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G.R. No. 106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT
OF TAX APPEALS, respondents.
The judicial proceedings over the present controversy commenced with CTA Case No.
4099, wherein the Court of Tax Appeals ordered herein petitioner Commissioner of
Internal Revenue to grant a refund to herein private respondent Citytrust Banking
Corporation (Citytrust) in the amount of P13,314,506.14, representing its overpaid
income taxes for 1984 and 1985, but denied its claim for the alleged refundable amount
reflected in its 1983 income tax return on the ground of prescription. 1 That judgment of
the tax court was affirmed by respondent Court of Appeals in its judgment in CA-G.R.
SP No. 26839. 2 The case was then elevated to us in the present petition for review
on certiorari wherein the latter judgment is impugned and sought to be nullified and/or
set aside.
It appears that in a letter dated August 26, 1986, herein private respondent corporation
filed a claim for refund with the Bureau of Internal Revenue (BIR) in the amount of
P19,971,745.00 representing the alleged aggregate of the excess of its carried-over total
quarterly payments over the actual income tax due, plus carried-over withholding tax
payments on government securities and rental income, as computed in its final income
tax return for the calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive
period, Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA
Case No. 4099, claiming the refund of its income tax overpayments for the years 1983,
1984 and 1985 in the total amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein
respondent commissioner, it was asserted that the mere averment that Citytrust incurred a
net loss in 1985 does not ipso facto merit a refund; that the amounts of P6,611,223.00,
P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income tax overpayment,
taxes withheld on proceeds of government securities investments, as well as on rental
income, respectively, are not properly documented; that assuming arguendo that
petitioner is entitled to refund, the right to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292
and 295 of the National Internal Revenue Code of 1977, as amended, since the petition
was filed only on August 28, 1986. 5

On February 20, 1991, the case was submitted for decision based solely on the pleadings
and evidence submitted by herein private respondent Citytrust. Herein petitioner could
not present any evidence by reason of the repeated failure of the Tax Credit/Refund
Division of the BIR to transmit the records of the case, as well as the investigation report
thereon, to the Solicitor General. 6
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and
motion praying for the suspension of the proceedings in the said case on the ground that
the claim of Citytrust for tax refund in the amount of P19,971,745.00 was already being
processed by the Tax Credit/Refund Division of the BIR, and that said bureau was only
awaiting the submission by Citytrust of the required confirmation receipts which would
show whether or not the aforestated amount was actually paid and remitted to the BIR. 7
Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals
already acquired jurisdiction over the case, it could no longer be divested of the same;
and, further, that the proceedings therein could not be suspended by the mere fact that the
claim for refund was being administratively processed, especially where the case had
already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1,
Y-2 and Y-3 adduced in the case, which clearly showed that there was an overpayment of
income taxes and for which a tax credit or refund was due to Citytrust. The Foregoing
exhibits are allegedly conclusive proof of and an admission by herein petitioner that there
had been an overpayment of income taxes. 8
The tax court denied the motion to suspend proceedings on the ground that the case had
already been submitted for decision since February 20, 1991. 9
Thereafter, said court rendered its decision in the case, the decretal portion of which
declares:
WHEREFORE, in view of the foregoing, petitioner is entitled to a
refund but only for the overpaid taxes incurred in 1984 and 1985. The
refundable amount as shown in its 1983 income tax return is hereby
denied on the ground of prescription. Respondent is hereby ordered to
grant a refund to petitioner Citytrust Banking Corp. in the amount of
P13,314,506.14 representing the overpaid income taxes for 1984 and
1985, recomputed as follows:
1984 Income tax due P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits

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W/T on int. on gov't. sec. 1,921,245.37*

W/T on rental inc. 26,604.30* 18,162,448.67

Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00

Amount refundable for 1984 P (13,296,663.67)

1985 Income tax due (loss) P 0
Less: W/T on rentals 36,716.47*

Tax Overpayment (36,716.47)*

Less: FCDU payable 18,874.00

Amount Refundable for 1985 P (17,842.47)

