATIVEFACT PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.
IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN THE INSTANT CASE.[20] (Underscoring
supplied)
Our Ruling
We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to resolve constitutional issues.
Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere procedural technicality which may be waived.

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PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because it does not have a personal and substantial
interest in the case or will sustain direct injury as a result of its enforcement. [21] It asserts that Fertiphil did not suffer any damage from the CRC imposition
because incidence of the levy fell on the ultimate consumer or the farmers themselves, not on the seller fertilizer company.[22]
We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has been adequately discussed by this Court in a catena
of cases. Succinctly put, the doctrine requires a litigant to have a material interest in the outcome of a case. In private suits, locus standi requires a litigant to
be a real party in interest, which is defined as the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails
of the suit.[23]
In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff asserts a public right on behalf of the general
public because of conflicting public policy issues. [24] On one end, there is the right of the ordinary citizen to petition the courts to be freed from unlawful
government intrusion and illegal official action. At the other end, there is the public policy precluding excessive judicial interference in official acts, which may
unnecessarily hinder the delivery of basic public services.
In this jurisdiction, We have adopted the direct injury test to determine locus standi in public suits. In People v. Vera,[25] it was held that a person
who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain direct injury as a
result. The direct injury test in public suits is similar to the real party in interest rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil
Procedure.[26]
Recognizing that a strict application of the direct injury test may hamper public interest, this Court relaxed the requirement in cases of
transcendental importance or with far reaching implications. Being a mere procedural technicality, it has also been held that locus standi may be waived in
the public interest.[27]

Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct
injury from the enforcement of LOI No. 1465. It was required, and it did pay, the P10 levy imposed for every bag of fertilizer sold on the domestic market. It
may be true that Fertiphil has passed some or all of the levy to the ultimate consumer, but that does not disqualify it from attacking the constitutionality of the
LOI or from seeking a refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility of severe sanctions for failure to pay the
levy. The fact of payment is sufficient injury to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to factor in its product the levy. The levy certainly
rendered the fertilizer products of Fertiphil and other domestic sellers much more expensive. The harm to their business consists not only in fewer clients
because of the increased price, but also in adopting alternative corporate strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers
may have shouldered all or part of the levy just to be competitive in the market. The harm occasioned on the business of Fertiphil is sufficient injury for
purposes of locus standi.
Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently adopted by this Court on locus standi must
apply. The issues raised by Fertiphil are of paramount public importance. It involves not only the constitutionality of a tax law but, more importantly, the use
of taxes for public purpose. Former President Marcos issued LOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear from
the text of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made dependent and conditional upon PPI
becoming financially viable. The LOI provided that the capital contribution shall be collected until adequate capital is raised to make PPI viable.
The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty to squarely resolve the issue as the final
arbiter of all justiciable controversies. The doctrine of standing, being a mere procedural technicality, should be waived, if at all, to adequately thresh out an
important constitutional issue.
RTC may resolve constitutional issues; the constitutional issue was adequately raised in the complaint; it is the lis mota of the case.
PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts that the constitutionality of the LOI cannot be
collaterally attacked in a complaint for collection. [28] Alternatively, the resolution of the constitutional issue is not necessary for a determination of the
complaint for collection.[29]
Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It claims that the constitutionality of LOI No. 1465
is the very lis mota of the case because the trial court cannot determine its claim without resolving the issue. [30]
It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree or an executive order. This is clear from
Section 5, Article VIII of the 1987 Constitution, which provides:

SECTION 5. The Supreme Court shall have the following powers:

xxxx
(2)
Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final
judgments and orders of lower courts in:
(a)
All cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.
(Underscoring supplied)

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In Mirasol v. Court of Appeals,[31] this Court recognized the power of the RTC to resolve constitutional issues, thus:
On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to consider the constitutionality of
a statute, presidential decree, or executive order. The Constitution vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only in this Court, but in
all Regional Trial Courts.[32]
In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs,[33] this Court reiterated:
There is no denying that regular courts have jurisdiction over cases involving the validity or constitutionality of a rule or
regulation issued by administrative agencies. Such jurisdiction, however, is not limited to the Court of Appeals or to this Court alone for
even the regional trial courts can take cognizance of actions assailing a specific rule or set of rules promulgated by administrative
bodies. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. [34]
Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through any of the actions cognizable by courts of
justice, not necessarily in a suit for declaratory relief. Such review may be had in criminal actions, as in People v. Ferrer[35] involving the constitutionality of the
now defunct Anti-Subversion law, or in ordinary actions, as in Krivenko v. Register of Deeds[36] involving the constitutionality of laws prohibiting aliens from
acquiring public lands. The constitutional issue, however, (a) must be properly raised and presented in the case, and (b) its resolution is necessary to a
determination of the case, i.e., the issue of constitutionality must be the very lis motapresented.[37]
Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and adequately raised in the complaint for collection filed with
the RTC. The pertinent portions of the complaint allege:
6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in the Philippines, is unlawful,
unjust, uncalled for, unreasonable, inequitable and oppressive because:
xxxx
(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the expense and
disadvantage of the other fertilizer importers/distributors who were themselves in tight business situation and
were then exerting all efforts and maximizing management and marketing skills to remain viable;
xxxx
(e) It was a glaring example of crony capitalism, a forced program through which the PPI, having been
presumptuously masqueraded as the fertilizer industry itself, was the sole and anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is tantamount to illegal exaction
amounting to a denial of due process since the persons of entities which had to bear the burden of paying the CRC derived no benefit
therefrom; that on the contrary it was used by PPI in trying to regain its former despicable monopoly of the fertilizer industry to the
detriment of other distributors and importers.[38] (Underscoring supplied)
The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection. Fertiphil filed the complaint to compel PPI to refund
the levies paid under the statute on the ground that the law imposing the levy is unconstitutional. The thesis is that an unconstitutional law is void. It has no
legal effect. Being void, Fertiphil had no legal obligation to pay the levy. Necessarily, all levies duly paid pursuant to an unconstitutional law should be
refunded under the civil code principle against unjust enrichment. The refund is a mere consequence of the law being declared
unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality of the LOI
which triggers the refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.
The P10 levy under LOI No. 1465 is an exercise of the power of taxation.
At any rate, the Court holds that the RTC and the CA did not err in ruling against the constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of taxation. It claims that the LOI was implemented for the
purpose of assuring the fertilizer supply and distribution in the country and for benefiting a foundation created by law to hold in trust for millions of farmers
their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a private company. The levy was imposed to pay the
corporate debt of PPI. Fertiphil also argues that, even if the LOI is enacted under the police power, it is still unconstitutional because it did not promote the
general welfare of the people or public interest.
Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for validity. Police
power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare,[39] while the
power of taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The lawful subjects and lawful means tests are used to determine the validity of a law enacted under the police
power.[40] The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.
We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true that the power of taxation
can be used as an implement of police power,[41] the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at
least, one of the real and substantial purposes, then the exaction is properly called a tax. [42]

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In Philippine Airlines, Inc. v. Edu,[43] it was held that the imposition of a vehicle registration fee is not an exercise by the State of its police power, but
of its taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land Transportation and Traffic
Code that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise
funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. x x x Fees may be properly regarded as taxes even though they also serve as an instrument of regulation.
Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily
revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of
motor vehicle registration fees. The same provision appears as Section 59(b) in the Land Transportation Code. It is patent therefrom
that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor
vehicle as a tax or fee. x x x Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act
5448 need not be an additional tax. Rep. Act 4136 also speaks of other fees such as the special permit fees for certain types of motor
vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are
very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle registration
fee and chauffeurs license fee. Such fees are to go into the expenditures of the Land Transportation Commission as provided for in the
last proviso of Sec. 61.[44] (Underscoring supplied)
The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no doubt, was a big burden on the seller or the
ultimate consumer. It increased the price of a bag of fertilizer by as much as five percent. [45] A plain reading of the LOI also supports the conclusion that the
levy was for revenue generation. The LOI expressly provided that the levy was imposed until adequate capital is raised to make PPI viable.
Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give
undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely
private purposes or for the exclusive benefit of private persons. [46] The reason for this is simple. The power to tax exists for the general welfare; hence,
implicit in its power is the limitation that it should be used only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. As an old United States case bluntly put it: To lay with one hand, the power of the government on the property of the citizen,
and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery because it is done
under the forms of law and is called taxation.[47]
The term public purpose is not defined. It is an elastic concept that can be hammered to fit modern standards. Jurisprudence states that public
purpose should be given a broad interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government
functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are continually expanding in light of the expansion of government functions, the
inherent requirement that taxes can only be exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to
exact funds from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of
public purpose.
The purpose of a law is evident from its text or inferable from other secondary sources. Here, We agree with the RTC and that CA that the levy
imposed under LOI No. 1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The purpose is explicit from Clause 3 of the law, thus:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution component of
not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.[48] (Underscoring supplied)

It is a basic rule of statutory construction that the text of a statute should be given a literal meaning. In this case, the text of the LOI is plain that the
levy was imposed in order to raise capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They were cavalier enough to
name PPI as the ultimate beneficiary of the taxes levied under the LOI. We find it utterly repulsive that a tax law would expressly name a private company as
the ultimate beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism.
Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming financially viable. This suggests
that the levy was actually imposed to benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially viable. Worse, the
liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is made indefinite. They are required to continuously pay the levy until adequate
capital is raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and Trust Company,
the depositary bank of PPI.[49] This proves that PPI benefited from the LOI. It is also proves that the main purpose of the law was to give undue benefit and
advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding[50] dated May 18, 1985 signed by then Prime
Minister Cesar Virata reveals that PPI was in deep financial problem because of its huge corporate debts. There were pending petitions for rehabilitation
against PPI before the Securities and Exchange Commission. The government guaranteed payment of PPIs debts to its foreign creditors. To fund the
payment, President Marcos issued LOI No. 1465. The pertinent portions of the letter of understanding read:

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Republic of the Philippines

Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
may 18, 1985
TO: THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE CREDITORS)
OF PLANTERS PRODUCTS, INC. (PLANTERS)
Gentlemen:
This has reference to Planters which is the principal importer and distributor of fertilizer, pesticides and agricultural chemicals in
the Philippines. As regards Planters, the Philippine Government confirms its awareness of the following: (1) that Planters has
outstanding obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently experiencing financial
difficulties, and (3) that there are presently pending with the Securities and Exchange Commission of the Philippines a petition filed at
Planters own behest for the suspension of payment of all its obligations, and a separate petition filed by Manufacturers Hanover Trust
Company, Manila Offshore Branch for the appointment of a rehabilitation receiver for Planters.
In connection with the foregoing, the Republic of the Philippines (the Republic) confirms that it considers and continues to
consider Planters as a major fertilizer distributor. Accordingly, for and in consideration of your expressed willingness to consider and
participate in the effort to rehabilitate Planters, the Republic hereby manifests its full and unqualified support of the successful
rehabilitation and continuing viability of Planters, and to that end, hereby binds and obligates itself to the creditors and Planters, as
follows:
xxxx
2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing formula
a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid portion of the
outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. (Planters Foundation), which unpaid capital is
estimated at approximately P206 million (subject to validation by Planters and Planters Foundation) such unpaid portion of the
outstanding capital stock of Planters being hereafter referred to as the Unpaid Capital), and subsequently for such capital increases as
may be required for the continuing viability of Planters.
xxxx
The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital
and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on the amounts
which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost shall be at such rate as will represent
the full and reasonable cost to Planters of servicing its debts, taking into account both its peso and foreign currency-denominated
obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance[51]
It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI. We cannot agree with PPI that
the levy was imposed to ensure the stability of the fertilizer industry in the country. The letter of understanding and the plain text of the LOI clearly indicate
that the levy was exacted for the benefit of a private corporation.
All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was not for a public purpose. LOI No. 1465 failed to
comply with the public purpose requirement for tax laws.
The LOI is still unconstitutional even if enacted under the police power; it did not promote public interest.
Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing to comply with the test of lawful
subjects and lawful means. Jurisprudence states the test as follows: (1) the interest of the public generally, as distinguished from those of particular class,
requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon
individuals.[52]
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public interest. The law was enacted to give undue advantage to a
private corporation. We quote with approval the CA ratiocination on this point, thus:
It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional. To be sure,
ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest. However, the
method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public welfare. The governments
commitment to support the successful rehabilitation and continued viability of PPI, a private corporation, is an unmistakable attempt to
mask the subject statutes impartiality. There is no way to treat the self-interest of a favored entity, like PPI, as identical with the general

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interest of the countrys farmers or even the Filipino people in general. Well to stress, substantive due process exacts fairness and equal
protection disallows distinction where none is needed. When a statutes public purpose is spoiled by private interest, the use of police
power becomes a travesty which must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant
would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive
benefit of private individuals. (Underscoring supplied)
The general rule is that an unconstitutional law is void; the doctrine of operative fact is inapplicable.
PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared unconstitutional. It banks on the doctrine of operative fact,
which provides that an unconstitutional law has an effect before being declared unconstitutional. PPI wants to retain the levies paid under LOI No. 1465 even
if it is subsequently declared to be unconstitutional.
We cannot agree. It is settled that no question, issue or argument will be entertained on appeal, unless it has been raised in the court a quo.[53] PPI
did not raise the applicability of the doctrine of operative fact with the RTC and the CA. It cannot belatedly raise the issue with Us in order to extricate itself
from the dire effects of an unconstitutional law.
At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void. It produces no rights, imposes no duties and
affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has not been passed. [54] Being void, Fertiphil is not required to pay
the levy. All levies paid should be refunded in accordance with the general civil code principle against unjust enrichment. The general rule is supported by
Article 7 of the Civil Code, which provides:
ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse or
custom or practice to the contrary.
When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern.
The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play.[55] It nullifies the effects of an
unconstitutional law by recognizing that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have
consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration.[56]
The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have relied on the invalid
law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accused in double jeopardy [57] or would put in limbo the
acts done by a municipality in reliance upon a law creating it. [58]
Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. It unduly benefited from the
levy. It was proven during the trial that the levies paid were remitted and deposited to its bank account. Quite the reverse, it would be inequitable and unjust
not to order a refund. To do so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that every person who,
through an act of performance by another comes into possession of something at the expense of the latter without just or legal ground shall return the same to
him. We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003 is AFFIRMED.
CIR v. CENTRAL LUZON DRUG CORP.
T he 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax deduction from the gross income or gross sale of
the establishment concerned. A tax credit is used by a private establishment only after the tax has been computed; a tax deduction, before the tax is
computed. RA 7432 unconditionally grants a tax credit to all covered entities. Thus, the provisions of the revenue regulation that withdraw or modify such
grant are void. Basic is the rule that administrative regulations cannot amend or revoke the law.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the August 29, 2002 Decision [2] and the August 11, 2003
Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as follows:
WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in toto. No costs.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The CA narrated the antecedent facts as follows:
Respondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical products. In 1996, it operated six (6)
drugstores under the business name and style Mercury Drug.
From January to December 1996, respondent granted twenty (20%) percent sales discount to qualified senior citizens on their purchases of
medicines pursuant to Republic Act No. [R.A.] 7432 and its Implementing Rules and Regulations. For the said period, the amount allegedly representing
the 20% sales discount granted by respondent to qualified senior citizens totaled P904,769.00.
On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring therein that it incurred net losses from its
operations.

