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TAX CASES SET 1

Pilipinas Shell Petrolium Corp v. CIR


G.R. No. 172598; December 21, 2007
Facts: In 1988, BIR sent a collection letter to Petitioner Pilipinas Shell Petroleum Corporation (PSPC) for
alleged deficiency excise tax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997,
inclusive of delinquency surcharges and interest. As basis for the collection letter, the BIR alleged that PSPC
is not a qualified transferee of the TCCs it acquired from other BOI-registered companies. These alleged
excise tax deficiencies covered by the collection letter were already paid by PSPC with TCCs acquired
through, and issued and duly authorized by the Center, and duly covered by Tax Debit Memoranda (TDM) of
both the Center and BIR, with the latter also issuing the corresponding Accept Payment for Excise Taxes
(APETs).
PSPC protested the collection letter, but it was denied. Because of respondent inaction on a motion for
reconsideration PSPC filed a petition for review before the CTA.
In 1999, the CTA ruled that the use by PSPC of the TCCs was legal and valid, and that respondents
attempt to collect alleged delinquent taxes and penalties from PSPC without an assessment constitutes denial
of due process. Respondent elevated CTA Decision to the Court of Appeals (CA) through a petition for
review.
Despite the pendency of this case, PSPC received assessment letter from respondent for excise tax
deficiencies, surcharges, and interest based on the first batch of cancelled TCCs and TDM covering PSPCs
use of the TCCs. All these cancelled TDM and TCCs were also part of the subject matter of the now pending
before the CA.
PSPC protested the assessment letter, but the protest was denied by the BIR, constraining it to file another
case before the CTA. Subsequently, CTA ruled in favor of PSPC and accordingly cancelled and set aside the
assessment issued by the respondent. Respondent motion for reconsideration of the above decision which
was rejected thus respondent appealed the above decision before the CTA En Banc.
The CTA En Banc ruled in favor of respondent and ordered PSPC to pay the amount of P570,577,401.61 as
deficiency excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20%
interest.
Issue: Whether or not petitioner is liable for the assessment of deficiency excise tax after the validly issued
TCCs were subsequently cancelled for having been issued fraudulently
Held: No. Petitioner is not liable for the assessment of deficiency excise tax.
In the instant case, with due application, approval, and acceptance of the payment by PSPC of the subject
TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the subject TCCs have been
canceled as the money value of the tax credits these represented have been used up. Therefore, the DOF
through the Center may not now cancel the subject TCCs as these have already been canceled and used up
after their acceptance as payment for PSPCs excise tax liabilities. What has been used up, debited, and
canceled cannot anymore be declared to be void, ineffective, and canceled anew.
Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the TCC canceled
when fully utilized, but the payment is also final subject only to a post-audit on computational errors. Under
RR 5-2000, a TDM is a certification, duly issued by the Commissioner or his duly authorized representative,
reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the
taxpayer named therein has duly paid his internal revenue tax liability in the form of and through the use of a
Tax Credit Certificate, duly issued and existing in accordance with the provisions of these Regulations.
The Tax Debit Memo shall serve as the official receipt from the BIR evidencing a taxpayers payment or
satisfaction of his tax obligation. The amount shown therein shall be charged against and deducted from the
credit balance of the aforesaid Tax Credit Certificate.
Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made by PSPC with
the use of the subject TCCs have been effected and consummated as the TDMs serve as the official receipts
evidencing PSPCs payment or satisfaction of its tax obligation. Moreover, the BIR not only issued the

corresponding TDM, but it also issued ATAPETs which doubly show the payment of the subject excise taxes
of PSPC.
Based on the above discussion, we hold that respondent erroneously and without factual and legal basis
levied the assessment. Consequently, the CTA En Banc erred in sustaining respondents assessment.
SECOND DIVISION

[G.R. No. 118043. July 23, 1998]