* Note:
These credits are smaller than the claimed amount because only the above figures are
well supported by the various exhibits presented during the hearing.
No pronouncement as to costs.
SO ORDERED. 10
The order for refund was based on the following findings of the Court of Tax Appeals: (1)
the fact of withholding has been established by the statements and certificates of
withholding taxes accomplished by herein private respondent's withholding agents, the
authenticity of which were neither disputed nor controverted by herein petitioner; (2) no
evidence was presented which could effectively dispute the correctness of the income tax
return filed by herein respondent corporation and other material facts stated therein; (3)
no deficiency assessment was issued by herein petitioner; and (4) there was an audit
report submitted by the BIR Assessment Branch, recommending the refund of overpaid
taxes for the years concerned (Exhibits Y to Y-3), which enjoys the presumption of
regularity in the performance of official duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor
General on the sole ground that the statements and certificates of taxes allegedly withheld
are not conclusive evidence of actual payment and remittance of the taxes withheld to the
BIR. 12 A supplemental motion for reconsideration was thereafter filed, wherein it was
contended for the first time that herein private respondent had outstanding unpaid

deficiency income taxes. Petitioner alleged that through an inter-office memorandum of

the Tax Credit/Refund Division, dated August 8, 1991, he came to know only lately that
Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91
representing deficiency income and business taxes covered by Demand/Assessment
Notice No. FAS-1-84-003291-003296. 13
Oppositions to both the basic and supplemental motions for reconsideration were filed by
private respondent Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution
denying both motions for the reason that Section 52 (b) of the Tax Code, as implemented
by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income
received was declared as part of the gross income, and that the fact of withholding was
duly established. Moreover, with regard to the argument raised in the supplemental
motion for reconsideration anent the deficiency tax assessment against herein petitioner,
the tax court ruled that since that matter was not raised in the pleadings, the same cannot
be considered, invoking therefor the salutary purpose of the omnibus motion rule which
is to obviate multiplicity of motions and to discourage dilatory pleadings. 15
As indicated at the outset, a petition for review was filed by herein petitioner with
respondent Court of Appeals which in due course promulgated its decision affirming the
judgment of the Court of Tax Appeals. Petitioner eventually elevated the case to this
Court, maintaining that said respondent court erred in affirming the grant of the claim for
refund of Citytrust, considering that, firstly, said private respondent failed to prove and
substantiate its claim for such refund; and, secondly, the bureau's findings of deficiency
income and business tax liabilities against private respondent for the year 1984 bars such
payment. 16
After a careful review of the records, we find that under the peculiar circumstances of this
case, the ends of substantial justice and public interest would be better subserved by the
remand of this case to the Court of Tax Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner
of Internal Revenue, was denied its day in court by reason of the mistakes and/or
negligence of its officials and employees. It can readily be gleaned from the records that
when it was herein petitioner's turn to present evidence, several postponements were
sought by its counsel, the Solicitor General, due to the unavailability of the necessary
records which were not transmitted by the Refund Audit Division of the BIR to said
counsel, as well as the investigation report made by the Banks/Financing and Insurance
Division of the said bureau/ despite repeated requests. 17 It was under such a predicament
and in deference to the tax court that ultimately, said records being still unavailable,