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On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount of P904,769.00 allegedly arising from the 20% sales
discount granted by respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals [(CTA or Tax Court)] via a Petition for Review.
On February 12, 2001, the Tax Court rendered a Decision[5] dismissing respondents Petition for lack of merit. In said decision, the [CTA] justified its
ruling with the following ratiocination:
x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount is due and collectible from the taxpayer, tax refund or tax
credit is unavailing. Moreover, whether the recovery of the tax is made by means of a claim for refund or tax credit, before recovery is allowed[,] it must
be first established that there was an actual collection and receipt by the government of the tax sought to be recovered. x x x.
x x x
xxx
xxx
Prescinding from the above, it could logically be deduced that tax credit is premised on the existence of tax liability on the part of taxpayer. In other
words, if there is no tax liability, tax credit is not available.
Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution,[6] granted respondents motion for reconsideration and
ordered herein petitioner to issue a Tax Credit Certificate in favor of respondent citing the decision of the then Special Fourth Division of [the CA] in CA
G.R. SP No. 60057 entitled Central [Luzon] Drug Corporation vs. Commissioner of Internal Revenue promulgated on May 31, 2001, to wit:
However, Sec. 229 clearly does not apply in the instant case because the tax sought to be refunded or credited by petitioner was not
erroneously paid or illegally collected. We take exception to the CTAs sweeping but unfounded statement that both tax refund and tax credit are
modes of recovering taxes which are either erroneously or illegally paid to the government. Tax refunds or credits do not exclusively pertain to
illegally collected or erroneously paid taxes as they may be other circumstances where a refund is warranted. The tax refund provided under
Section 229 deals exclusively with illegally collected or erroneously paid taxes but there are other possible situations, such as the refund of excess
estimated corporate quarterly income tax paid, or that of excess input tax paid by a VAT-registered person, or that of excise tax paid on goods
locally produced or manufactured but actually exported. The standards and mechanics for the grant of a refund or credit under these situations
are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit and it does not in any way refer to illegally
collected or erroneously paid taxes, x x x.[7]

Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue a tax credit certificate in favor of respondent in the
reduced amount of P903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax liability nor a payment of taxes by private establishments
prior to the availment of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but rather a just compensation for the
taking of private property for public use.
Hence this Petition.[8]
The Issues
Petitioner raises the following issues for our consideration:
Whether the Court of Appeals erred in holding that respondent may claim the 20% sales discount as a tax credit instead of as a
deduction from gross income or gross sales.
Whether the Court of Appeals erred in holding that respondent is entitled to a refund. [9]
These two issues may be summed up in only one: whether respondent, despite incurring a net loss, may still claim the 20 percent sales discount as a tax
credit.
The Courts Ruling
The Petition is not meritorious.
Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 7432[10] grants to senior citizens the privilege of obtaining a 20 percent discount on their purchase of medicine from any private
establishment in the country.[11] The latter may then claim the cost of the discount as a tax credit.[12] But can such credit be claimed, even though an
establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus

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Tax Deduction
Although the term is not specifically defined in our Tax Code, [13] tax credit generally refers to an amount that is subtracted directly from ones total tax
liability.[14] It is an allowance against the tax itself[15] or a deduction from what is owed[16] by a taxpayer to the government. Examples of tax credits are
withheld taxes, payments of estimated tax, and investment tax credits.[17]
Tax credit should be understood in relation to other tax concepts. One of these is tax deduction -- defined as a subtraction from income for tax
purposes,[18] or an amount that is allowed by law to reduce income prior to [the] application of the tax rate to compute the amount of tax which is
due.[19] An example of a tax deduction is any of the allowable deductions enumerated in Section 34[20] of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due, including -- whenever applicable -- the income tax that is
determined after applying the corresponding tax rates to taxable income.[21] A tax deduction, on the other, reduces the income that is subject to tax [22] in order
to arrive at taxable income.[23] To think of the former as the latter is to avoid, if not entirely confuse, the issue. A tax credit is used only after the tax has been
computed; a tax deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be applied. Without that liability,
anytax credit application will be useless. There will be no reason for deducting the latter when there is, to begin with, no existing obligation to the
government. However, as will be presented shortly, the existence of a tax credit or its grant by law is not the same as the availment or use of such credit. While
the grant is mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will obviously be no tax liability against which
any tax credit can be applied.[24] For the establishment to choose the immediate availment of a tax credit will be premature and impracticable. Nevertheless,
the irrefutable fact remains that, under RA 7432, Congress has granted without conditions a tax credit benefit to all covered establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability that calls for its application. Neither can it
be reduced to nil by the quick yet callow stroke of an administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax
credit may still be deducted from a future, not a present, tax liability, without which it does not have any use. In the meantime, it need not move. But it
breathes.
Prior Tax Payments Not
Required for Tax Credit
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of
such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even
though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain limitations -- for estate taxes paid to a foreign
country. Also found in Section 101(C) is a similar provision for donors taxes -- again when paid to a foreign country -- in computing for the donors tax
due. The tax creditsin both instances allude to the prior payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether or not subject to the VAT -- is also allowed a tax
credit that includes a ratable portion of any input tax not directly attributable to either activity. This input tax may either be the VAT on the purchase or
importation of goods or services that is merely due from -- not necessarily paid by -- such VAT-registered person in the course of trade or business; or the
transitional input tax determined in accordance with Section 111(A). The latter type may in fact be an amount equivalent to only eight percent of the value of
a VAT-registered persons beginning inventory of goods, materials and supplies, when such amount -- as computed -- is higher than the actual VAT paid on the
said items.[25] Clearly from this provision, the tax credit refers to an input tax that is either due only or given a value by mere comparison with the VAT
actually paid -- then later prorated. No tax is actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the purchase of primary agricultural products used
as inputs -- either in the processing of sardines, mackerel and milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price of public
work contracts entered into with the government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under Section 112(A), apply for the issuance of a tax
credit certificate for the amount of creditable input taxes merely due -- again not necessarily paid to -- the government and attributable to such sales, to the
extent that the input taxes have not been applied against output taxes.[26] Where a taxpayer is engaged in zero-rated or effectively zero-rated sales and also in
taxable or exempt sales, the amount of creditable input taxes due that are not directly and entirely attributable to any one of these transactions shall be
proportionately allocated on the basis of the volume of sales. Indeed, in availing of such tax creditfor VAT purposes, this provision -- as well as the one earlier
mentioned -- shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed, even though no prior tax payments are not
required. Specifically, in this provision, the imposition of a final withholding tax rate on cash and/or property dividends received by a nonresident foreign
corporation from a domestic corporation is subjected to the condition that a foreign tax credit will be given by the domiciliary country in an amount
equivalent to taxes that are merely deemed paid. [27] Although true, this provision actually refers to the tax credit as a condition only for the imposition of a
lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against the
income tax payable to the latter by the foreign corporation, the tax to be foregone or spared.[28]
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the income tax imposable under Title II, the
amount of income taxes merely incurred -- not necessarily paid -- by a domestic corporation during a taxable year in any foreign country. Moreover, Section
34(C)(5) provides that for such taxes incurred but not paid, a tax credit may be allowed, subject to the condition precedent that the taxpayer shall simply give

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a bond with sureties satisfactory to and approved by petitioner, in such sum as may be required; and further conditioned upon payment by the taxpayer of
any tax found due, upon petitioners redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that grant or allow tax credits, even though no prior
tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is taxed in the state of source is also taxable in
thestate of residence, but the tax paid in the former is merely allowed as a credit against the tax levied in the latter.[29] Apparently, payment is made to
the state of source, not the state of residence. No tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the incentives provided for in Article 48 of
Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net value earned,
or five or ten percent of the net local content of exports. [30] In order to avail of such credits under the said law and still achieve its objectives, no prior tax
payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of a tax credit. Thus, the CA correctly held
that the availment under RA 7432 did not require prior tax payments by private establishments concerned. [31] However, we do not agree with its
finding[32] that the carry-over of tax credits under the said special law to succeeding taxable periods, and even their application against internal revenue taxes,
did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not the existence or grant, of a tax credit. Regarding this
matter, a private establishment reporting a net loss in its financial statements is no different from another that presents a net income. Both are entitled to
the tax creditprovided for under RA 7432, since the law itself accords that unconditional benefit. However, for the losing establishment to immediately apply
such credit, where no tax is due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they grant.[33] In turn, the Implementing Rules and
Regulations, issued pursuant thereto, provide the procedures for its availment.[34] To deny such credit, despite the plain mandate of the law and the
regulations carrying out that mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers to tax credit as the amount representing the 20 percent discount that shall be deducted by
the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax
purposes.[35] In ordinary business language, the tax credit represents the amount of such discount. However, the manner by which the discount shall be
credited against taxes has not been clarified by the revenue regulations.
By ordinary acceptation, a discount is an abatement or reduction made from the gross amount or value of anything. [36] To be more precise, it is in
business parlance a deduction or lowering of an amount of money; [37] or a reduction from the full amount or value of something, especially a price. [38] In
business there are many kinds of discount, the most common of which is that affecting the income statement[39] or financial report upon which the income
tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business establishments to credit customers for their prompt payment.[40] It is a reduction in price
offered to the purchaser if payment is made within a shorter period of time than the maximum time specified. [41] Also referred to as a sales discount on the
part of the seller and a purchase discount on the part of the buyer, it may be expressed in such terms as 5/10, n/30.[42]
A quantity discount, however, is a reduction in price allowed for purchases made in large quantities, justified by savings in packaging, shipping, and
handling.[43] It is also called a volume or bulk discount.[44]
A percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by wholesalers to retailers [45] is known as a trade
discount. No entry for it need be made in the manual or computerized books of accounts, since the purchase or sale is already valued at the net price actually
charged the buyer.[46] The purpose for the discount is to encourage trading or increase sales, and the prices at which the purchased goods may be resold are
also suggested.[47] Even a chain discount -- a series of discounts from one list price -- is recorded at net.[48]
Finally, akin to a trade discount is a functional discount. It is a suppliers price discount given to a purchaser based on the [latters] role in the [formers]
distribution system.[49] This role usually involves warehousing or advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying generally accepted accounting principles (GAAP) in the country,
this type of discount is reflected in the income statement[50] as a line item deducted -- along with returns, allowances, rebates and other similar expenses -fromgross sales to arrive at net sales.[51] This type of presentation is resorted to, because the accounts receivable and sales figures that arise from sales
discounts, -- as well as from quantity, volume or bulk discounts -- are recorded in the manual and computerized books of accounts and reflected in the financial
statements at the gross amounts of the invoices.[52] This manner of recording credit sales -- known as the gross method -- is most widely used, because it is
simple, more convenient to apply than the net method, and produces no material errors over time.[53]
However, under the net method used in recording trade, chain or functional discounts, only the net amounts of the invoices -- after the discounts have
been deducted -- are recorded in the books of accounts[54] and reflected in the financial statements. A separate line item cannot be shown,[55] because the
transactions themselves involving both accounts receivable and sales have already been entered into, net of the said discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to amounts whose sum -- along with sales
returns, allowances andcost of goods sold[56] -- is deducted from gross sales to come up with the gross income, profit or margin[57] derived from business.[58] In

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another provision therein, sales discounts that are granted and indicated in the invoices at the time of sale -- and that do not depend upon the happening of any
future event -- may be excluded from the gross sales within the same quarter they were given.[59] While determinative only of the VAT, the latter provision
also appears as a suitable reference point for income tax purposes already embraced in the former. After all, these two provisions affirm that sales
discounts are amounts that are always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA 7432 is the private establishments outright deduction of the discount from the invoice price of
the medicine sold to the senior citizen.[60] It is, therefore, expected that for each retail sale made under this law, the discount period lasts no more than a day,
because such discount is given -- and the net amount thereof collected -- immediately upon perfection of the sale.[61] Although prompt payment is made for an
arms-length transaction by the senior citizen, the real and compelling reason for the private establishment giving the discount is that the law itself makes it
mandatory.
What RA 7432 grants the senior citizen is a mere discount privilege, not a sales discount or any of the above discounts in particular. Prompt payment is
not the reason for (although a necessary consequence of) such grant. To be sure, the privilege enjoyed by the senior citizen must be equivalent to the tax
creditbenefit enjoyed by the private establishment granting the discount. Yet, under the revenue regulations promulgated by our tax authorities, this benefit
has been erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from a sales discount. However, to a private establishment, the
effect is different from a simple reduction in price that results from such discount. In other words, the tax credit benefit is not the same as a sales discount. To
repeat from our earlier discourse, this benefit cannot and should not be treated as a tax deduction.
To stress, the effect of a sales discount on the income statement and income tax return of an establishment covered by RA 7432 is different from that
resulting from the availment or use of its tax credit benefit. While the former is a deduction before, the latter is a deduction after, the income tax is
computed. As mentioned earlier, a discount is not necessarily a sales discount, and a tax credit for a simple discount privilege should not be automatically
treated like a sales discount. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount deductible from gross income for income
tax purposes, or from gross sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This
contrived definition is improper, considering that the latter has to be deducted from gross sales in order to compute the gross income in the income
statement and cannot be deducted again, even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount -- when claimed -- shall be treated as a reduction
from any tax liability, plain and simple. The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to
a sales discount -- which is not even identical to the discount privilege that is granted by law -- does not define it at all and serves no useful purpose. The
definition must, therefore, be stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that operates to create a rule out of harmony with the statute is a mere
nullity;[62] it cannot prevail.
It is a cardinal rule that courts will and should respect the contemporaneous construction placed upon a statute by the executive officers whose duty it
is to enforce it x x x.[63] In the scheme of judicial tax administration, the need for certainty and predictability in the implementation of tax laws is
crucial.[64] Our tax authorities fill in the details that Congress may not have the opportunity or competence to provide.[65] The regulations these authorities
issue are relied upon by taxpayers, who are certain that these will be followed by the courts. [66] Courts, however, will not uphold these authorities
interpretations when clearly absurd, erroneous or improper.
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to what RA 7432
provides. Their interpretation has muddled up the intent of Congress in granting a mere discount privilege, not a sales discount. The administrative agency
issuing these regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft additional requirements not contemplated
by the legislature.[67]
In case of conflict, the law must prevail.[68] A regulation adopted pursuant to law is law.[69] Conversely, a regulation or any portion thereof not adopted
pursuant to law is no law and has neither the force nor the effect of law. [70]
Availment of Tax
Credit Voluntary
Third, the word may in the text of the statute[71] implies that the availability of the tax credit benefit is neither unrestricted nor mandatory.[72] There is no
absolute right conferred upon respondent, or any similar taxpayer, to avail itself of the tax credit remedy whenever it chooses; neither does it impose a duty
on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer. [73] For the tax
authorities to compel respondent to deduct the 20 percent discount from either its gross income or its gross sales[74] is, therefore, not only to make an
imposition without basis in law, but also to blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not imperative. Respondent is given two options -- either to claim
or not to claim the cost of the discounts as a tax credit. In fact, it may even ignore the credit and simply consider the gesture as an act of beneficence, an
expression of its social conscience.
Granting that there is a tax liability and respondent claims such cost as a tax credit, then the tax credit can easily be applied. If there is none, the credit
cannot be used and will just have to be carried over and revalidated [75] accordingly. If, however, the business continues to operate at a loss and no other taxes
are due, thus compelling it to close shop, the credit can never be applied and will be lost altogether.

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In other words, it is the existence or the lack of a tax liability that determines whether the cost of the discounts can be used as a tax credit. RA 7432 does
not give respondent the unfettered right to avail itself of the credit whenever it pleases. Neither does it allow our tax administrators to expand or contract the
legislative mandate. The plain meaning rule or verba legis in statutory construction is thus applicable x x x. Where the words of a statute are clear, plain and
free from ambiguity, it must be given its literal meaning and applied without attempted interpretation.[76]
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent domain. Be it stressed that the privilege enjoyed by senior
citizens does not come directly from the State, but rather from the private establishments concerned. Accordingly, the tax credit benefit granted to these
establishments can be deemed as their just compensation for private property taken by the State for public use.[77]
The concept of public use is no longer confined to the traditional notion of use by the public, but held synonymous with public interest, public
benefit, public welfare, and public convenience.[78] The discount privilege to which our senior citizens are entitled is actually a benefit enjoyed by the general
public to which these citizens belong. The discounts given would have entered the coffers and formed part of the gross sales of the private establishments
concerned, were it not for RA 7432. The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property
for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just compensation. This term refers not only to the issuance
of a tax credit certificate indicating the correct amount of the discounts given, but also to the promptness in its release. Equivalent to the payment of property
taken by the State, such issuance -- when not done within a reasonable time from the grant of the discounts -- cannot be considered as just compensation. In
effect, respondent is made to suffer the consequences of being immediately deprived of its revenues while awaiting actual receipt, through the certificate, of
the equivalent amount it needs to cope with the reduction in its revenues.[79]
Besides, the taxation power can also be used as an implement for the exercise of the power of eminent domain. [80] Tax measures are but enforced
contributions exacted on pain of penal sanctions[81] and clearly imposed for a public purpose.[82] In recent years, the power to tax has indeed become a most
effective tool to realize social justice, public welfare, and the equitable distribution of wealth.[83]
While it is a declared commitment under Section 1 of RA 7432, social justice cannot be invoked to trample on the rights of property owners who under
our Constitution and laws are also entitled to protection. The social justice consecrated in our [C]onstitution [is] not intended to take away rights from a
person and give them to another who is not entitled thereto. [84] For this reason, a just compensation for income that is taken away from respondent becomes
necessary. It is in the tax credit that our legislators find support to realize social justice, and no administrative body can alter that fact.
To put it differently, a private establishment that merely breaks even[85] -- without the discounts yet -- will surely start to incur losses because of such
discounts. The same effect is expected if its mark-up is less than 20 percent, and if all its sales come from retail purchases by senior citizens. Aside from the
observation we have already raised earlier, it will also be grossly unfair to an establishment if the discounts will be treated merely as deductions from either
itsgross income or its gross sales. Operating at a loss through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is inutile, if not
improper. Worse, profit-generating businesses will be put in a better position if they avail themselves of tax credits denied those that are losing, because no
taxes are due from the latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the community as a whole and to establish a program beneficial to
them.[86] These objectives are consonant with the constitutional policy of making health x x x services available to all the people at affordable cost[87] and of
giving priority for the needs of the x x x elderly.[88] Sections 2.i and 4 of RR 2-94, however, contradict these constitutional policies and statutory objectives.
Furthermore, Congress has allowed all private establishments a simple tax credit, not a deduction. In fact, no cash outlay is required from the
government for the availment or use of such credit. The deliberations on February 5, 1992 of the Bicameral Conference Committee Meeting on Social Justice,
which finalized RA 7432, disclose the true intent of our legislators to treat the sales discounts as a tax credit, rather than as a deduction from gross income. We
quote from those deliberations as follows:
"THE CHAIRMAN (Rep. Unico).
By the way, before that ano, about deductions from taxable income. I think we incorporated there a
provision na - on the responsibility of the private hospitals and drugstores, hindi ba?
SEN. ANGARA.