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMG LIFE


INSURANCE CO. INC.), petitioner, vs. COURT OF APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision rendered on November 18, 1994 by the Court
of Appeals[1] reversing, in part, the decision of the Court of Tax Appeals in C.T.A. Case No. 4583.
The facts are not in dispute.[2] Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a
domestic corporation engaged in the life insurance business. In 1984, it issued 50,000 shares of stock as
stock dividends, with a par value of P100 or a total of P5 million. Petitioner paid documentary stamp taxes
on each certificate on the basis of its par value. The question in this case is whether in determining the
amount to be paid as documentary stamp tax, it is the par value of the certificates of stock or the book value
of the shares which should be considered. The pertinent provision of law, as it stood at the time of the
questioned transaction, reads as follows:
SEC. 224. Stamp tax on original issues of certificates of stock. -- On every original issue, whether on
organization, reorganization or for any lawful purpose, of certificates of stock by any association, company
or corporation, there shall be collected a documentary stamp tax of one peso and ten centavos on each two
hundred pesos, or fractional part thereof, of the par value of such certificates: Provided, That in the case of
the original issue of stock without par value the amount of the documentary stamp tax herein prescribed shall
be based upon the actual consideration received by the association, company, or corporation for the issuance
of such stock, and in the case of stock dividends on the actual value represented by each share.[3]
The Commissioner of Internal Revenue took the view that the book value of the shares, amounting
to P19,307,500.00, should be used as basis for determining the amount of the documentary stamp
tax. Accordingly, respondent Internal Revenue Commissioner issued a deficiency documentary stamp tax
assessment in the amount of P78,991.25 in excess of the par value of the stock dividends.
Together with another documentary stamp tax assessment which it also questioned, petitioner appealed
the Commissioners ruling to the Court of Tax Appeals. On March 30, 1993, the CTA rendered its decision
holding that the amount of the documentary stamp tax should be based on the par value stated on each
certificate of stock.The dispositive portion of its decision reads:
WHEREFORE, the deficiency documentary stamp tax assessments in the amount of P464,898.76
and P78,991.25 or a total of P543,890.01 are hereby cancelled for lack of merit. Respondent Commissioner
of Internal Revenue is ordered to desist from collecting said deficiency documentary stamp taxes for the
same are considered withdrawn.
SO ORDERED.
In turn, respondent Commissioner of Internal Revenue appealed to the Court of Appeals which, on
November 18, 1994, reversed the CTAs decision and held that, in assessing the tax in question, the basis
should be the actual value represented by the subject shares on the assumption that stock dividends, being a