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herein petitioner's counsel was constrained to submit the case for decision on February
20, 1991 without presenting any evidence.
For that matter, the BIR officials and/or employees concerned also failed to heed the
order of the Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule
7 of the Rules of the Court of Tax Appeals which provides that the Commissioner of
Internal Revenue and the Commissioner of Customs shall certify and forward to the
Court of Tax Appeals, within ten days after filing his answer, all the records of the case in
his possession, with the pages duly numbered, and if the records are in separate folders,
then the folders shall also be numbered.
The aforestated impass came about due to the fact that, despite the filing of the
aforementioned initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals,
the Tax Refund Division of the BIR still continued to act administratively on the claim
for refund previously filed therein, instead of forwarding the records of the case to the
Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the errors
committed by its agents.19 In the performance of its governmental functions, the State
cannot be estopped by the neglect of its agent and officers. Although the Government
may generally be estopped through the affirmative acts of public officers acting within
their authority, their neglect or omission of public duties as exemplified in this case will
not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic
that the Government cannot and must not be estopped particularly in matters involving
taxes. Taxes are the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for the welfare of its
constituents. 21The errors of certain administrative officers should never be allowed to
jeopardize the Government's financial position, 22especially in the case at bar where the
amount involves millions of pesos the collection whereof, if justified, stands to be
prejudiced just because of bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals erred in denying
petitioner's supplemental motion for reconsideration alleging bringing to said court's
attention the existence of the deficiency income and business tax assessment against
Citytrust. The fact of such deficiency assessment is intimately related to and inextricably
intertwined with the right of respondent bank to claim for a tax refund for the same year.
To award such refund despite the existence of that deficiency assessment is an absurdity
and a polarity in conceptual effects. Herein private respondent cannot be entitled to
refund and at the same time be liable for a tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid, that is, the
facts stated therein are true and correct. The deficiency assessment, although not yet final,
created a doubt as to and constitutes a challenge against the truth and accuracy of the
facts stated in said return which, by itself and without unquestionable evidence, cannot be
the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the
applicable law when the claim of Citytrust was filed, provides that "(w)hen an assessment
is made in case of any list, statement, or return, which in the opinion of the
Commissioner of Internal Revenue was false or fraudulent or contained any
understatement or undervaluation, no tax collected under such assessment shall be
recovered by any suits unless it is proved that the said list, statement, or return was not
false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith
regarding annual depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the proper assessment and the tax
due would inevitably result in multiplicity of proceedings or suits. If the deficiency
assessment should subsequently be upheld, the Government will be forced to institute
anew a proceeding for the recovery of erroneously refunded taxes which recourse must
be filed within the prescriptive period of ten years after discovery of the falsity, fraud or
omission in the false or fraudulent return involved. 23 This would necessarily require and
entail additional efforts and expenses on the part of the Government, impose a burden on
and a drain of government funds, and impede or delay the collection of much-needed
revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both
logically necessary and legally appropriate that the issue of the deficiency tax assessment
against Citytrust be resolved jointly with its claim for tax refund, to determine once and
for all in a single proceeding the true and correct amount of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just
and fair that the taxpayer and the Government alike be given equal opportunities to avail
of remedies under the law to defeat each other's claim and to determine all matters of
dispute between them in one single case. It is important to note that in determining
whether or not petitioner is entitled to the refund of the amount paid, it would necessary
to determine how much the Government is entitled to collect as taxes. This would
necessarily include the determination of the correct liability of the taxpayer and, certainly,
a determination of this case would constitute res judicata on both parties as to all the
matters subject thereof or necessarily involved therein.

Page | 4

The Court cannot end this adjudication without observing that what caused the
Government to lose its case in the tax court may hopefully be ascribed merely to the
ennui or ineptitude of officialdom, and not to syndicated intent or corruption. The
evidential cul-de-sac in which the Solicitor General found himself once again gives
substance to the public perception and suspicion that it is another proverbial tip in the
iceberg of venality in a government bureau which is pejoratively rated over the years.
What is so distressing, aside from the financial losses to the Government, is the erosion
of trust in a vital institution wherein the reputations of so many honest and dedicated
workers are besmirched by the acts or omissions of a few. Hence, the liberal view we
have here taken pro hac vice, which may give some degree of assurance that this Court
will unhesitatingly react to any bane in the government service, with a replication of such
response being likewise expected by the people from the executive authorities.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839
is hereby SET ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for
further proceedings and appropriate action, more particularly, the reception of evidence
for petitioner and the corresponding disposition of CTA Case No. 4099 not otherwise
inconsistent with our adjudgment herein.
SO ORDERED.
Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.