Oo.

THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about the deductions from taxable income of that
private hospitals, di ba ganon 'yan?
MS. ADVENTO.

Kaya lang po sir, and mga discounts po nila affecting government and public institutions, so, puwede na po nating hindi
isama yung mga less deductions ng taxable income.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung isiningit natin?
MS. ADVENTO.

Singit na po ba yung 15% on credit. (inaudible/did not use the microphone).

SEN. ANGARA.

Hindi pa, hindi pa.

THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

SEN. ANGARA.

Oo. You want to insert that?

COMPILATION OF CASES IN TAXATION I

THE CHAIRMAN

(Rep. Unico).

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PAGE | 14

Yung ang proposal ni Senator Shahani, e.

SEN. ANGARA.

In the case of private hospitals they got the grant of 15% discount, provided that, the private hospitals can claim the
expense as a tax credit.

REP. AQUINO.

Yah could be allowed as deductions in the perpetrations of (inaudible) income.

SEN. ANGARA.

I-tax credit na lang natin para walang cash-out ano?

REP. AQUINO.

Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na covered.

THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO.

Ano ba yung establishments na covered?

SEN. ANGARA.

Restaurant lodging houses, recreation centers.

REP. AQUINO.

All establishments covered siguro?

SEN. ANGARA.

From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can we go back to Section 4 ha?

REP. AQUINO.

Oho.

SEN. ANGARA.

Letter A. To capture that thought, we'll say the grant of 20% discount from all establishments et cetera, et cetera,
provided that said establishments - provided that private establishments may claim the cost as a tax
credit. Ganon ba 'yon?

REP. AQUINO.

Yah.

SEN. ANGARA.

Dahil kung government, they don't need to claim it.

THE CHAIRMAN. (Rep. Unico). Tax credit.

SEN. ANGARA.

As a tax credit [rather] than a kuwan - deduction, Okay.

REP. AQUINO

Okay.

SEN. ANGARA.

Sige Okay. Di subject to style na lang sa Letter A". [89]

Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law. x x x [T]he rule is that on a specific matter the special law
shall prevail over the general law, which shall be resorted to only to supply deficiencies in the former.[90] In addition, [w]here there are two statutes, the
earlier special and the later general -- the terms of the general broad enough to include the matter provided for in the special -- the fact that one is special and
the other is general creates a presumption that the special is to be considered as remaining an exception to the general, [91] one as a general law of the land, the
other as the law of a particular case.[92] It is a canon of statutory construction that a later statute, general in its terms and not expressly repealing a prior
special statute, will ordinarily not affect the special provisions of such earlier statute. [93]
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax Code -- a later law. When the former states that a tax
credit may be claimed, then the requirement of prior tax payments under certain provisions of the latter, as discussed above, cannot be made to apply. Neither
can the instances of or references to a tax deduction under the Tax Code[94] be made to restrict RA 7432. No provision of any revenue regulation can supplant
or modify the acts of Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals AFFIRMED. No pronouncement as to costs.
PASCUAL v. SECRETARY OF PUBLIC WORKS
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the above entitled case and dissolving the writ of
preliminary injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory relief, with injunction, upon the
ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an
item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen.
Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the passage and approval of said
Act, the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . .
situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from the intersection
between the latter and Highway 54), which projected feeder roads "do not connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) were private properties of
respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953,

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respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig,
Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a plan of the said roads and agree to
change the names of two of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent
Zulueta wrote another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the
construction of the projected feeder roads in question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer
of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected feeder roads in question were private property at the
time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair,
extension and improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by
Congress because its members were made to believe that the projected feeder roads in question were "public roads and not private streets of a private
subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta
executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of donation copy of which is annexed to the
petition of the four (4) parcels of land constituting said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous condition, said donation partook of
the nature of a contract; that, such, said donation violated the provision of our fundamental law prohibiting members of Congress from being directly or
indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction of
the projected feeder roads in question with public funds would greatly enhance or increase the value of the aforementioned subdivision of respondent
Zulueta, "aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense"; that the construction of said projected
feeder roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue to
execute, comply with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the
petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the alleged deed of donation of the feeder roads in
question be "declared unconstitutional and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and Communications,
the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads
project, and from making and securing any new and further releases on the aforementioned item of Republic Act No. 920, and the disbursing officers of the
Department of Public Works and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and that pending final
hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from making and securing any new and
further releases on the aforesaid item of Republic Act No. 920 and from making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of
action". In support to this motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of
Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes illegal the appropriation of
public funds for the improvements of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to the donation in
question, the same being a pure act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the appropriation in
question because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that
he has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953, holding that, since public interest is
involved in this case, the Provincial Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to
question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power appropriate public revenues for anything but
a public purpose", that the instructions and improvement of the feeder roads in question, if such roads where private property, would not be a public purpose;
that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic of the Philippines will use the parcels of land hereby
donated for street purposes only and for no other purposes whatsoever; it being expressly understood that should the Government of the Republic of
the Philippines violate the condition hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the
DONOR, JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the Constitution" and consequently "illegal",
for Article 1409 of the Civil Code of the Philippines, declares in existence and void from the very beginning contracts "whose cause, objector purpose is
contrary to law, morals . . . or public policy"; that the legality of said donation may not be contested, however, by petitioner herein, because his "interest are
not directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to dismiss, which as much, are deemed to have
admitted hypothetically the allegations of fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner of several
parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the projected feeder
roads aforementioned, which, admittedly, were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the
"construction, reconstruction, repair, extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the President on
June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would
have the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance
or increase the value of the subdivision" of said respondent. The lower court held that under these circumstances, the appropriation in question was "clearly
for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws . . . Aside from the fact that
movant is not aware of any law which makes illegal the appropriation of public funds for the improvement of what we, in the meantime, may
assume as private property . . . (Record on Appeal, p. 33.)

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The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government established under the Constitution of the
Republic of the Philippines and the system of checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this Court
invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. . . . It is the essential character
of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor
the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only, discussedsupra sec. 14, money raised by taxation can be
expended only for public purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose. The right of the legislature to
appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and
prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other
than for a public purpose.
xxx

xxx

xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public. (81 C.J.S. pp.
1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a necessary corollary to our democratic
system of government, which, as such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in
the United States, after whose constitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our own
constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that petitioner may not contest the legality of
the donation above referred to because the same does not affect him directly. This conclusion is, presumably, based upon the following premises, namely: (1)
that, if valid, said donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no exception.
We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring, or acts performed,
subsequently thereto, unless the latter consists of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether
said roads were public or private property when the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved
by the President and the disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the
projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence,
was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition, for
the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a
judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance, the creditors of a party to an illegal contract
may, under the conditions set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are inherent in his
person, including therefore, his right to the annulment of said contract, even though such creditors are not affected by the same, except indirectly, in the
manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of its enforcement. Yet, there
are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the expenditure of
public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be
enjoined at the request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the United States is stated in the American
Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is
that not only persons individually affected, but alsotaxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by
taxation and may therefore question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)

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However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the
ground that the relationship of a taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its
government. Indeed, under the composite system of government existing in the U.S., the states of the Union are integral part of the Federation from
an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal
Constitution. In fact, the same was made by representatives ofeach state of the Union, not of the people of the U.S., except insofar as the former represented
the people of the respective States, and the people of each State has, independently of that of the others, ratified said Constitution. In other words, the Federal
Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective
states of the Union of which they are citizens. The peculiar nature of the relation between said people and the Federal Government of the U.S. is reflected in
the election of its President, who is chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the legislature thereof
may direct (Article II, section 2, of the Federal Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the Philippines, on the other, is not identical to
that obtaining between the people and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the
people and taxpayers of each state and the government thereof, except that the authority of the Republic of the Philippines over the people of the Philippines
is more fully direct than that of the states of the Union, insofar as the simple and unitarytype of our national government is not subject to limitations analogous
to those imposed by the Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the interest of the Union. For
this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state public funds which has been
upheld by the Federal Supreme Court (Crampton vs.Zabriskie, 101 U.S. 601) has greater application in the Philippines than that adopted with respect to
acts of Congress of the United States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of Tayabas, two (2) taxpayers thereof were
allowed to intervene for the purpose of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of
the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the constitutionality of an appropriation for
backpay of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz.,
4411), we entertained the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reason
that impelled this Court to take such position in said two (2) cases the importance of the issues therein raised is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its
Provincial Governor, is our most populated political subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in contesting the appropriation and
donation in question; that this action should not have been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for further proceedings not inconsistent with this
decision, with the costs of this instance against respondent Jose C. Zulueta. It is so ordered.

BAGATSING v. RAMIREZ
The chief question to be decided in this case is what law shall govern the publication of a tax ordinance enacted by the Municipal Board of Manila, the Revised
City Charter (R.A. 409, as amended), which requires publication of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No.
231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND
PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City
Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787 before the Court of First Instance of Manila
presided over by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the
Revised Charter of the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the enactment of the
ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) the ordinance would
violate Presidential Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge issued an order on March 11, 1975, denying the plea
for failure of the respondent Federation of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the nullity of Ordinance No. 7522 of the City of Manila
on the primary ground of non-compliance with the requirement of publication under the Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not published at all in two daily newspapers of general circulation in
the City of Manila before its enactment. Neither was it published in the same manner after approval, although it was posted in the
legislative hall and in all city public markets and city public libraries. There being no compliance with the mandatory requirement of
publication before and after approval, the ordinance in question is invalid and, therefore, null and void.

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Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is required by the Local Tax Code; and (b) private
respondent failed to exhaust all administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of Manila and the Local Tax Code on the manner of
publishing a tax ordinance enacted by the Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general circulation in the city, and shall not be discussed or
enacted by the Board until after the third day following such publication. * * * Each approved ordinance * * * shall be published in two
daily newspapers of general circulation in the city, within ten days after its approval; and shall take effect and be in force on and after the
twentieth day following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city, municipal and barrioordinances levying or imposing taxes,
fees or other charges shall be published for three consecutive days in a newspaper or publication widely circulated within the jurisdiction
of the local government, or posted in the local legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. In either case, copies of all provincial, city, municipal and barrio ordinances shall be furnished the
treasurers of the respective component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the enactment of the ordinance and after the approval thereof in
two daily newspapers of general circulation in the city, the Local Tax Code only prescribes for publication after the approval of "ordinances levying or imposing
taxes, fees or other charges" either in a newspaper or publication widely circulated within the jurisdiction of the local government or by posting the ordinance
in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. Petitioners' compliance
with the Local Tax Code rather than with the Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Code is a
general law because it applies universally to all local governments. Blackstone defines general law as a universal rule affecting the entire community and
special law as one relating to particular persons or things of a class. 1 And the rule commonly said is that a prior special law is not ordinarily repealed by a
subsequent general law. The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception
of the general, one as a general law of the land, the other as the law of a particular case. 2 However, the rule readily yields to a situation where the special
statute refers to a subject in general, which the general statute treats in particular. The exactly is the circumstance obtaining in the case at bar. Section 17 of
the Revised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof,whereas, Section 43 of the Local Tax
Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter
of the City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing
taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a particular
provision. 3 Special provision governs. 4 This is especially true where the law containing the particular provision was enacted later than the one containing the
general provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The lawmaking power cannot be said to have intended the establishment of conflicting and hostile systems upon the same subject, or to leave in force provisions of a
prior law by which the new will of the legislating power may be thwarted and overthrown. Such a result would render legislation a useless and Idle ceremony,
and subject the law to the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damages arising from the injuries he suffered when he fell
inside an uncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409)
exempting the City of Manila from any liability for damages or injury to persons or property arising from the failure of the city officers to enforce the
provisions of the charter or any other law or ordinance, or from negligence of the City Mayor, Municipal Board, or other officers while enforcing or attempting
to enforce the provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for damages
for the death of, or injury suffered by any persons by reason of the defective condition of roads, streets, bridges, public buildings, and other public works
under their control or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as its territorial application is concerned, the
Revised City Charter is a special law and the subject matter of the two laws, the Revised City Charter establishes a general rule of liability arising from
negligence in general, regardless of the object thereof, whereas the Civil Code constitutes a particularprescription for liability due to defective streets in
particular. In the same manner, the Revised Charter of the City prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code
establishes a rule for the publication of "ordinance levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or broad one. 7 A charter provision may be
impliedly modified or superseded by a later statute, and where a statute is controlling, it must be read into the charter notwithstanding any particular charter
provision. 8 A subsequent general law similarly applicable to all cities prevails over any conflicting charter provision, for the reason that a charter must not be
inconsistent with the general laws and public policy of the state. 9 A chartered city is not an independent sovereignty. The state remains supreme in all matters
not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it is to have read into it that general law which
governs the municipal corporation and which the corporation cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as
part of its charter general law of such character. 10

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2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been violated by private respondent in bringing a direct
suit in court. This is because Section 47 of the Local Tax Code provides that any question or issue raised against the legality of any tax ordinance, or portion
thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice,
whose decision shall be final and executory unless contested before a competent court within thirty (30) days. But, the petition below plainly shows that the
controversy between the parties is deeply rooted in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax Code that
should govern the publication of the tax ordinance. In other words, the dispute is sharply focused on the applicability of the Revised City Charter or the Local
Tax Code on the point at issue, and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is not
an absolute rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the rule does not apply. 11 The principle may also be
disregarded when it does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its application may cause great and
irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the imposition of rentals, permit fees, tolls and other fees
is not strictly a taxing power but a revenue-raising function, so that the procedure for publication under the Local Tax Code finds no application. The pretense
bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under Section 5, Article XI of the New Constitution, "Each
local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be provided by
law." 13 And one of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the
occupancy or use of public markets and premises * * *." 14 They can provide for and regulate market stands, stalls and privileges, and, also, the sale, lease or
occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30, 1972, insofar as it affects livestock and animal
products, because the said decree prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and post-mortem inspection
fees, as well as the delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural Resources." 16Clearly, even the
exception clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its
Section 31: "Local governments may collect fees for the slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in accordance with Republic Act No. 6039, an
amendment to the City Charter of Manila, providing that "the market committee shall formulate, recommend and adopt, subject to the ratification of the
municipal board, and approval of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market code" does not infect the
ordinance with any germ of invalidity. 17 The function of the committee is purely recommendatory as the underscored phrase suggests, its recommendation is
without binding effect on the Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a condition sine qua
non before the Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate remains undisturbed even in the slightest
degree. It can move in its own initiative and the Market Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the
Municipal Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of the necessary data, studies and the
collection of consensus for the proposal of ordinances regarding city markets. Much less could it be said that Republic Act 6039 intended to delegate to the
Market Committee the adoption of regulatory measures for the operation and administration of the city markets. Potestas delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the said corporation in a "Management and Operating Contract." The
assumption is of course saddled on erroneous premise. The fees collected do not go direct to the private coffers of the corporation. Ordinance No. 7522 was
not made for the corporation but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the collection of the fees does
not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed
is public or private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature or
character of the person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public purpose, although it be
under the direction of an individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices Act because the increased rates of market stall fees
as levied by the ordinance will necessarily inure to the unwarranted benefit and advantage of the corporation. 19 We are concerned only with the issue
whether the ordinance in question is intra vires. Once determined in the affirmative, the measure may not be invalidated because of consequences that may
arise from its enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held
to have been validly enacted. No. costs.
SO ORDERED.

COMMISSIONER v. BOAC
Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court of Tax Appeals (CTA) in CTA Cases Nos. 2373
and 2561, dated 26 January 1983, which set aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways
Corporation (BOAC) for the fiscal years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18 November, 1983 denying
reconsideration.
BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom It is engaged in the international airline
business and is a member-signatory of the Interline Air Transport Association (IATA). As such it operates air transportation service and sells transportation
tickets over the routes of the other airline members. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights
for traffic purposes in the Philippines, and was not granted a Certificate of public convenience and necessity to operate in the Philippines by the Civil

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Aeronautics Board (CAB), except for a nine-month period, partly in 1961 and partly in 1962, when it was granted a temporary landing permit by the CAB.
Consequently, it did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the assessments, it maintained a
general sales agent in the Philippines Wamer Barnes and Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets
covering passengers and cargoes. 1
G.R. No. 65773 (CTA Case No. 2373, the First Case)
On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the aggregate amount of P2,498,358.56 for deficiency income
taxes covering the years 1959 to 1963. This was protested by BOAC. Subsequent investigation resulted in the issuance of a new assessment, dated 16 January
1970 for the years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment under protest.
On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR on 16 February 1972. But before said
denial, BOAC had already filed a petition for review with the Tax Court on 27 January 1972, assailing the assessment and praying for the refund of the amount
paid.
G.R. No. 65774 (CTA Case No. 2561, the Second Case)
On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years 1968-1969 to 1970-1971 in the aggregate
amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as compromise penalties for violation of Section 46 (requiring the filing of
corporation returns) penalized under Section 74 of the National Internal Revenue Code (NIRC).
On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a letter, dated 16 February 1972, however, the CIR not only
denied the BOAC request for refund in the First Case but also re-issued in the Second Case the deficiency income tax assessment for P534,132.08 for the years
1969 to 1970-71 plus P1,000.00 as compromise penalty under Section 74 of the Tax Code. BOAC's request for reconsideration was denied by the CIR on 24
August 1973. This prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for deficiency income tax for the years
1969 to 1971.
This case was subsequently tried jointly with the First Case.
On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax Court held that the proceeds of sales of BOAC passage
tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question, do not constitute BOAC income
from Philippine sources "since no service of carriage of passengers or freight was performed by BOAC within the Philippines" and, therefore, said income is
not subject to Philippine income tax. The CTA position was that income from transportation is income from services so that the place where services are
rendered determines the source. Thus, in the dispositive portion of its Decision, the Tax Court ordered petitioner to credit BOAC with the sum of P858,307.79,
and to cancel the deficiency income tax assessments against BOAC in the amount of P534,132.08 for the fiscal years 1968-69 to 1970-71.
Hence, this Petition for Review on certiorari of the Decision of the Tax Court.
The Solicitor General, in representation of the CIR, has aptly defined the issues, thus:
1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC) from sales of tickets in the
Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and,
accordingly, taxable.
2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doing business in the Philippines or has an
office or place of business in the Philippines.
3. In the alternative that private respondent may not be considered a resident foreign corporation but a non-resident foreign
corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent (35%) of its gross income received from all sources
within the Philippines.
Under Section 20 of the 1977 Tax Code:
(h) the term resident foreign corporation engaged in trade or business within the Philippines or having an office or place of business
therein.
(i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trade or business within the Philippines
and not having any office or place of business therein
It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to,
and in progressive prosecution of commercial gain or for the purpose and object of the business organization. 2 "In order that a foreign corporation may be
regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a
local agent, and not one of a temporary character. 3

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BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines, That general sales agent, from 1959 to
1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips each trip in the series corresponding to a
different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline companies on the basis of their
participation in the services rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA
Agreement." 4 Those activities were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its
organization as an international air carrier. In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of
sales being the paramount objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the
period covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable
year from all sources within the Philippines. 5
Sec. 24. Rates of tax on corporations. ...
(b) Tax on foreign corporations. ...
(2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign country, except a foreign fife
insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section
upon the total net income received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied)
Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC in the Philippines constitutes income from Philippine
sources and, accordingly, taxable under our income tax laws.
The Tax Code defines "gross income" thus:
"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal service of whatever kind
and in whatever form paid, or from profession, vocations, trades,business, commerce, sales, or dealings in property, whether real or
personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or
the transactions of any business carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3];
Emphasis supplied)
The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words 'income from any source whatever' disclose a
legislative policy to include all income not expressly exempted within the class of taxable income under our laws." Income means "cash received or its
equivalent"; it is the amount of money coming to a person within a specific time ...; it means something distinct from principal or capital. For, while capital is a
fund, income is a flow. As used in our income tax law, "income" refers to the flow of wealth. 6
The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted to P10,428,368 .00. 7
Did such "flow of wealth" come from "sources within the Philippines",
The source of an income is the property, activity or service that produced the income. 8 For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity
that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of the source of
payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine
government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.
A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It
gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the
terms and conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all the elements to
constitute it a valid contract, binding upon the parties entering into the relationship. 9
True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippines, namely: (1) interest, (21) dividends, (3)
service, (4) rentals and royalties, (5) sale of real property, and (6) sale of personal property, does not mention income from the sale of tickets for international
transportation. However, that does not render it less an income from sources within the Philippines. Section 37, by its language, does not intend the
enumeration to be exclusive. It merely directs that the types of income listed therein be treated as income from sources within the Philippines. A cursory
reading of the section will show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be so considered. " 10
BOAC, however, would impress upon this Court that income derived from transportation is income for services, with the result that the place where the
services are rendered determines the source; and since BOAC's service of transportation is performed outside the Philippines, the income derived is from
sources without the Philippines and, therefore, not taxable under our income tax laws. The Tax Court upholds that stand in the joint Decision under review.
The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. Admittedly, BOAC was
an off-line international airline at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that activity ... which
produced the income. 11Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from
a activity regularly pursued within the Philippines. business a And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from
foreign cities", 12it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea,
that of origin, and the origin of the income herein is the Philippines. 13

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It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioned deficiency income tax
assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972,
international carriers are now taxed as follows:
... Provided, however, That international carriers shall pay a tax of 2- per cent on their cross Philippine billings. (Sec. 24[b] [21, Tax
Code).
Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory definition of the term "gross Philippine billings," thus:
... "Gross Philippine billings" includes 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 foregoing provision ensures that international airlines are taxed on their income from Philippine sources. The 2- % tax on gross Philippine billings is an
income tax. If it had been intended as an excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on Business.
Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by this Court of the appeal inJAL vs. Commissioner of Internal Revenue (G.R.
No. L-30041) on February 3, 1969, is res judicata to the present case. The ruling by the Tax Court in that case was to the effect that the mere sale of tickets,
unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrier's tax. As elucidated by
the Tax Court, however, the common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo
from one place to another. It purports to tax the business of transportation. 14 Being an excise tax, the same can be levied by the State only when the acts,
privileges or businesses are done or performed within the jurisdiction of the Philippines. The subject matter of the case under consideration is income tax, a
direct tax on the income of persons and other entities "of whatever kind and in whatever form derived from any source." Since the two cases treat of a
different subject matter, the decision in one cannot be res judicata to the other.
WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET ASIDE. Private respondent, the British Overseas Airways Corporation
(BOAC), is hereby ordered to pay the amount of P534,132.08 as deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and 1%
monthly interest from April 16, 1972 for a period not to exceed three (3) years in accordance with the Tax Code. The BOAC claim for refund in the amount of
P858,307.79 is hereby denied. Without costs.

ATLAS CONSOLIDATED MINING v. CIR

Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas Consolidated Mining and Development Corporation
(petitioner corporation) for the refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable
quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various mineral products, such as gold, pyrite, and copper concentrates. It
is a VAT-registered taxpayer. It was initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register anew with the
appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it moved its principal place of business, and it was re-issued VAT
Registration No. 32-0-004622, dated 15 August 1990.1
G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992. 2 It alleged that it likewise filed with the BIR the corresponding
application for the refund/credit of its input VAT on its purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its
application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed as
CTA Case No. 5102. Asserting that it was a "zero-rated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal Revenue
(respondent Commissioner) to refund/credit petitioner corporation with the amount of P26,030,460.00, representing the input VAT it had paid for the first
quarter of 1992. The respondent Commissioner opposed and sought the dismissal of the petition for review of petitioner corporation for failure to state a
cause of action. After due trial, the CTA promulgated its Decision4 on 24 November 1997 with the following disposition
WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the ground of prescription, insufficiency of evidence and
failure to comply with Section 230 of the Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution5 dated 15 April 1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its Decision,6 dated 6 July 1999, dismissed the appeal of
petitioner corporation, finding no reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner
corporation was also denied by the Court of Appeals in its Resolution, 7 dated 14 December 1999.
Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, assigning the
following errors committed by the Court of Appeals
I

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THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES
OF THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT
PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL DEFECT.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL
CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL
EVIDENCE.8
G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except that it relates to the claims of petitioner corporation for
refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of 1990, on 20 July 1990, 18 October 1990, and 20 January
1991, respectively. It submitted separate applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods and on its zerorated sales, the details of which are presented as follows
Date of Application

Period Covered

Amount Applied For

21 August 1990

2nd Quarter, 1990

P 54,014,722.04

21 November 1990

3rd Quarter, 1990

75,304,774.77

19 February 1991

4th Quarter, 1990

43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the CTA the following petitions for review
Date Filed

Period Covered

CTA Case No.

20 July 1992

2nd Quarter, 1990

4831

9 October 1992

3rd Quarter, 1990

4859

14 January 1993

4th Quarter, 1990

4944

which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions and prayed for the dismissal thereof. The CTA ruled in
favor of respondent Commissioner and in its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the prescriptive periods for
filing the same had expired. In a Resolution,10 dated 15 January 1998, the CTA denied the motion for reconsideration of petitioner corporation since the latter
presented no new matter not already discussed in the court's prior Decision. In the same Resolution, the CTA also denied the alternative prayer of petitioner
corporation for a new trial since it did not fall under any of the grounds cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported
by affidavits of merits required by Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R. SP No. 46718. On 15 September 2000, the Court of Appeals
rendered its Decision,11 finding that although petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to substantiate its claims
for the refund/credit of its input VAT for the last three quarters of 1990. In its Resolution,12 dated 27 June 2001, the appellate court denied the motion for
reconsideration of petitioner corporation, finding no cogent reason to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, docketed as G.R.
No. 148763, raising the following issues

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A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS.
2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE
FACTUAL BASIS FOR THE INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were consolidated pursuant to a Resolution, dated 4 September
2006, issued by this Court. The ruling of this Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the claims of
petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue Regulations No. 2-88 imposing upon petitioner corporation, as a
requirement for the VAT zero-rating of its sales, the burden of proving that the buyer companies were not just BOI-registered but also exporting 70% of their
total annual production; (3) sufficiency of evidence presented by petitioner corporation to establish that it is indeed entitled to input VAT refund/credit; and
(4) legal ground for granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before the CTA so it could be given the
opportunity to present the required evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales made in 1990 and 1992 was governed by Section
106(b) and (c) of the Tax Code of 1977, as amended, which provided that
SEC. 106. Refunds or tax credits of input tax. x x x.
(b) Zero-rated or effectively zero-rated sales. Any person, except those covered by paragraph (a) above, whose sales are zero-rated may, within two
years after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of the input taxes
attributable to such sales to the extent that such input tax has not been applied against output tax.
xxxx
(e) Period within which refund of input taxes may be made by the Commissioner. The Commissioner shall refund input taxes within 60 days from
the date the application for refund was filed with him or his duly authorized representative. No refund of input taxes shall be allowed unless the
VAT-registered person files an application for refund within the period prescribed in paragraphs (a), (b) and (c) as the case may be.
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application for refund/credit of input VAT on zero-rated sales
shall be determined from the close of the quarter when such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted, not from the close of the quarter when the zero-rated sales were
made, but from the date of filing of the quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section 110(b) of the Tax Code
of 1977, as amended, quoted as follows
SEC. 110. Return and payment of value-added tax. x x x.
(b) Time for filing of return and payment of tax. The return shall be filed and the tax paid within 20 days following the end of each quarter
specifically prescribed for a VAT-registered person under regulations to be promulgated by the Secretary of Finance: Provided, however, That any
person whose registration is cancelled in accordance with paragraph (e) of Section 107 shall file a return within 20 days from the cancellation of
such registration.
It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for recovery of corporate income tax erroneously or illegally
paid under Section 23013 of the Tax Code of 1977, as amended, was to be counted from the filing of the final adjustment return. This Court already set out
in ACCRA Investments Corporation v. Court of Appeals,14 the rationale for such a rule, thus
Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and
regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all
sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed
its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal
Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to
run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which
to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent Commissioner who failed to take any action
thereon and considering further that the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim
before the Court of Tax Appeals through a petition for review on April 13, 1984, the respondent appellate court manifestly committed a reversible
error in affirming the holding of the tax court that ACCRAIN's claim for refund was barred by prescription.

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It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim
for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or
incurred losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its
filing of its final adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further expounded on the same matter
A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted under the circumstances to lay down a
categorical pronouncement on the question as to when the two-year prescriptive period in cases of quarterly corporate income tax commences to
run. A full-blown decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals in the instant case of its
previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to the other provisions of the Tax Code in
order to give effect the legislative intent and to avoid an application of the law which may lead to inconvenience and absurdity. In the case of People
vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible construction, such as will give effect to the legislative
intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR
INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted.
Furthermore, courts must give effect to the general legislative intent that can be discovered from or is unraveled by the four corners of the statute,
and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et
al. vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause of the statute must be expounded by reference to each other in
order to arrive at the effect contemplated by the legislature. The intention of the legislator must be ascertained from the whole text of the law and
every part of the act is to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited
in Aboitiz Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section 230) of the National Internal Revenue Code
but also the other provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and
Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts. All
these provisions of the Tax Code should be harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment
of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed
based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or
portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 69)
which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in
Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and
final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that when a tax is paid in installments, the
prescriptive period of two years provided in Section 306 (Section 292) of the National Internal Revenue Code should be counted from the date of
the final payment. This ruling is reiterated in Commissioner of Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated
that where the tax account was paid on installment, the computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax
Code, should be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period should be counted from the
filing of the Adjustment Return on April 15,1982, TMX Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period for claims for refund of illegally or erroneously collected
income tax may also apply to the Petitions at bar involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated sales.
It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but is eventually subjected to a final adjustment at the end
of the taxable year, VAT is computed and paid on a purely quarterly basis without need for a final adjustment at the end of the taxable year. However, it is also
equally true that until and unless the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing with
certainty just how much input VAT16 the taxpayer may apply against its output VAT;17how much output VAT it is due to pay for the quarter or how much
excess input VAT it may carry-over to the following quarter; or how much of its input VAT it may claim as refund/credit. It should be recalled that not only
may a VAT-registered taxpayer directly apply against his output VAT due the input VAT it had paid on its importation or local purchases of goods and services
during the quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to the succeeding quarters for application against its
future output VAT liabilities, or (2) file an application for refund or issuance of a tax credit certificate covering the amount of such input VAT.18 Hence, even in
the absence of a final adjustment return, the determination of any output VAT payable necessarily requires that the VAT-registered taxpayer make
adjustments in its VAT return every quarter, taking into consideration the input VAT which are creditable for the present quarter or had been carried over
from the previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it does have refundable or creditable input VAT, and the
same has not been applied against its output VAT liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the taxable quarter/s concerned.

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Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or erroneously collected, its refund/credit is a privilege
extended to qualified and registered taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or erroneously
collected national internal revenue tax, consists of monetary amounts which are currently in the hands of the government but must rightfully be returned to
the taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously collected national internal revenue tax, or input VAT, the taxpayer must be
given equal opportunity for filing and pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period for filing a claim for refund/credit of input VAT on
zero-rated sales from the date of filing of the return and payment of the tax due which, according to the law then existing, should be made within 20 days from
the end of each quarter. Having established thus, the relevant dates in the instant cases are summarized and reproduced below
Period Covered

Date of Filing(Return w/
BIR)

Date of Filing(Application w/
BIR)

Date of Filing(Case w/
CTA)

2nd Quarter, 1990

20 July 1990

21 August 1990

20 July 1992

3rd Quarter, 1990

18 October 1990

21 November 1990

9 October 1992

4th Quarter, 1990

20 January 1991

19 February 1991

14 January 1993

1st Quarter, 1992

20 April 1992

--

20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner corporation for refund of its input VAT on its zero-rated sales for the
last three quarters of 1990 were all filed within the prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT on its zero-rated sales for the first quarter of 1992. Even
though it may seem that petitioner corporation filed in time its judicial claim with the CTA, there is no showing that it had previously filed an administrative
claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly provided that no refund of input VAT shall be allowed unless the VATregistered taxpayer filed an application for refund with respondent Commissioner within the two-year prescriptive period. The application of petitioner
corporation for refund/credit of its input VAT for the first quarter of 1992 was not only unsigned by its supposed authorized representative, Ma. Paz R.
Semilla, Manager-Finance and Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly received the same. The CTA, in its
Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following observations
This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally
offered in evidence by the petitioner on account of the fact that it does not bear the BIR stamp showing the date when such application was filed
together with the signature or initial of the receiving officer of respondent's Bureau. Worse still, it does not show the date of application and the
signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be petitioner's authorized filer.
A review of the records reveal that the original of the aforecited application was lost during the time petitioner transferred its office (TSN, p. 6,
Hearing of December 9, 1994). Attempt was made to prove that petitioner exerted efforts to recover the original copy, but to no avail. Despite this,
however, We observe that petitioner completely failed to establish the missing dates and signatures abovementioned. On this score, said
application has no probative value in demonstrating the fact of its filing within two years after the [filing of the VAT return for the quarter] when
petitioner's sales of goods were made as prescribed under Section 106(b) of the Tax Code. We believe thus that petitioner failed to file an
application for refund in due form and within the legal period set by law at the administrative level. Hence, the case at bar has failed to satisfy the
requirement on the prior filing of an application for refund with the respondent before the commencement of a judicial claim for refund, as
prescribed under Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not granting petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation timely filed its administrative claim for refund of its input
VAT for the first quarter of 1992, but also whether petitioner corporation actually filed such administrative claim in the first place. For failing to prove that it
had earlier filed with the BIR an application for refund/credit of its input VAT for the first quarter of 1992, within the period prescribed by law, then the case
instituted by petitioner corporation with the CTA for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross selling price or gross value in money of goods sold, bartered
or exchanged. Yet, the same provision subjected the following sales made by VAT-registered persons to 0% VAT
(1) Export sales; and
(2) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively
subjects such sales to zero-rate.
"Export Sales" means the sale and shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, or foreign currency
denominated sales. "Foreign currency denominated sales", means sales to nonresidents of goods assembled or manufactured in the Philippines, for
delivery to residents in the Philippines and paid for in convertible foreign currency remitted through the banking system in the Philippines.