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[G.R. No. 112024. January 28, 1999]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF
APPEALS, respondents.

ending December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00,
and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding creditable taxes
of P282,795.50 in 1985 and P234,077.69 in 1986.

DECISION

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue,

among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in
the first and second quarters of 1985.

This petition for review assails the Resolution[1] of the Court of Appeals dated
September 22, 1993, affirming the Decision[2] and Resolution[3] of the Court of Tax
Appeals which denied the claims of the petitioner for tax refund and tax credits,
and disposing as follows:

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes
withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986
for P234,077.69.

QUISUMBING, J.:

IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due
course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution
dated July 20, 1993, are hereby AFFIRMED in toto.
SO ORDERED.[4]

Pending the investigation of the respondent Commissioner of Internal Revenue,

petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax
Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: Philippine
Bank of Communications vs. Commissioner of Internal Revenue.
The losses petitioner incurred as per the summary of petitioners claims for refund
and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:

The Court of Tax Appeals earlier ruled as follows:

1985

1986

WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for 1985 in
the amount of P5,299,749.95 is hereby denied for having been filed beyond the
reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise
denied since petitioner has opted and in all likelihood automatically credited the same to
the succeeding year. The petition for review is dismissed for lack of merit.

Net Income
(Loss)

(P25,317,228.00)

(P14,129,602.00)

SO ORDERED.[5]

Tax Due

NIL

NIL

Quarterly tax
Payments Made

5,016,954.00

---

282,795.50

234,077.69

The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking
corporation duly organized under Philippine laws, filed its quarterly income tax returns
for the first and second quarters of 1985, reported profits, and paid the total income tax
of P5,016,954.00. The taxes due were settled by applying PBComs tax credit memos and
accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85
and 0747-85 for P3,401,701.00 and P1, 615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual
Income Tax Returns for the year-ended December 31, 1985, it declared a net loss
of P25,317,228.00, thereby showing no income tax liability. For the succeeding year,

Tax Withheld at
Source

Excess Tax

P5,299,749.50*==============

P234,077.69==========

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REVENUE MEMORANDUM CIRCULAR NO. 7-85

Payments

*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five

centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset,
denied the request of petitioner for a tax refund or credit in the sum amount
of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary
period provided for by law. The petitioners claim for refund in 1986 amounting
to P234,077.69 was likewise denied on the assumption that it was automatically credited
by PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTAs
decision but the same was denied due course for lack of merit. [6]
Thereafter, PBCom filed a petition for review of said decision and resolution of the
CTA with the Court of Appeals. However on September 22, 1993, the Court of Appeals
affirmed in toto the CTAs resolution dated July 20, 1993. Hence this petition now before
us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in good faith on the formal
assurances of BIR in RMC No. 7-85 and did not immediately file with the
CTA a petition for review asking for the refund/tax credit of its 1985-86
excess quarterly income tax payments -- can be prejudiced by the
subsequent BIR rejection, applied retroactively, of its assurances in RMC
No. 7-85 that the prescriptive period for the refund/tax credit of excess
quarterly income tax payments is not two years but ten (10). [7]
II. Whether the Court of Appeals seriously erred in affirming the CTA
decision which denied PBComs claim for the refund of P234,077.69
income tax overpaid in 1986 on the mere speculation, without proof, that
there were taxes due in 1987 and that PBCom availed of tax-crediting that
year.[8]
Simply stated, the main question is: Whether or not the Court of Appeals erred in
denying the plea for tax refund or tax credits on the ground of prescription, despite
petitioners reliance on RMC No. 7-85, changing the prescriptive period of two years to
ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by
prescription relying on the applicability of Revenue Memorandum Circular No. 7-85
issued on April 1, 1985. The circular states that overpaid income taxes are not covered by
the two-year prescriptive period under the tax Code and that taxpayers may claim refund
or tax credits for the excess quarterly income tax with the BIR within ten (10) years under
Article 1144 of the Civil Code. The pertinent portions of the circular reads:

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS

CORPORATE INCOME TAX RESULTING FROM THE
FILING OF THE FINAL ADJUSTMENT RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code provide:
xxxxxxxxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 1077 which provide:
xxxxxxxxx
It has been observed, however, that because of the excess tax payments, corporations file
claims for recovery of overpaid income tax with the Court of Tax Appeals within the twoyear period from the date of payment, in accordance with Sections 292 and 295 of the
National Internal Revenue Code. It is obvious that the filing of the case in court is to
preserve the judicial right of the corporation to claim the refund or tax credit.
It should be noted, however, that this is not a case of erroneously or illegally paid tax
under the provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of
the overpaid income tax or claim for automatic tax credit. To insure prompt action on
corporate annual income tax returns showing refundable amounts arising from overpaid
quarterly income taxes, this Office has promulgated Revenue Memorandum Order No.
32-76 dated June 11, 1976, containing the procedure in processing said returns. Under
these procedures, the returns are merely pre-audited which consist mainly of checking
mathematical accuracy of the figures of the return. After which, the refund or tax credit is
granted, and, this procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of
Tax Appeals in order to preserve the right to claim refund or tax credit within the
two-year period. As already stated, actions hereon by the Bureau are immediate after
only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover
from the Bureau of Internal Revenue excess income tax paid under the provisions of
Section 86 of the Tax Code within 10 years from the date of payment considering that it
is an obligation created by law (Article 1144 of the Civil Code).[9] (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to
its declared circular if it would result to injustice to taxpayers. Citing ABS-CBN

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Broadcasting Corporation vs. Court of Tax Appeals [10] petitioner claims that rulings or
circulars promulgated by the Commissioner of Internal Revenue have no retroactive
effect if it would be prejudicial to taxpayers. In ABS-CBN case, the Court held that the
government is precluded from adopting a position inconsistent with one previously taken
where injustice would result therefrom or where there has been a misrepresentation to the
taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly
provides for this rule as follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal of any
of the rules and regulations promulgated in accordance with the preceding section or any
of the rulings or circulars promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification, or reversal will be prejudicial to
the taxpayers except in the following cases:
a) where the taxpayer deliberately misstates or omits material facts from his return or in
any document required of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based;
c) where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through the Solicitor General,
argues that the two-year prescriptive period for filing tax cases in court concerning
income tax payments of Corporations is reckoned from the date of filing the Final
Adjusted Income Tax Return, which is generally done on April 15 following the close of
the calendar year. As precedents, respondent Commissioner cited cases which adhered to
this principle, to wit: ACCRA Investments Corp. vs. Court of Appeals, et al.,
[11]
and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al..[12] Respondent
Commissioner also states that since the Final Adjusted Income Tax Return of the
petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter
had only until April 15, 1988 to seek relief from the court.Further, respondent
Commissioner stresses that when the petitioner filed the case before the CTA on
November 18, 1988, the same was filed beyond the time fixed by law, and such failure is
fatal to petitioners cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we
find that, contrary to the petitioners contention, the relaxation of revenue regulations by
RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The primary purpose
is to generate funds for the State to finance the needs of the citizenry and to advance the
common weal.[13] Due process of law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations and it is of utmost

importance that the modes adopted to enforce the collection of taxes levied should be
summary and interfered with as little as possible.[14]
From the same perspective, claims for refund or tax credit should be exercised
within the time fixed by law because the BIR being an administrative body enforced to
collect taxes, its functions should not be unduly delayed or hampered by incidental
matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229,
NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the
recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment; Provided however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
(Italics supplied)
The rule states that the taxpayer may file a claim for refund or credit with the
Commissioner of Internal Revenue, within two (2) years after payment of tax, before any
suit in CTA is commenced. The two-year prescriptive period provided, should be
computed from the time of filing the Adjustment Return and final payment of the tax for
the year.
[15]