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These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT purposes, although the VAT rate applied is 0%. A sale by a
VAT-registered taxpayer of goods and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of goods or services
related to such zero-rated sale shall be available as tax credit or refund.20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said regulations imposed additional requirements, not found
in the law itself, for the zero-rating of its sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS), both of
which are registered not only with the BOI, but also with the then Export Processing Zone Authority (EPZA). 21
The contentious provisions of Revenue Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of raw materials to export-oriented BOI-registered enterprises
whose export sales, under rules and regulations of the Board of Investments, exceed seventy percent (70%) of total annual production, shall be
subject to zero-rate under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for zero-rating for each and every separate buyer, in
accordance with Section 8(d) of Revenue Regulations No. 5-87. The application should be accompanied with a favorable
recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the manufacture, processing or repacking of his own registered
export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The exporter (buyer) can no longer claim from the
Bureau of Internal Revenue or any other government office tax credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident foreign buyer for delivery to a resident local export-oriented
BOI-registered enterprise to be used in manufacturing, processing or repacking of the said buyer's goods and paid for in foreign currency, inwardly
remitted in accordance with Central Bank rules and regulations shall be subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that Section 2 of Revenue Regulations No. 2-88 should be
applied in the cases at bar; and to be entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller, must be
able to prove not only that PASAR and PHILPHOS are BOI-registered corporations, but also that more than 70% of the total annual production of these
corporations are actually exported. Revenue Regulations No. 2-88 merely echoed the requirement imposed by the BOI on export-oriented corporations
registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds that its application must be limited and placed in the
proper context. Note that Section 2 of Revenue Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOI-registered
enterprises whose export sales, under BOI rules and regulations, should exceed seventy percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales made by petitioner corporation to PASAR and
PHILPHOS. At the onset, it must be emphasized that PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the EPZA
and located within an export-processing zone. Petitioner corporation does not claim that its sales to PASAR and PHILPHOS are zero-rated on the basis that
said sales were made to export-oriented BOI-registered corporations, but rather, on the basis that the sales were made to EPZA-registered enterprises
operating within export processing zones. Although sales to export-oriented BOI-registered enterprises and sales to EPZA-registered enterprises located
within export processing zones were both deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT
distinction must be made between these two types of sales because each may have different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and shipment or exportation of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods
so exported, or foreign currency denominated sales." Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 - which, in the
years concerned (i.e., 1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a more comprehensive definition of export
sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit, landing
certificates, and other commercial documents, of export products exported directly by a registered export producer or the net selling price of
export product sold by a registered export producer or to an export trader that subsequently exports the same: Provided, That sales of export
products to another producer or to an export trader shall only be deemed export sales whenactually exported by the latter, as evidenced by landing
certificates of similar commercial documents: Provided, further, That without actual exportation the following shall be considered constructively
exportedfor purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export
processing zones; (3) sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs; (4) sales to
foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled
or repacked products whether paid for in foreign currency or not: Provided, further, That export sales of registered export trader may include
commission income; and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products
consigned are in fact sold by the consignee.

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Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as
well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly
remitted through the Philippine banking systems shall also be considered export sales. (Underscoring ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the sales of export products to another producer or to an
export trader, provided that the export products are actually exported. For purposes of VAT zero-rating, such producer or export trader must be registered
with the BOI and is required to actually export more than 70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers constructive exportation as export sales. Among other types of
constructive exportation specifically identified by the said provision are sales to export processing zones. Sales to export processing zones are subjected to
special tax treatment. Article 77 of the same Code establishes the tax treatment of goods or merchandise brought into the export processing zones. Of
particular relevance herein is paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise from the customs territory and
subsequently brought into the zone, shall be considered as export sales and the exporter thereof shall be entitled to the benefits allowed by law for such
transaction."
Such tax treatment of goods brought into the export processing zones are only consistent with the Destination Principle and Cross Border Doctrine to which
the Philippine VAT system adheres. According to the Destination Principle, 22 goods and services are taxed only in the country where these are consumed. In
connection with the said principle, the Cross Border Doctrine 23 mandates that no VAT shall be imposed to form part of the cost of the goods destined for
consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must
be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% VAT. 24 Export processing zones25 are to be
managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this
reason, sales by persons from the Philippine customs territory to those inside the export processing zones are already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are export sales, which, under the Tax Code of 1977, as amended, were subject to
0% VAT. It is on this ground that petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and PHILPHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales to export-oriented BOI-registered enterprises and zero-rated
sales to EPZA-registered enterprises operating within export processing zones is actually supported by subsequent development in tax laws and regulations.
In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,26 the BIR defined with more precision what are zero-rated export sales
(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so exported paid for in acceptable foreign currency or its equivalent
in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas(BSP);
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total
annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable year shall be considered an export-oriented
enterprise upon accreditation as such under the provisions of the Export Development Act (R.A. 7844) and its implementing rules and regulations;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of
1987, and other special laws, e.g. Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992.
The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which are subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied to zero-rated export sales to export-oriented BOIregistered enterprises, should not be applied to the applications for refund/credit of input VAT filed by petitioner corporation since it based its applications
on the zero-rating of export sales to enterprises registered with the EPZA and located within export processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual bases of its claim for tax credit or refund, but once it has
submitted all the required documents, it is the function of the BIR to assess these documents with purposeful dispatch. 28 It therefore falls upon herein
petitioner corporation to first establish that its sales qualify for VAT zero-rating under the existing laws (legal basis), and then to present sufficient evidence
that said sales were actually made and resulted in refundable or creditable input VAT in the amount being claimed (factual basis).
It would initially appear that the applications for refund/credit filed by petitioner corporation cover only input VAT on its purportedly zero-rated sales to
PASAR and PHILPHOS; however, a more thorough perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal that it is
also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold to the Central Bank of the Philippines (CBP).

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This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the Tax Code of 1977, as amended, allowed the refund/credit
of input VAT on export sales to enterprises operating within export processing zones and registered with the EPZA, since such export sales were deemed to be
effectively zero-rated sales.29 The fact that PASAR and PHILPHOS, to whom petitioner corporation sold its products, were operating inside an export
processing zone and duly registered with EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially recognized in the
case Atlas Consolidated Mining & Development Corporation v. Commissioner of Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VATregistered taxpayer to apply for refund/credit of the input VAT paid on capital goods imported or locally purchased to the extent that such input VAT has not
been applied against its output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to 199131 was already affirmed by this Court
in Commissioner of Internal Revenue v. Benguet Corporation,32 wherein it ruled that
At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by respondent ordained that gold sales to
the Central Bank were zero-rated. The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold
sold to the Central Bank shall be considered export and therefore shall be subject to the export and premium duties. In coming out with this
interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold to the Central Bank are
considered constructive exports. x x x.
This Court now comes to the question of whether petitioner corporation has sufficiently established the factual bases for its applications for refund/credit of
input VAT. It is in this regard that petitioner corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue regulations. As this Court has already ruled, Revenue
Regulations No. 2-88 is not relevant to the applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said applications must
have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of Revenue Regulations No. 5-87, which provided as follows
SECTION 16. Refunds or tax credits of input tax.
xxxx
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the Revenue
District Office of the city or municipality where the principal place of business of the applicant is located or directly with the Commissioner,
Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together with the application. The original
copy of the said invoice/receipt, however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In
addition, the following documents shall be attached whenever applicable:
xxxx
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing for the first time.
"ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or services were delivered, date of
delivery, amount of consideration, and description of goods or services delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of purchase, purchase price, amount of value-added tax paid and
description of the capital equipment locally purchased.
"ii) with respect to capital equipment imported, the photo copy of import entry document for internal revenue tax purposes
and the confirmation receipt issued by the Bureau of Customs for the payment of the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain government agencies, a statement therefrom showing the amount and
description of sale of goods and services, name of persons or entities (except in case of exports) to whom the goods or services were sold, and date
of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the value-added tax (VAT) paid directly and
entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund.

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Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services, and the VAT paid (inputs) on purchases of
goods and services cannot be directly attributed to any of the aforementioned transactions, the following formula shall be used to determine the
creditable or refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR, and before the lapse of the two-year prescriptive
period, the taxpayer-applicant may already file a Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents, such as
receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full
below
In the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the presentation of voluminous
documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of
the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act
No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts covered by the invoices or receipts
and the amount/s of tax paid; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the
contents of the summary after making an examination, evaluation and audit of the voluminous receipts and invoices. The name of the
accountant or partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the Court to conduct the
audit and, thereafter, testify in Court relative to such summary and certification pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for marking, identification and comparison with the originals
thereof need not be done before the Court or Clerk of Court anymore after the introduction of the summary and CPA certification. It is enough that
the receipts, invoices, vouchers or other documents covering the said accounts or payments to be introduced in evidence must be pre-marked by
the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and verify the correctness
of the summary and CPA certification. Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for verification and
comparison in case doubt on the authenticity thereof is raised during the hearing or resolution of the formal offer of evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the said Circular was issued, then petitioner corporation must
have complied therewith during the course of the trial of the said cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of therein respondent, Manila Mining Corporation, for refund
of the input VAT on its supposed zero-rated sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this Court emphasized
the importance of complying with the substantiation requirements for claiming refund/credit of input VAT on zero-rated sales, to wit
For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT registered entity and that it filed its claims
within the prescriptive period. It must substantiate the input VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the requirements in claiming tax credits/refunds.
xxxx
Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before it are litigatedde novo, party litigants should prove every
minute aspect of their cases. No evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the rules on documentary
evidence require that these documents must be formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does not ipso fact mean that [the seller] is
entitled to the amount of refund sought as it is required by law to present evidence showing the input taxes it paid during the year in
question. What is being claimed in the instant petition is the refund of the input taxes paid by the herein petitioner on its purchase of
goods and services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid the input taxes during the year 1991. In the
case at bar, Petitioner failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts or other documents showing the
input value added tax on the purchase of goods and services.

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xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of Tax Appeals shall be a court of
record and as such it is required to conduct a formal trial (trial de novo) where the parties must present their evidence accordingly if they
desire the Court to take such evidence into consideration. (Emphasis and italics supplied)
A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices charged therefor or a list by whatever
name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods,
debtor or creditor, or person rendering services and client or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or quantity of goods sold and their selling
price, and taken collectively are the best means to prove the input VAT payments. 36
Although the foregoing decision focused only on the proof required for the applicant for refund/credit to establish the input VAT payments it had made on
its purchases from suppliers, Revenue Regulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such
as (1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales invoice or receipt showing the name of the person or entity to
whom the goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered; and (3) the evidence of
actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the certification by the independent certified public accountant (CPA), thus
Respondent contends, however, that the certification of the independent CPA attesting to the correctness of the contents of the summary of
suppliers' invoices or receipts which were examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as amended by
CTA Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either expressly or impliedly suggests that
summaries and schedules of input VAT payments, even if certified by an independent CPA, suffice as evidence of input VAT payments.
xxxx
The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-consuming procedure of presenting, identifying
and marking of documents before the Court. It does not relieve respondent of its imperative task of pre-marking photocopies of sales receipts and
invoices andsubmitting the same to the court after the independent CPA shall have examined and compared them with the originals. Without
presenting these pre-marked documents as evidence from which the summary and schedules were based, the court cannot verify the authenticity
and veracity of the independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to confirm whether they are VAT invoices. Under
Section 21 of Revenue Regulation, No. 5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled to a refund of input
VAT.
xxxx
While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in themselves but are primarily intended as
tools in the administration of justice, the presentation of the purchase receipts and/or invoices is not mere procedural technicality which may be
disregarded considering that it is the only means by which the CTA may ascertain and verify the truth of the respondent's claims.
The records further show that respondent miserably failed to substantiate its claims for input VAT refund for the first semester of 1991. Except for
the summary and schedules of input VAT payments prepared by respondent itself, no other evidence was adduced in support of its claim.
As for respondent's claim for input VAT refund for the second semester of 1991, it employed the services of Joaquin Cunanan & Co. on account of
which it (Joaquin Cunanan & Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments made by the Makati Office of Manila Mining
Corporation for the period from July 1 to December 31, 1991. Our examination included inspection of the pertinent suppliers' invoices
and official receipts and such other auditing procedures as we considered necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures considered necessary" and not auditing procedures which are in accordance
with generally accepted auditing principles and standards, and that the examination was made on "input tax payments by the Manila Mining
Corporation," without specifying that the said input tax payments are attributable to the sales of gold to the Central Bank, this Court cannot rely
thereon and regard it as sufficient proof of the respondent's input VAT payments for the second semester. 37

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As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-rated sales in the first quarter of 1992, this Court already
found that the petitioner corporation failed to comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive period for
the filing of the application for refund/credit thereof. This bars the grant of the application for refund/credit, whether administratively or judicially, by
express mandate of Section 106(e) of the same Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT on its zero-rated sales in the first quarter of 1992 was
actually and timely filed, petitioner corporation still failed to present together with its application the required supporting documents, whether before the BIR
or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and collected, the burden of proof rests on the taxpayer. As clearly discussed in the CTA's
decision, petitioner failed to substantiate its claim for tax refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied totally on Revenue Regulations No. 2-88 in determining compliance with
the documentary requirements for a successful refund or issuance of tax credit. Unmentioned is the applicable and specific amendment
later introduced by Revenue Regulations No. 3-88 dated April 7, 1988 (issued barely after two months from the promulgation of Revenue
Regulations No. 2-88 on February 15, 1988), which amended Section 16 of Revenue Regulations No. 5-87 on refunds or tax credits of
input tax. x x x.
xxxx
"A thorough examination of the evidence submitted by the petitioner before this court reveals outright the failure to satisfy documentary
requirements laid down under the above-cited regulations. Specifically, petitioner was not able to present the following documents, to
wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of sale of goods, etc.
"e) original or attested copies of invoice or receipt on capital equipment locally purchased; and
"f) photocopy of import entry document and confirmation receipt on imported capital equipment.
"There is the need to examine the sales invoices or receipts in order to ascertain the actual amount or quantity of goods sold and their
selling price. Without them, this Court cannot verify the correctness of petitioner's claim inasmuch as the regulations require that the
input taxes being sought for refund should be limited to the portion that is directly and entirely attributable to the particular zero-rated
transaction. In this instance, the best evidence of such transaction are the said sales invoices or receipts.
"Also, even if sales invoices are produced, there is the further need to submit evidence that such goods were actually received by the
buyer, in this case, by CBP, Philp[h]os and PASAR.
xxxx
"Lastly, this Court cannot determine whether there were actual local and imported purchase of capital goods as well as domestic
purchase of non-capital goods without the required purchase invoice or receipt, as the case may be, and confirmation receipts.
"There is, thus, the imperative need to submit before this Court the original or attested photocopies of petitioner's invoices or receipts,
confirmation receipts and import entry documents in order that a full ascertainment of the claimed amount may be achieved.
"Petitioner should have taken the foresight to introduce in evidence all of the missing documentsabovementioned. Cases filed before this
Court are litigated de novo. This means that party litigants should endeavor to prove at the first instance every minute aspect of their
cases strictly in accordance with the Rules of Court, most especially on documentary evidence." (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi
juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of
organic or statute law and should not be permitted to stand on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil.
Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of
Customs, 29 SCRA 617; Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-destructive", as it finds comfort in the very SGV's stand, as
follows:

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"It is our understanding that the above procedure are sufficient for the purpose of the Company. We make no presentation regarding the
sufficiency of these procedures for such purpose. We did not compare the total of the input tax claimed each quarter against the
pertinent VAT returns and books of accounts. The above procedures do not constitute an audit made in accordance with generally
accepted auditing standards. Accordingly, we do not express an opinion on the company's claim for input VAT refund or credit. Had we
performed additional procedures, or had we made an audit in accordance with generally accepted auditing standards, other matters
might have come to our attention that we would have accordingly reported on."
The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent auditor. Indeed, SGV expressed that it "did not compare the
total of the input tax claimed each quarter against the VAT returns and books of accounts." 38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on its zero-rated sales in the second, third, and fourth
quarters of 1990, the appellate court likewise found that petitioner corporation failed to sufficiently establish its claims. Already disregarding the declarations
made by the Court of Appeals on its erroneous application of Revenue Regulations No. 2-88, quoted hereunder is the rest of the findings of the appellate court
after evaluating the evidence submitted in accordance with the requirements under Revenue Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec. 245 of the National Internal Revenue Code, which
recognized his power to "promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code." Thus, it is
incumbent upon a taxpayer intending to file a claim for refund of input VATs or the issuance of a tax credit certificate with the BIR x x x to prove
sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the same evidence should be presented in support of an action to
recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing sales of gold, copper concentrates, and pyrite to the
CBP, [PASAR], and [PHILPHOS], respectively, and the dates and amounts of the same, nor any evidence of actual receipt by the said buyers of the
mineral products. It merely presented receipts of purchases from suppliers on which input VATs were allegedly paid. Thus, the Court of Tax
Appeals correctly denied the claims for refund of input VATs or the issuance of tax credit certificates of petitioner [corporation]. Significantly, in the
resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing, among others, the submission of proof for "its
[petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address this
issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point. 39
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is the general rule that the jurisdiction of this Court in
cases brought before it from the Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to
reviewing or revising errors of law; findings of fact of the latter are conclusive. 40 This Court is not a trier of facts. It is not its function to review, examine and
evaluate or weigh the probative value of the evidence presented.41
The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales in the amount it had declared in its returns; whether
all the input VAT subject of its applications for refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the input VAT
against its output VAT liabilities, are all questions of fact which could only be answered after reviewing, examining, evaluating, or weighing the probative
value of the evidence it presented, and which this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari under Rule 45 of
the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact under particular circumstances,43 none of these exist in the
instant cases. The Court of Appeals, in both cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner
corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its non-compliance with the requirements set forth in Revenue
Regulations No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its arguments on its assertion that the substantiation requirements under
Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the evidentiary requirements mandated by other relevant
regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening of its cases or holding of new trial before the CTA for
the reception of additional evidence, may be granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its favor, consistent
with the policy that rules of procedure be liberally construed in pursuance of substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered in accordance with Section 1, Rule 37 of the revised
Rules of Court, which provides
SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. Within the period for taking an appeal, the aggrieved party may
move the trial court to set aside the judgment or final order and grant a new trial for one or more of the following causes materially affecting the
substantial rights of said party:

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(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such
aggrieved party has probably been impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial, and which if presented
would probably alter the result.
Within the same period, the aggrieved party may also move fore reconsideration upon the grounds that the damages awarded are excessive, that
the evidence is insufficient to justify the decision or final order, or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases and/or holding of new trial before the CTA by
contending that the "[f]ailure of its counsel to adduce the necessary evidence should be construed as excusable negligence or mistake which should constitute
basis for such re-opening of trial as for a new trial, as counsel was of the belief that such evidence was rendered unnecessary by the presentation of
unrebutted evidence indicating that respondent [Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-rated." 44 The CTA
denied such motion on the ground that it was not accompanied by an affidavit of merit as required by Section 2, Rule 37 of the revised Rules of Court. The
Court of Appeals affirmed the denial of the motion, but apart from this technical defect, it also found that there was no justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases and/or holding of new trial based on the technicality that
said motion was unaccompanied by an affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should otherwise be set forth
in a separate affidavit of merit may, with equal effect, be alleged and incorporated in the motion itself; and this will be deemed a substantial compliance with
the formal requirements of the law, provided, of course, that the movant, or other individual with personal knowledge of the facts, take oath as to the truth
thereof, in effect converting the entire motion for new trial into an affidavit. 45 The motion of petitioner corporation was prepared and verified by its counsel,
and since the ground for the motion was premised on said counsel's excusable negligence or mistake, then the obvious conclusion is that he had personal
knowledge of the facts relating to such negligence or mistake. Hence, it can be said that the motion of petitioner corporation for the re-opening of its cases
and/or holding of new trial was in substantial compliance with the formal requirements of the revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the re-opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution, 46 dated 20 July 1998, by the CTA in another case, CTA Case No. 5296, involving the claim of
petitioner corporation for refund/credit of input VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296, earlier
dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial court, 47 may likewise be extended to the CTA. When the denial of
the motion rests upon the discretion of a lower court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof.48
That the CTA granted the motion for re-opening of one case for the presentation of additional evidence and, yet, deny a similar motion in another case filed by
the same party, does not necessarily demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although the cases involve identical
parties, the causes of action and the evidence to support the same can very well be different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA
Case No. 5296, petitioner corporation was claiming refund/credit of the input VAT on its zero-rated sales, consisting of actual export sales, to Mitsubishi Metal
Corporation in Tokyo, Japan. The CTA took into account the presentation by petitioner corporation of inward remittances of its export sales for the quarter
involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report showing its sales to the said foreign corporation, and its application
for refund. In contrast, the present Petitions involve the claims of petitioner corporation for refund/credit of the input VAT on its purchases of capital
goods and on its effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of 1990
and first quarter of 1992. There being a difference as to the bases of the claims of petitioner corporation for refund/credit of input VAT in CTA Case No. 5926
and in the Petitions at bar, then, there are resulting variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by petitioner corporation, emphasizes that the decision of the CTA to
allow petitioner corporation to present evidence "is applicable pro hac vice or in this occasion only as it is the finding of [the CTA] that petitioner [corporation]
has established a few of the aforementioned material points regarding the possible existence of the export documents together with the prior and succeeding
returns for the quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its ruling in CTA Case No. 5296,
when these cases do not involve the exact same circumstances that compelled it to grant the motion of petitioner corporation for re-opening of CTA Case No.
5296.
Finally, assuming for the sake of argument that the non-presentation of the required documents was due to the fault of the counsel of petitioner corporation,
this Court finds that it does not constitute excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and generally imputable to the party because if it is imputable to
the counsel, it is binding on the client. To follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings indefinite,
tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What the aggrieved litigant should do is seek administrative sanctions
against the erring counsel and not ask for the reversal of the court's ruling. 49
As elucidated by this Court in another case,50 the general rule is that the client is bound by the action of his counsel in the conduct of his case and he cannot
therefore complain that the result of the litigation might have been otherwise had his counsel proceeded differently. It has been held time and again that
blunders and mistakes made in the conduct of the proceedings in the trial court as a result of the ignorance, inexperience or incompetence of counsel do not
qualify as a ground for new trial. If such were to be admitted as valid reasons for re-opening cases, there would never be an end to litigation so long as a new
counsel could be employed to allege and show that the prior counsel had not been sufficiently diligent, experienced or learned.

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Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could not have guarded against.51 Revenue Regulations No. 3-88,
which was issued on 15 February 1988, had been in effect more than two years prior to the filing by petitioner corporation of its earliest application for
refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995, after petitioner corporation had
filed its Petitions before the CTA, but still during the pendency of the cases of petitioner corporation before the tax court. The counsel of petitioner corporation
does not allege ignorance of the foregoing administrative regulation and tax court circular, only that he no longer deemed it necessary to present the
documents required therein because of the presentation of alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment
call made by the counsel as to which evidence to present in support of his client's cause, later proved to be unwise, but not necessarily negligent.
Neither is there any merit in the contention of petitioner corporation that the non-presentation of the required documentary evidence was due to the
excusable mistake of its counsel, a ground under Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is referred to in the
said rule, must be a mistake of fact, not of law, which relates to the case. 52 In the present case, the supposed mistake made by the counsel of petitioner
corporation is one of law, for it was grounded on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended,
did not apply to his client's cases and that there was no need to comply with the documentary requirements set forth therein. And although the counsel of
petitioner corporation advocated an erroneous legal position, the effects thereof, which did not amount to a deprivation of his client's right to be heard, must
bind petitioner corporation. The question is not whether petitioner corporation succeeded in establishing its interests, but whether it had the opportunity to
present its side.53
Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the ground of mistake must show that ordinary prudence could
not have guarded against it. A new trial is not a refuge for the obstinate.54 Ordinary prudence in these cases would have dictated the presentation of all
available evidence that would have supported the claims for refund/credit of input VAT of petitioner corporation. Without sound legal basis, counsel for
petitioner corporation concluded that Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its client's claims. The
obstinacy of petitioner corporation and its counsel is demonstrated in their failure, nay, refusal, to comply with the appropriate administrative regulations
and tax court circular in pursuing the claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though these were separately instituted in a
span of more than two years. It is also evident in the failure of petitioner corporation to address the issue and to present additional evidence despite being
given the opportunity to do so by the Court of Appeals. As pointed out by the appellate court, in its Decision, dated 15 September 2000, in CA-G.R. SP No.
46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing, among others, the submission
of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to
address this issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point.55
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT
must be counted from the date of filing of the quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic processing zones
were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its input
VAT on its purchases of capital goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter of 1992, for
not being established and substantiated by appropriate and sufficient evidence. Petitioner corporation is also not entitled to the re-opening of its cases and/or
holding of new trial since the non-presentation of the required documentary evidence before the BIR and the CTA by its counsel does not constitute excusable
negligence or mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.
WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the Decisions, dated 6 July 1999 and 15 September 2000, of the
Court of Appeals in CA-G.R. SP Nos. 47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.

PEPSI-COLA BOTTLING CO. v. CITY OF BUTUAN

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of business in Quezon City. The defendants
are the City of Butuan, its City Mayor, the members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums paid by it to the City of
Butuan hereinafter referred to as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No.
122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties submitted the case for decision in the
lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola" soft drinks for sale to customers in the City of
Butuan and all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan
City warehouse of plaintiff for distribution and sale in the City of Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122 and effective
November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B",
respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff
paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961.

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4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and those that if may later
on pay until the termination of this case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is
excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form to be accomplished by the plaintiff for
the computation of the tax. A copy of the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is
incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not entitled to a
depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs
only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance with the findings of the representative of the
undersigned City Attorney who verified the records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92 which price is uniform throughout the
Philippines. Said increase was made due to the increase in the production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance No. 110, as amended of the City of
Butuan in their respective memoranda.
xxx

xxx

x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof. Section 2 provides for the payment by "any
agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10
per case of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the
meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month."
Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other record showing the number of cases of soft
drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay
the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3" or for
failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in
the City." Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the
ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for
the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it
is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it
was enacted, is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed independently of whether or not the tax in question, when considered in relation to
the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion - double taxation, in general, is
not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United
States and of some States of the Union.1 Then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation
of powers2 is subject to one well-established exception, namely: legislative powers may be delegated to local governments to which said theory does not
apply3 in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks in the production and sale of which
plaintiff is engaged or less than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax prescribed in section 3 of Ordinance
No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then
to levy a tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any
person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was
inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another by authority from him or one entrusted with the business of another or to
whom is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax,unless they are agents and/or consignees of
another dealer, who, in the very nature of things, must be one engaged in business outside the City. Besides, the tax would not be applicable to such agent
and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax "shall be based and
computed from the cargo manifest or bill of lading ... showing the number of cases" not sold but "received" by the taxpayer, the intention to limit the
application of the ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's authority to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of
the uniformity required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax.

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Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said
agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the
authority to classify the objects of taxation.5 The classification made in the exercise of this authority, to be valid, must, however, be reasonable 6 and this
requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of
the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the
present; and (4) the classification applies equally all those who belong to the same class. 7
These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated
beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers or merchants established outside the City of Butuan
should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No. 110, as amended by Ordinance No.
122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with interest thereon at
the legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited
permanently from enforcing said Ordinance, as amended. It is so ordered.

VILLEGAS v. HIU CHIONG TSAI PAO HO

This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge Francisco Arca of the Court of First Instance of Manila,
Branch I, in Civil Case No. 72797, the dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents, declaring Ordinance No. 6 37 of the City of Manila null
and void. The preliminary injunction is made permanent. No pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO ARCA
Judge 1
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed by the herein petitioner Mayor Antonio
J. Villegas of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF
EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT
FIRST SECURING AN EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated
therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00
except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or
denomination, who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or fine of not less than P100.00 but not more
than P200.00 or both such fine and imprisonment, upon conviction.5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court of First Instance of Manila, Branch I,
denominated as Civil Case No. 72797, praying for the issuance of the writ of preliminary injunction and restraining order to stop the enforcement of
Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory and violative of the rule
of the uniformity in taxation;

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2) As a police power measure, it makes no distinction between useful and non-useful occupations, imposing a fixed P50.00 employment
permit, which is out of proportion to the cost of registration and that it fails to prescribe any standard to guide and/or limit the action of
the Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their rights to life, liberty and
property and therefore, violates the due process and equal protection clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968 rendered judgment declaring Ordinance No. 6537
null and void and making permanent the writ of preliminary injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition on March 27, 1969. Petitioner assigned the
following as errors allegedly committed by respondent Judge in the latter's decision of September 17,1968: 9
I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED
THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it violated the rule on uniformity of taxation
because the rule on uniformity of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is
an exercise of the police power of the state, it being principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is
true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the
processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the
payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been
cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual
aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification
should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is
being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid
executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It has been held that where an ordinance
of a municipality fails to state any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a
permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to
grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an
activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency power to determine the allocation of wheat
flour among importers, the Supreme Court ruled against the interpretation of uncontrolled power as it vested in the administrative officer an arbitrary
discretion to be exercised without a policy, rule, or standard from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all classes conferred upon the Mayor of Manila by the
Revised Charter of Manila is not uncontrolled discretion but legal discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of the power which has been
granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse it at will is tantamount to denying
him the basic right of the people in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not obliged to admit

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aliens within its territory, once an alien is admitted, he cannot be deprived of life without due process of law. This guarantee includes the means of livelihood.
The shelter of protection under the due process and equal protection clause is given to all persons, both aliens and citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
SO ORDERED.

GOMEZ v. PALOMAR
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic Act 2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period from August nineteen to September
thirty every year the printing and issue of semi-postal stamps of different denominations with face value showing the regular postage charge plus
the additional amount of five centavos for the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears
such semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on newspapers. The additional proceeds
realized from the sale of the semi-postal stamps shall constitute a special fund and be deposited with the National Treasury to be expended by the
Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative orders numbered 3 (June 20, 1958), 7 (August 9,
1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these administrative orders were issued with the approval of the respondent Secretary of Public Works
and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to September 30, 1957, for lack of time. However, two
denominations of such stamps, one at "5 + 5" centavos and another at "10 + 5" centavos, will soon be released for use by the public on their mails to
be posted during the same period starting with the year 1958.
xxx

xxx

xxx

During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever class, and whether domestic or foreign,
posted at any Philippine Post Office and addressed for delivery in this country or abroad, shall be accepted for mailing unless it bears at least one
such semi-postal stamp showing the additional value of five centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage meters, each piece of such mail shall bear at
least one such semi-postal stamp if posted during the period above stated starting with the year 1958, in addition to being charged the usual
postage prescribed by existing regulations. In the case of business reply envelopes and cards mailed during said period, such stamp should be
collected from the addressees at the time of delivery. Mails entitled to franking privilege like those from the office of the President, members of
Congress, and other offices to which such privilege has been granted, shall each also bear one such semi-postal stamp if posted during the said
period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes without the required semi-postal stamp,
shall be returned to the sender, if known, with a notation calling for the affixing of such stamp. If the sender is unknown, the mail matter shall be
treated as nonmailable and forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which are not exempted from the payment of the five
centavos intended for the Philippine Tuberculosis Society, such extra charge may be collected in cash, for which official receipt (General Form No.
13, A) shall be issued, instead of affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five centavos for the Philippine Tuberculosis Society
shall be collected on each separately-addressed piece of second-class mail matter, and the total sum thus collected shall be entered in the same
official receipt to be issued for the postage at the second-class rate. In making such entry, the total number of pieces of second-class mail posted
shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate from the postage in both of the
official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed under permits issued by this Bureau shall each be charged
the usual postage, in addition to the five-centavo extra charge intended for said society. The total extra charge thus received shall be entered in the
same official receipt to be issued for the postage collected, as in subparagraph 1.

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3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail permit issued by this Bureau, the extra charge of
five centavos for said society shall be collected in cash and an official receipt issued for the total sum thus received, in the manner indicated in
subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to holders of business reply permits, the five-centavo
charge intended for said society shall be collected in cash on each reply card or envelope delivered, in addition to the required postage which may
also be paid in cash. An official receipt shall be issued for the total postage and total extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled to the franking privilege under existing laws may
pay in cash such extra charge intended for said society, instead of affixing the semi-postal stamps to their mails, provided that such mails are
presented at the post-office window, where the five-centavo extra charge for said society shall be collected on each piece of such mail matter. In
such case, an official receipt shall be issued for the total sum thus collected, in the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window shall be affixed with the necessary semi-postal
stamps. If found in mail boxes without such stamps, they shall be treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and Instrumentalities Performing Governmental Functions." Adm.
Order 10, amending Adm. Order 3, as amended, exempts "copies of periodical publications received for mailing under any class of mail matter, including
newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San Fernando, Pampanga. Because this letter,
addressed to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was
returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of Pampanga, to test the constitutionality of the
statute, as well as the implementing administrative orders issued, contending that it violates the equal protection clause of the Constitution as well as the rule
of uniformity and equality of taxation. The lower court declared the statute and the orders unconstitutional; hence this appeal by the respondent postal
authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory relief is unavailing because this suit was filed
after the petitioner had committed a breach of the statute. While conceding that the mailing by the petitioner of a letter without the additional anti-TB stamp
was a violation of Republic Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64 of
the Rules of Court, "If before the final termination of the case a breach or violation of ... a statute ... should take place, the action may thereupon be converted
into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of the statute has been committed. Rule 64,
section 1 so provides. Section 6 of the same rule, which allows the court to treat an action for declaratory relief as an ordinary action, applies only if the breach
or violation occurs after the filing of the action but before the termination thereof. 3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action, then indeed the remedy of declaratory relief
cannot be availed of, much less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach of the statute because the statute appears
to be addressed only to postal authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in the mails unless it bears such
semi-postal stamps." It does not follow, however, that only postal authorities can be guilty of violating it by accepting mails without the payment of the anti-TB
stamp. It is obvious that they can be guilty of violating the statute only if there are people who use the mails without paying for the additional anti-TB stamp.
Just as in bribery the mere offer constitutes a breach of the law, so in the matter of the anti-TB stamp the mere attempt to use the mails without the stamp
constitutes a violation of the statute. It is not required that the mail be accepted by postal authorities. That requirement is relevant only for the purpose of
fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not only with respect to the letter which he mailed
on September 15, 1963, but also with regard to any other mail that he might send in the future. Thus, in his complaint, the petitioner prayed that due course
be given to "other mails without the semi-postal stamps which he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as
amended, as well as other mails hereafter to be sent by or to other mailers which bear the required postage, without collection of additional charge of five
centavos prescribed by the same Republic Act." As one whose mail was returned, the petitioner is certainly interested in a ruling on the validity of the statute
requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.

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1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the claim is made that it constitutes mail users into a
class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants
exemption to newspapers while Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices performing governmental
functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the exercise of a privilege, namely, the privilege of
using the mails. As such the objections levelled against it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions.4 This power has aptly been
described as "of wide range and flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest
freedom in classification.6 The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to
achieve an equitable distribution of the tax burden. 7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that statutory classification of mail users must bear
some reasonable relationship to the end sought to be attained, and that absent such relationship the selection of mail users is constitutionally impermissible.
This is altogether a different proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by the legislation and its purpose is undoubtedly true
in some contexts, it has no application to a measure whose sole purpose is to raise revenue ... So long as the classification imposed is based upon
some standard capable of reasonable comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction,
equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v.
Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it sanctions invidious discrimination, which is
all that the Constitution forbids. The remedy for unwise legislation must be sought in the legislature. Now, the classification of mail users is not without any
reason. It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax burden, Congress
must have concluded that the contribution to the anti-TB fund can be assured by those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled principle of law that "consideration of practical
administrative convenience and cost in the administration of tax laws afford adequate ground for imposing a tax on a well recognized and defined class."9 In
the case of the anti-TB stamps, undoubtedly, the single most important and influential consideration that led the legislature to select mail users as subjects of
the tax is the relative ease and convenienceof collecting the tax through the post offices. The small amount of five centavos does not justify the great expense
and inconvenience of collecting through the regular means of collection. On the other hand, by placing the duty of collection on postal authorities the tax was
made almost self-enforcing, with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were already a class by themselves even before the
enactment of the statue and all that the legislature did was merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended,
no more than reflects a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard
[them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be conceded as a necessary corollary. Tax exemptions
are too common in the law; they have never been thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law and administrative officials have sanctioned
an invidious discrimination offensive to the Constitution. The application of the lower courts theory would require all mail users to be taxed, a conclusion that
is hardly tenable in the light of differences in status of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to foster what it conceives to be a beneficent
enterprise.11 This is the case of newspapers which, under the amendment introduced by Republic Act 2631, are exempt from the payment of the additional
stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from taxation. The State cannot be taxed without its
consent and such consent, being in derogation of its sovereignty, is to be strictly construed. 12 Administrative Order 9 of the respondent Postmaster General,
which lists the various offices and instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-known
principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other diseases which, it is said, are equally a
menace to public health. But it is never a requirement of equal protection that all evils of the same genus be eradicated or none at all.13 As this Court has had
occasion to say, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have
been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public purpose as no special benefits accrue to mail users
as taxpayers, and second, because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, then
it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living

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in an organized society, established and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying of taxes except as
they are used to compensate for the burden on those who pay them and would involve the abandonment of the most fundamental principle of government
that it exists primarily to provide for the common good. 15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated tax. A tax need not be measured by the
weight of the mail or the extent of the service rendered. We have said that considerations of administrative convenience and cost afford an adequate ground
for classification. The same considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating equally on
all persons within the class regardless of the amount involved. 16 As Mr. Justice Holmes said in sustaining the validity of a stamp act which imposed a flat rate of
two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the tax, so far as actual values are concerned,
is manifest. But, here again equality in this sense has to yield to practical considerations and usage. There must be a fixed and indisputable mode of
ascertaining a stamp tax. In another sense, moreover, there is equality. When the taxes on two sales are equal, the same number of shares is sold in
each case; that is to say, the same privilege is used to the same extent. Valuation is not the only thing to be considered. As was pointed out by the
court of appeals, the familiar stamp tax of 2 cents on checks, irrespective of income or earning capacity, and many others, illustrate the necessity
and practice of sometimes substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the Philippine Tuberculosis Society, a private
organization, without appropriation by law. But as the Solicitor General points out, the Society is not really the beneficiary but only the agency through which
the State acts in carrying out what is essentially a public function. The money is treated as a special fund and as such need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue administrative orders far beyond their powers.
Indeed, this is one of the grounds on which the lower court invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of
legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail matters (such as mail permits, metered mails,
business reply cards, etc.), the five-centavo charge may be paid in cash instead of the purchase of the anti-TB stamp. It further states that mails deposited
during the period August 19 to September 30 of each year in mail boxes without the stamp should be returned to the sender, if known, otherwise they should
be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB stamps, but such authority may be implied
in so far as it may be necessary to prevent a failure of the undertaking. The authority given to the Postmaster General to raise funds through the mails must be
liberally construed, consistent with the principle that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but also that of the regular postage. In the case
of business reply cards, for instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would be to make them pay much more
because the cards likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB stamp, but a declaration therein that "no mail
matter shall be accepted in the mails unless it bears such semi-postal stamp" is a declaration that such mail matter is nonmailable within the meaning of
section 1952 of the Administrative Code. Administrative Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal officials
and employees. As for Administrative Order 9, we have already said that in listing the offices and entities of the Government exempt from the payment of the
stamp, the respondent Postmaster General merely observed an established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to costs.

STANDARD OIL CO. OF NEW YORK v. POSADAS

This test case presents for decision the question of whether sales of merchandise made in the Philippines to the United States Army and the United States
Navy are subject to the sales tax. In the lower court, the demurrer to the complaint was sustained, and the plaintiff having elected not to amend its complaint,
judgement was rendered upon the subject matter involved in the pleadings, adjudging that the plaintiff take nothing by the action and defendant recover
costs.
The Standard Oil Company of New York is a foreign corporation duly authorized to do business in the Philippines. During the period from October 1, 1929, to
December 31, 1929, the Standard Oil Company sold and delivered in the Philippines to the Quartermaster Department of the United States Army, for the use of
the Army, fuel oil and asphalt of the value of P6,832.84. The Collector of Internal Revenue of the Philippine Government, acting under authority of section
1459 of the Administrative Code and Act No. 3243 of the Philippine Legislature as ratified by the Congress of the United States, demanded a tax of one and
one-half per cent upon the value of the merchandise, amounting to P102.49. During the identical period of time above-mentioned, the Standard Oil Company
likewise made delivery in the Philippines to the United States Navy, under a contract executed in New York, United States, for the use of the Navy, of fuel oil of
the value of P172,059.36, which was paid in New York, and which contract provided that all internal revenue taxes and charges under the laws of the
Philippine Islands were to be assumed and paid by the United States Navy. The Collector of Internal Revenue required payment of the sales tax upon the value
of the fuel oil, in the amount of P2,580.89. the Standard Oil Company paid the taxes assessed under protest and is now suing to recover the corresponding
refunds.

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This court has recently decided the case entitled, Thirty First Infantry Post Exchange and First Lieutenant David L. Hardee, Thirty-First Infantry, United States
Army, plaintiffs, vs. Juan Posadas, Jr., Collector of Internal Revenue, Philippine Islands, defendant ([1930], 54 Phil., 866). There it was held that a tax may be
levied by the Government of the Philippine Islands on sales made by merchants to Post Exchanges of the United States Army in the Philippines. It was ruled
that the Acts of the Philippine Legislature imposing the sales tax, which have been confirmed by Acts of Congress, form a part of the Philippine Organic Law.
That same principle would again apply to the facts before us. However, it was indicated that the waiver must be clear and that every well-grounded doubt
should be resolved in favor of the exemption, citing Austin vs. Aldermen of Boston ([1869], 7 Wall., 694). That principle would likewise govern here.
In the course of the decision in the Post Exchange case, the United States Army was mentioned, and properly so, as an instrumentality of the United States
Government. Regarding the correctness of this proposition, there could, of course, be no real dispute. The United States Army and the United States Navy
derive their powers from the Constitution of the United States. The Congress of the United States has created two agencies, or more correctly stated, three
agencies to serve the United States in the Philippine Islands. Two of these agencies are the United States Army and the United States Navy, and the third is the
Government of the Philippine Islands. The military establishment and the civil government stand side by side but independent of each other in the Philippines.
The tax collected from the plaintiff by one of these agencies, the Philippine Government, is in reality a tax on the United States Army and the United States
Navy in other words, on the United States Government for the consumer pays the tax as part of the purchase price. (Tan Te vs. Bell [1914], 27 Phil., 354;
U. S. vs. Smith [1919], 39 Phil., 533.).
It would further appear perfectly clear that the principle which prohibits a State from taxing the instrumentalities of the Federal Government applies with
equal force to the Philippine Islands. At least, that was our holding in the Post Exchange case. Nevertheless the Attorney-General persists in assuming a
difference in tax powers between the relations of the Philippine Government to the National Government and of a State Government to the National
Government. We are frank to say that we are unable to see eye to eye with the Attorney-General. It would be absurd to think that a derivative sovereignty like
the Government of the Philippine Islands, could tax the instrumentalities of the very Government which brought it into existence. If a sovereign State of the
American Union cannot abridge or restrict the activities of the United States Government, much less can a creature of that Government, as the Philippine
Government is, do so. (Note the well-considered opinion of Attorney-General Wickersham of June 8, 1912, appearing in 29 Opinions, Attorneys-General,
United States, 442.)
The case before us is readily distinguishable on the facts from the Post Exchange case. The theory of the Post Exchange case was that a tax on sales, which
ultimately passed on to the consumers, individuals in the Army, was not a tax on the United States Government or with the operations of the United States
Army to such an extent or in such a manner as to render the tax illegal. There is no such condition in this case. The goods which were claimed to be subject to
tax are for the use of the United States itself in its own operations in the Philippines.
The case at bar is more nearly analogous to the case of Panhandle Oil Co. vs. Knox ([1928], 277 U. S., 218), than was the Post Exchange case. The Panhandle Oil
case and the case at bar differ in that in the Panhandle Oil case, the United States Supreme Court dealt with a State law that had never been ratified by
Congress, whereas there is now to be applied an Act of the Philippine Legislature which had been ratified by Congress. On the other hand, the Panhandle Oil
case at bar are similar in that both concern privilege taxes the amount of which is measured by the amount of the sale; in that in both cases the sales were
made to instrumentalities of the Federal Government; and in that in both cases, the party to suit was the merchant and not the United States Government or an
agency within the United States Army like a Post Exchange. Inasmuch, however, as the distinction between a State law and an Act of a territorial legislature is
no distinction at all, and inasmuch as the ratification by Congress failed to grant any express waiver of the exemption in favor of the United States
Government, it would require more than ordinary ingenuity to avoid the consequences of the decision of the United States Supreme Court in the Panhandle Oil
Case.
Not long since, the District of Columbia endeavored to recover taxes on gasoline imported into the District of Columbia by the American Oil Company, under a
contract with the Secretary of the Treasury, for use by the executive departments and governmental agencies. In both the Supreme Court of the District of
Columbia and the Court of Appeals, the seller was held not liable for the tax. In the opinion of the appellate court, it was said: "While for convenience, the tax is
levied upon the importer, it is apparent that the tax is really to be paid by the consumer. . . . To sustain the contention of appellant, it must clearly appear that
the United States intended to tax itself. See Dollar Savings Bank vs. United States, 19 Wall., 227; 22 L. ed., 80." (District of Columbia vs. American Oil Co. [1930],
39 Fed. 2nd., 510.).
The Asiatic Petroleum Company began suit in the Court of Claims against the United States for the recovery of more than $100,000 due on the purchase price
of fuel oil sold by the company for the use of the Navy. The defendant admitted the claim but interposed a counterclaim for the same amount, alleged to be due
and owing to the Philippine Government as customs duties on oil under this contract. In the Philippines the Tariff Act in force was the Act of Congress of
August 5, 1909, which was silent on the question. It was the holding of the Court of Claims that this Act of Congress did not require the United States to pay
duty on oil owned by it and imported into the Philippine Islands for use in the Military or Naval Establishments. The court said: "The purpose of the statute
providing for customs duties on importations into the Philippine Islands was to provide revenue for the use of the Philippine Government, for the protection,
and partial support of which the United States held itself responsible. It is inconceivable that Congress in the enactment of the said statute should have
intended that the United States would be required to pay duty on its own oil imported into the Philippine Islands, for its own use, in supplying its Navy vessels
used in the protection of the Philippine Government, as well as for the maintenance of its own Military and Naval Establishments in the national defense."
(Asiatic Petroleum Co. vs. U. S. [1928],65 Ct. of Cl. Rep., 100.).
We sustain the first, second, third, and fifth errors assigned, going to the proposition that the lower court erred in not deciding that sales made in the
Philippines to the United States Army and the United States Navy are made to instrumentalities of the United States Government, and, therefore, are not
subject to tax by the Philippine Government. This holding makes unnecessary any reference to the fourth error assigned, relating to the additional question
having to do with the contract with the United States Navy, and to the point that this question was not mentioned in the protest filed with the Bureau of
Internal Revenue and so may not be raised on appeal. It is sufficient to state that, in our opinion, the assessment and collection by the Philippine Government
of the tax on sales of merchandise made in the Philippines to the United States Army and the United States Navy is illegal.
Judgment reversed, and the record ordered returned to the court of origin for further proceedings, without express finding as to costs in either instance.

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ESSO STANDARD EASTERN, INC. v. ACTING COMMISSIONER OF CUSTOMS

Claim for the refund of P722.84 paid in 1956 as special import tax on pump parts imported by petitioner. Petitioner's ground: The imported articles "consist
of equipment and spare parts for its own exclusive use and therefore were exempt from special import tax", by the terms of Section 6, Republic Act 1394.1 The
Collector of Customs of Manila rejected the claim. Respondent Acting Commissioner of Customs, on appeal, affirmed the rejection. Petitioner's case suffered
the same fate in the Court of Tax Appeals.2 We are asked to review the Court on Tax Appeals' judgment.
The interrelated errors assigned in petitioner's brief funnel down to one controlling legal issue: Are the imported pump parts exempt from the payment of
special import tax?
By Section 1 of Republic Act 1394, a special import tax is imposed "on all goods, articles or products imported or brought into the Philippines" during the
period from 1956 up to and including 1965 in accordance with the schedule of rates therein provided. Exempt from this tax, by express mandate of Section 6
of the same law, inter alia, are "machinery, equipment, accessories, and spare parts, for the use of industries, miners, mining enterprises, planters and
farmers".
Petitioner is engaged in the industry of processing gasoline, and manufacturing lubricating oil, grease and tin containers. Petitioner owns gasoline stations
with pumps, which are leased to and operated by gasoline dealers. It sells gasoline to these dealers. The pump parts imported by petitioner in 1956 were
intended, installed and actually used by gasoline dealers in pumping gasoline from under around tanks into customers' motor vehicles. These pump parts, in
other words, are used in the sale at retail of gasoline not by petitioner but by lessees of gasoline stations. In this factual environment, it is quite evident that
the pump parts are not used in petitioner'sindustry of processing gasoline, or manufacturing lubricating oil, grease and tin containers.
The drive of petitioner's argument is that marketing of its gasoline product "is corollary to or incidental to its industrial operations."3 But this contention runs
smack against the familiar rules that exemption from taxation is not favored,4 and that exemptions in tax statutes are never presumed. 5 Which are but
statements in adherence to the ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority.6 Tested by this precept, we cannot indulge in expansive construction and write into the law an exemption not therein set forth. Rather, we go
by the reasonable assumption that where the State has granted in express terms certain exemptions, those are the exemptions to be considered, and no more.
Since the law states that, to be tax exempt, equipment and spare parts should be "for the use of industries", the coverage herein should not be enlarged to
include equipment and spare parts for use in dispensing gasoline at retail. In comparable factual backdrop, this Court has held that tax exemption in
connection with the manufacture of asbestos roof does not extend to the installation thereof. 7
Upon the facts and the law, we vote to affirm the decision of the Court of Tax Appeals under review. Costs against petitioner. So ordered.