In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.,

this Court explained the application of Sec. 230 of 1977 NIRC, as follows:

Clearly, the prescriptive period of two years should commence to run only from the time
that the refund is ascertained, which can only be determined after a final adjustment
return is accomplished. In the present case, this date is April 16, 1984, and two years
from this date would be April 16, 1986. x x x As we have earlier said in the TMX Sales
case, Sections 68,[16] 69,[17] and 70[18] on Quarterly Corporate Income Tax Payment and
Section 321 should be considered in conjunction with it.[19]
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing
the prescriptive period of two years to ten years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency with the provision of Sec. 230 of

Page | 8

1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general interpretations of tax
laws) which are issued from time to time by the Commissioner of Internal Revenue. It is
widely accepted that the interpretation placed upon a statute by the executive officers,
whose duty is to enforce it, is entitled to great respect by the courts.Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous.
[20]
Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to apply and implement. [21]
In the case of People vs. Lim,[22] it was held that rules and regulations issued by
administrative officials to implement a law cannot go beyond the terms and provisions of
the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only
inconsistent with but is contrary to the provisions and spirit of Act. No. 4003 as amended,
because whereas the prohibition prescribed in said Fisheries Act was for any single
period of time not exceeding five years duration, FAO No. 37-1 fixed no period, that is to
say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003
and FAO No. 37-1 was probably due to an oversight on the part of Secretary of
Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act
prevails, for the reason that the regulation or rule issued to implement a law cannot go
beyond the terms and provisions of the latter. x x x In this connection, the attention of the
technical men in the offices of Department Heads who draft rules and regulation is called
to the importance and necessity of closely following the terms and provisions of the law
which they intended to implement, this to avoid any possible misunderstanding or
confusion as in the present case.[23]
Further, fundamental is the rule that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents. [24] As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is
an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for
being contrary to the express provision of a statute. Hence, his interpretation could not be
given weight for to do so would, in effect, amend the statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal Revenue, after promulgating
RMC No. 7-85, is estopped by the principle of non-retroactivity of BIR rulings. Again
We do not agree. The Memorandum Circular, stating that a taxpayer may recover the
excess income tax paid within 10 years from date of payment because this is an
obligation created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim
for a refund or tax credit and the corresponding petition for review within the two-year
prescription period, and that the lengthening of the period of limitation on refund from
two to ten years would be adverse to public policy and run counter to the positive

mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of
Tax Appeals. Estoppel has no application in the case at bar because it was not the
Commissioner of Internal Revenue who denied petitioners claim of refund or tax
credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim
and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal
Revenue is an administrative interpretation which is out of harmony with or contrary to
the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given
weight for to do so would in effect amend the statute. [25]
Article 8 of the Civil Code[26] recognizes judicial decisions, applying or interpreting
statutes as part of the legal system of the country. But administrative decisions do not
enjoy that level of recognition.A memorandum-circular of a bureau head could not
operate to vest a taxpayer with a shield against judicial action. For there are no vested
rights to speak of respecting a wrong construction of the law by the administrative
officials and such wrong interpretation could not place the Government in estoppel to
correct or overrule the same. [27] Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this case because the nullity of
RMC No. 7-85 was declared by respondent courts and not by the Commissioner of
Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim
for refund is in the nature of a claim for exemption and should be construed
in strictissimi juris against the taxpayer.[28]
On the second issue, the petitioner alleges that the Court of Appeals seriously erred
in affirming CTAs decision denying its claim for refund of P 234,077.69 (tax overpaid in
1986), based on mere speculation, without proof, that PBCom availed of the automatic
tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any
excess of the total quarterly payments over the actual income tax computed in the
adjustment or final corporate income tax return, shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax liabilities
for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking
the option box provided in the BIR form) its intention, whether to request for a refund or
claim for an automatic tax credit for the succeeding taxable year. To ease the
administration of tax collection, these remedies are in the alternative, and the choice of
one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 - the Court of Tax
Appeals, after examining the adjusted final corporate annual income tax return for
taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This
was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not
offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed
availed of and applied the automatic tax credit to the succeeding year, hence it can no