NATIONAL DEVELOPMENT CO. v. CEBU CITY

Is a public land reserved by the President for warehousing purposes in favor of a government-owned or controlled corporation, 1 as well as the warehouse
subsequently erected thereon, exempt from real property tax?
Petitioner National Development Company (NDC), a government-owned or controlled corporation (GOCC) existing by virtue of C.A. 182 2 and E.O. 399, 3 is
authorized to engage in commercial, industrial, mining, agricultural and other enterprises necessary or contributory to economic development or important
to public interest. It also operates, in furtherance of its objectives, subsidiary corporations one of which is the now defucnt National Warehousing Corporation
(NWC). 4
On August 10, 1939, the President issued Proclamation No. 430 5 reserving Block no. 4, Reclamation Area No. 4, of Cebu City, consisting of 4,599 square
meters, for warehousing purposes under the administration of NWC. 6 Subsequently, in 1940, a warehouse with a floor area of 1,940 square meters more or
less, was constructed thereon. 7
On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets and functions. 9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate taxes on the land and the warehouse thereon. 10 By the first quarter of 1970,
a total of P100,316.31 was paid by NDC 11 of which only P3,895.06 was under protest. 12
On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real estate taxes paid to CEBU claiming that the land and the warehouse
standing thereon belonged to the Republic and therefore exempt from taxation. 13 CEBU did not acquiesce in the demand, hence, the present suit filed 25
October 1972 in the Court of First Instance of Manila.
On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a decision 14 the dispositive portion of which reads
WHEREFORE, judgment is hereby rendered sentencing the City of Cebu, thru the Treasurer of said City, to refund to the plaintiff, National
Development Company, the real estate taxes paid by it for the parcel of land covered by Presidential Proclamation No. 430 of August 10,
1939, and the warehouse erected thereon from and after October 25, 1966, with interests thereon at the legal rate from the date of the
filing of the complaint and the costs of the suit.
The defendants appealed to the Court of Appeals which however certified the case to Us as one involving pure questions of law, pursuant to Sec. 17, R.A. 296.

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In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which may be synopsized into whether NDC is exempted from payment of the real
estate taxes on the land reserved by the President for warehousing purposes as well as the warehouse constructed thereon, and in the affirmative, whether
NDC may recover in refund unprotested real estate taxes it paid from 1948 to 1970.
On the first question, CEBU insists on taxability of the subject properties, claiming that no law grants NDC exemption from real estate taxes, and that NDC, as
recipient of the land reserved by the President pursuant to Sec. 83 of the Public Land Act, 16 is liable for payment or ordinary (real estate) taxes under Sec. 115
therefore. CEBU contends that the properties have ceased to be tax exempt under the Assessment Law. 17 when the government disposed of them in favor of
NDC, and even assuming that title to the land remains with the government (ownership being the basis for real estate taxability under the Assessment Law),
the Supreme Court rulings establish increasing rather than "ownership" as basis for real estate tax liability.
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which exempts properties owned by the Republic from real estate tax, includes subject
properties in the exemption. It invokes the ruling in Board of Assessment Appeals vs. CTA & NWSA 18 which held that properties of NWSA, a GOCC, were exempt
from real estate tax because Sec. 3 of the Assessment Law applied to all government properties whether held in governmental or proprietary capacity. NDC
rejects the applicability of Sec. 115 of the Public Land Act to the subject land, claiming that provision contemplates dispositions of public land with eventual
transfer of title. In addition, NDC believes that it is neither a grantee of a public land nor an applicant within the purview of the same provision.
As already adverted to, one of the principal issues before Us is the interpretation of a provision of the Assessment Law, the precursor of the then Real Property
Tax Code and the Local Government Code, where "ownership" of the property and not "use" is the test of tax liability. 19
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax exemption, provides
Section 3. Property exempt from tax. The exemptions shall be as follows: (a) Property owned by the United States of America, the
Commonwealth of the Philippines, any province, city, municipality at municipal district . . .
The same opinion of NDC was passed upon in National Development Co. v. Province of Nueva Ecija 20 where We held that its properties were not comprehended
in Sec. 3, par (a), of the Assessment Law. In part, We stated:
1. Commonwealth Act No. 182 which created NDC contains no provision exempting it from the payment of real estate tax on properties it
may acquire . . . There is justification in the contention of plaintiff-appellee that . . . [I]t is undeniable that to any municipality the principal
source of revenue with which it would defray its operation will came from real property taxes. If the National Development Company
would be exempt from paying real property taxes over these properties, the town of Gabaldon will bee deprived of much needed
revenues with which it will maintain itself and finance the compelling needs of its inhabitants (p. 6, Brief of Plaintiff-Appellee).
2. Defendant-appellant NDC does not come under classification of municipal or public corporation in the sense that it may sue and be
sued in the same manner as any other private corporations, and in this sense, it is an entity different from the government, defendant
corporation may be sued without its consent, and is subject to taxation. In the case NDC vs. Jose Yulo Tobias, 7 SCRA 692, it was held that
. . . plaintiff is neither the Government of the Republic nor a branch or subdivision thereof, but a government owned and controlled
corporation which cannot be said to exercise a sovereign function (Association Cooperativa de Credito Agricola de Miagao vs.
Monteclaro, 74 Phil. 281). it is a business corporation, and as such, its causes of action are subject to the statute of limitations. . . . That
plaintiff herein does not exercise sovereign powers and, hence, cannot invoke the exemptions thereof but is an agency for the
performance of purely corporate, proprietary or business functions, is apparent from its Organic Act (Commonwealth Act 182, as
amended by Commonwealth Act 311) pursuant to Section 3 of which it "shall be subject to the provisions of the Corporation Law insofar
as they are not inconsistent" with the provisions of said Commonwealth Act, "and shall have the general powers mentioned in said"
Corporation Law, and, hence, "may engage in commercial, industrial, mining, agricultural, and other enterprises which may be necessary
or contributory to the economic development of the country, or important in the public interest," as well as "acquire, hold, mortgage and
alienate personal and real property in the Philippines or elsewhere; . . . make contracts of any kind and description", and "perform any
and all acts which a corporation or natural persons is authorized to perform under the laws now existing or which may be enacted
hereafter."
We find no compelling reason why the foregoing ruling, although referring to lands which would eventually be transferred to private individuals, should not
apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeal and National Waterworks and Sewerage Authority (NWSA). In that case, We
held that properties of NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish between those possessed by the
government in sovereign/governmental/political capacity and those in private/proprietary/patrimonial character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra, is more superficial than real. The NDC decision speaks of properties owned
by NDC, while the BAA ruling concerns properties belonging to the Republic. The latter case appears to be exceptional because the parties therein stipulated

1. That the petitioner National Waterworks and Sewerage Authority (NAWASA) is a public corporation created by virtue of Republic Act.
No. 1383, and that it is owned by the Government of the Philippines as well as all property comprising waterworks and sewerage systems
placed under it (Emphasis supplied).
There, the Court observed: "It is conceded, in the stipulation of facts, that the property involved in this case "is owned by the Government of the Philippines."
Hence, it belongs to the Republic of the Philippines and falls squarely within letter of the above provision."

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In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership of subject properties should first be established. For, while it may
be stated that the Republic owns NDC, it does not necessary follow that properties owned by NDC, are also owned by Republic in the same way that
stockholders are not ipso facto owners of the properties of their corporation.
The Republic, like any individual, may form a corporation with personality and existence distinct from its own. The separate personality allows a GOCC to hold
and possess properties in its own name and, thus, permit greater independence and flexibility in its operations. It may, therefore, be stated that tax exemption
of property owned by the Republic of the Philippines "refers to properties owned by the Government and by its agencies which do not have separate and
distinct personalities (unincorporated entities). We find the separate opinion of Justice Bautista-Angelo in Gonzales v. Hechanova, et al., 21 appropriate and
enlightening
. . . The Government of the Republic of the Philippines under the Revised Administrative Code refers to that entity through which the
functions of government are exercised, including the various arms through which political authority is made effective whether they be
provincial, municipal or other form of local government, whereas a government instrumentality refers to corporations owned or
controlled by the government to promote certain aspects of the economic life of our people. A government agency therefore, must
necessarily after refer to the government itself to the Republic, as distinguished from any government instrumentality which has a
personality distinct and separate from it (Section 2).
The foregoing discussion does not mean that because NDC, like most GOCC's engages in commercial enterprises all properties of the government and its
unincorporated agencies possessed in propriety character are taxable. Similarly, in the case at bar, NDC proceeded on the premise that the BAA ruling
declared all properties owed by GOCC's as properties in the name of the Republic, hence, exempt under Sec. 3 of the Assessment Law. 22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment Law, it is important to establish that the property is owned by the
government or its unincorporated agency, and once government ownership is determined, the nature of the use of the property, whether for proprietary or
sovereign purposes, becomes immaterial. What appears to have been ceded to NWC (later transferred to NDC), in the case before Us, is merely the
administration of the property while the government retains ownership of what has been declared reserved for warehousing purposes under Proclamation
No. 430.
Incidentally, the parties never raised the issued the issue of ownership from the court a quo to this Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept back from sale or disposition." 23 The land remains "absolute property of the
government." 24 The government "does not part with its title by reserving them (lands), but simply gives notice to all the world that it desires them for a
certain purpose." 25 Absolute disposition of land is not implied from reservation; 26 it merely means "a withdrawal of a specified portion of the public domain
from disposal under the land laws and the appropriation thereof, for the time being, to some particular use or purpose of the general government." 27 As its
title remains with the Republic, the reserved land is clearly recovered by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC is a form of disposition of public land which, subjects the recipient
(NDC ) to real estate taxation under Sec. 115 of the Public Land Act. as amended by R.A. 436, 28 which estate:
Sec 115. All lands granted by virtue of this Act, including homesteads upon which final proof has not been made or approved shall, even
though and while the title remains in the State, be subject to the ordinary taxes, which shall be paid by the grantee or the applicant,
beginning with the year next following the one in which the homestead application has been filed, or the concession has been approved,
or the contract has been signed, as the case may be, on the basis of the value fixed in such filing, approval or signing of the application,
concession or contract.
The essential question then is whether lands reserved pursuant to Sec. 83 are comprehended in Sec. 115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a), of the Assessment Law. While ordinary public lands are tax exempt
because title thereto belongs to the Republic, Sec. 115 subjects them to real estate tax even before ownership thereto is transferred in the name of the
beneficiaries. Sec. 115 comprehends three (3) modes of disposition of Lands under the Public Land Act, to wit: homestead, concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead application, (b) approval of concession and, (c) signing of contract.
Significantly, without these words, the date of the accrual of the real estate tax would be indeterminate. Since NDC is not a homesteader and no "contract"
(bilateral agreement) was signed, it would appear, then, that reservation under Sec. 83, being a unilateral act of the President, falls under "concession".
"Concession" as a technical term under the Public Land Act is synonymous with "alienation" and "disposition", and is defined in Sec. 10 as "any of the methods
authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands." Logically, where Sec. 115
contemplates authorized methods for acquisition, lease, use, or benefit under the Act, the taxability of the land would depend on whether reservation under
Sec. 83 is one such method of acquisition, etc. Tersely put, is reservation synonymous with alienation? Or, are the two terms antithetical and mutually
exclusive? Indeed, reservation connotes retention, while concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from that may be subject of disposition, to wit
Sec. 8. Only those lands shall be declared open to disposition or concession which have been officially delimited and classified and, when
practicable, surveyed, and which have not been reservedfor public or quasi-public uses, nor appropriated by the Government, nor in any
manner become private property , nor those on which a private right authorized and recognized by this Act or any valid law may be
claimed, or which, having been reserved or appropriated, have ceased to be so.

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Sec. 88. The tract or tracts of land reserved under the provisions of section eighty-three shall be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or by proclamation of the
President (Emphasis supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public land and transform it into non-alienable or non-disposable under the
Public Land Act. Section 115, on the other hand, applies to disposable public lands. Clearly, therefore, Sec. 115 does not apply to lands reserved under Sec. 83.
Consequently, the subject reserved public land remains tax exempt.
However, as regards the warehouse constructed on a public reservation, a different rule should apply because "[t]he exemption of public property from
taxation does not extend to improvements on the public lands made by pre-emptioners, homesteaders and other claimants, or occupants, at their own
expense, and these are taxable by the state . . ." 29 Consequently, the warehouse constructed on the reserved land by NWC (now under administration by NDC),
indeed, should properly be assessed real estate tax as such improvement does not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected by CEBU should be refunded to NDC. This is in consonance with Sec. 40,
par. (a) of the former Real Property Tax Code which exempted from taxation real property owned by the Republic of the Philippines or any of its political
subdivisions, as well as any GOCC so exempt by its charter. 30
As regards the requirement of paying under protest before judicial recourse, CEBU argues that in any case NDC is not entitled to refund because Sec. 75 of R.A.
3857, the Revised Charter of the City of Cebu, 31 requires payment under protest before resorting to judicial action for tax refund; that it could not have acted
on the first demand letter of NDC of 20 May 1970 because it was sent to the City Assessor and not to the City Treasurer; that, consequently, there having been
no appropriate prior demand, resort to judicial remedy is premature; and, that even on the premise that there was proper demand, NDC has yet to exhaust
administrative remedies by way of appeal to the Department of Finance and/or Auditor General before taking judicial action.
NDC does not agree. It disputes the applicability of the payment-under-protest requirement is Sec. 75 of the Revised Cebu City Charter because the issue is not
the validity of tax assessment but recovery of erroneous payments under Arts. 2154 and 2155 of the Civil Code. 32 It cites the case of East Asiatic Co., Ltd. v. City
of Davao33 which held that where the tax is unauthorized, "it is not a tax assessed under the charter of the appellant City of Davao and for that reason no
protest is necessary for a claim or demand for its refund." In Ramie Textiles, Inc. vs. Mathay, Sr., 34We held
. . . Protest is not a requirement in order that a taxpayer who paid under a mistaken belief that it is required by law, may claim for a
refund. Section 54 35 of Commonwealth Act No. 470 does not apply to petitioner which could conceivably not have been expected to
protest a payment it honestly believed to be due. The same refers only to the case where the taxpayer, despite his knowledge of the
erroneous or illegal assessment, still pays and fails to make the proper protest, for in such case, he should manifest an unwillingness to
pay, and failing so, the taxpayer is deemed to have waved his right to claim a refund.
In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had no knowledge of the fact that it was exempted
from payment of the realty tax under Commonwealth Act No. 470. Payment was made through error or mistake, in the honest belief that
petitioner was liable, and therefore could not have been made under protest, but with complete voluntariness. In any case, a taxpayer
should not be held to suffer loss by his good intention to comply with what he believes is his legal obligation, where such obligation does
not really exist . . . The fact that petitioner paid thru error or mistake, and the government accepted the payment, gave rise to the
application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which provides that "if something is received
when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises." There is, therefore,
created a tie or juridical relation in the nature ofsolutio indebiti, expressly classified as quasi-contract under Section 2, Chapter I of Title
XVII of the New Civil code.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another . . . Hence, it would seem unedifying for the government, that knowing it has no right at all to collect or
to receive money for alleged taxes paid by mistake, it would be reluctant to return the same . . . Petitioner is not unsatisfied in the
assessment of its property. Assessment having been made, it paid the real estate taxes without knowing that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty (20) years, We also said in Ramie Textiles that
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti, the claim for refund must be commenced
within six (6) years from date of payment pursuant to Article 1145 (2) of the New Civil Code 36 . . .
We sustain the appellate court to the extent that its decision covers improperly collected taxes on the reserved land under Proclamation No. 430, thus
The defense of prescription invoked by the defendant which counsel for the plaintiff, however, did not answer in its memorandum, is
partly well-taken. Actions for refund of taxes illegally collected must be commenced within six (6) years from the date of collection. . . . .
The stipulation of facts and the pleadings filed by the parties do not contain data specifying when and how much were paid by the year,
of the taxes sought to be refunded. Accordingly, the Court has no other alternative but to order the refund of an undetermined amount
based, however, on the date of payment counted six (6) years backward from October 25, 1972, when the complaint in this case was
filed. 37
As regards exhaustion of administrative remedies, We agree with the trial court that the case constitutes an exception to the rule, as it involves purely
question of law. 38 Specifically, on the requirement of appeal to the Secretary of Finance, We further held in the same Ramie Textiles that "[E]qually not

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applicable is Section 17 of Commonwealth Act No. 470 39 cited by respondent in relation to the right of a, property owner to contest the validity of assessment
. . ."
Respondent CEBU likewise invites Our attention to the availability of appeal to the Government Auditing Office although no authority is cited to Us. We do not
find any either to sustain the procedure.
WHEREFORE, finding that National Development Company (NDC) is exempt from real estate tax on the reserved land but liable for the warehouse erected
thereon, the decision appealed from is accordingly MODIFIED. Consequently, let this case be remanded to the court of origin, now the Regional Trial Court of
Manila, to determine the proper liability of NDC, particularly on its warehouse, and effect the corresponding refund, payment or set-off, as the case may be,
conformably with this decision. No costs.