Page | 9

longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative.
[30]

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of
the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of
fact which we must respect.Moreover, the 1987 annual corporate tax return of the
petitioner was not offered as evidence to controvert said fact. Thus, we are bound by the
findings of fact by respondent courts, there being no showing of gross error or abuse on
their part to disturb our reliance thereon.[31]
WHEREFORE, the petition is hereby DENIED. The decision of the Court of
Appeals appealed from is AFFIRMED, with COSTS against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

Page | 10

G.R. No. L-23645

October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee,

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

Page | 11

2. First-class and third-class mail permits. Mails to be posted without

postage affixed under permits issued by this Bureau shall each be charged the
usual postage, in addition to the five-centavo extra charge intended for said
society. The total extra charge thus received shall be entered in the same official
receipt to be issued for the postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter
under metered mail permit issued by this Bureau, the extra charge of five
centavos for said society shall be collected in cash and an official receipt issued
for the total sum thus received, in the manner indicated in subparagraph 1.

Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special antiTB 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.

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 semipostal stamps to their mails, provided that such mails are presented at the postoffice 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 postoffice 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

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,

Page | 12

so in the matter of the anti-TB stamp the mere attempt to use the mails without the stamp
constitutes a violation of the statute. It is not required that the mail be accepted by postal
authorities. That requirement is relevant only for the purpose of fixing the liability of
postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because
this suit was filed not only with respect to the letter which he mailed on September 15,
1963, but also with regard to any other mail that he might send in the future. Thus, in his
complaint, the petitioner prayed that due course be given to "other mails without the
semi-postal stamps which he may deliver for mailing ... if any, during the period covered
by Republic Act 1635, as amended, as well as other mails hereafter to be sent by or to
other mailers which bear the required postage, without collection of additional charge of
five centavos prescribed by the same Republic Act." As one whose mail was returned, the
petitioner is certainly interested in a ruling on the validity of the statute requiring the use
of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the
implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution.
More specifically the claim is made that it constitutes mail users into a class for the
purpose of the tax while leaving untaxed the rest of the population and that even among
postal patrons the statute discriminatorily grants exemption to newspapers while
Administrative Order 9 of the respondent Postmaster General grants a similar exemption
to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails.
As such the objections levelled against it must be viewed in the light of applicable
principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects
of taxation and to grant 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

Page | 13

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.

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

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

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

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.

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.

The eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit to which the taxpayer is constitutionally entitled is that
derived from his enjoyment of the privileges of living in an organized society, established

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

Page | 14

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.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.

Page | 15

G.R. No. L-41631 December 17, 1976

HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G.
GARGANTIEL, as Secretary to the Mayor; THE MARKET ADMINISTRATOR;
and THE MUNICIPAL BOARD OF MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of
First Instance of Manila, Branch XXX and the FEDERATION OF MANILA
MARKET VENDORS, INC., respondents.
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.
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

Page | 16

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 law-making 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
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

Page | 17

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.

Page | 18

SO ORDERED.

Page | 19

G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
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.

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:

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

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;
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

Page | 20

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 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.

Page | 21

Barredo, Makasiar, Muoz Palma

Page | 22

G.R. No. 51593 November 5, 1992

NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,
vs. CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendantappellants.
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.
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

Page | 23

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 PlaintiffAppellee).
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."
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,

Page | 24

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".

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"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.
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)

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-underprotest 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

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.

. . . 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.

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.

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

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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 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.
SO ORDERED.