distinct class of shares, are not subject to the qualification in the law as to the type of certificate of stock used
(with or without par value). The appellate court, therefore, ordered:
IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby REVERSED with respect to
the deficiency tax assessment on the stock dividends, but AFFIRMED with regards to the assessment on the
Insurance Policies. Consequently, private respondent is ordered to pay the petitioner herein the sum
of P78,991.25, representing documentary stamp tax on the stock dividends it issued. No costs
pronouncement.
SO ORDERED.
Hence, this petition with the following assignment of error:
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT STOCK DIVIDENDS
INVOLVING SHARES WITH PAR VALUE ARE SUBJECT TO DOCUMENTARY STAMP TAX
BASED ON THE BOOK VALUE OF SAID SHARES WHICH RULING IS CONTRARY TO WHAT
IS CLEARLY PROVIDED FOR BY SECTION 224 (NOW SECTION 175) OF THE TAX CODE.
The petition has merit.
First. In ruling that the book value of the shares should be considered in assessing the documentary
stamp tax, the Court of Appeals stated:
There are three (3) classes of stocks referred to in Section 224 (now 175) of the Internal Revenue Code:
(a) Certificate of Stocks with par value, (b) Certificate of Stock with no par value and (c) stock
dividends. The first two (2) mentioned are original issuances of the corporation, association or company
while the third ones are taken by the corporation, association or company out of or from their unissued shares
of stock, hence are also originals. Undoubtedly, all the three classifications are subject to the documentary
stamp tax.
Conformably, in the case of stock certificates with par value, the documentary stamp tax is based on the par
value of the stock; for stock certificates without par value, the same tax is computed from the actual
consideration received by the corporation, association or company; but for stock dividends, documentary
stamp tax is to be paid on the actual value represented by each share.
Since in dividends, no consideration is technically received by the corporation, petitioner is correct in basing
the assessment on the book value thereof rejecting the principles enunciated in Commissioner of Internal
Revenue vs. Heald Lumber Co. (10 SCRA 372) as the said case refers to purchases of no-par certificates of
stocks and not to stock dividends.[4]
Apparently, the Court of Appeals treats stock dividends as distinct from ordinary shares of stock for
purposes of the then 224 of the National Internal Revenue Code. There is, however, no basis for considering
stock dividends as a distinct class from ordinary shares of stock since under this provision only certificates of
stock are required to be distinguished (into either one with par value or one without) rather than the classes
of shares themselves.
Indeed, a reading of the then 224 of the NIRC as quoted earlier, starting from its heading, will show that
the documentary stamp tax is not levied upon the shares of stock per se but rather on the privilege of issuing
certificates of stock.
A stock certificate is merely evidence of a share of stock and not the share itself. This distinction is clear
in the Corporation Code, to wit:
SEC. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided
into shares for which certificates signed by the president or vice-president, countersigned by the secretary or
assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of
the corporation.[5]
Stock dividends are in the nature of shares of stock, the consideration for which is the amount of
unrestricted retained earnings converted into equity in the corporations books.[6] Thus,
A stock dividend is any dividend payable in shares of stock of the corporation declaring or authorizing such
dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation among the
stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of
cash, and is properly payable only out of surplus profits. So, a stock dividend is actually two things: (1) a
dividend and (2) the enforced use of the dividend money to purchase additional shares of stock at par...[7]
From the foregoing, it is clear that stock dividends are shares of stock and not certificates of stock which
merely represent them. There is, therefore, no reason for determining the actual value of such dividends for
purposes of the documentary stamp tax if the certificates representing them indicate a par value.
The Solicitor General himself says that, based on the then 224, there are only two bases for determining
the amount of the documentary stamp tax:
An examination of the structure of the main provision of Sec. [224] of the NIRC will show that it intends to
classify the tax bases into two, either the par value, or the actual consideration or actual value. It specifies in
the first part that the basis for the imposition of the documentary stamp tax on shares of stocks belonging to
the first category, discussed in the early part of this comment, shall be the face value. In contradistinction, the
provision specifies in the proviso that for the second and third categories, the basis for the tax shall not be the
face value. Rather, the basis is either the actual consideration received by the corporation for the share or the
actual value of the share.[8]
Apparently, the former tax code sought to distinguish between stock dividends without par value and
other transactions involving ordinary shares of stock without par value in the second clause of the then 224
in order to prevent claims that the former are exempt from documentary stamp taxes as, unlike in the case of
ordinary shares, corporations actually receive nothing from their stockholders in exchange for such stock
dividends. Hence the provision that, in the case of stock dividends, the amount of the documentary stamp tax
must be based on the actual value of each share. This is the only purpose for the distinction in the second
clause of the subject provision.
Second. It is error for the Solicitor General to contend that, under the then 224 of the NIRC, the basis for
assessment is the actual value of the business transaction that is the source of the original issuance
of stock certificates.[9] To the contrary, the documentary stamp tax here is not levied upon the specific
transaction which gives rise to such original issuance but on the privilege of issuing certificates of stock. As
we have held in several cases:
A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but
is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the
business. It is an excise upon the facilities used in the transaction of the business separate and apart from
the business itself. (Du Pont v. U.S., 300 U.S. 150; Thomas v. U.S., 192 U.S., 363; Nicol v. Ames, 173 U.S.
509). With respect to stock certificates, it is levied upon the privilege of issuing them;not on the money or
property received by the issuing company for such certificates. Neither is it imposed upon the share of stock.
As Justice Learned Hand pointed out in one case, documentary stamp tax is levied on the document and not
on the property which it described. (Empire Trust co. v. Hoey, 103 F 2d. 430). . . .[10]
Third. Settled is the rule that, in case of doubt, tax laws must be construed strictly against the State and
liberally in favor of the taxpayer. This is because taxes, as burdens which must be endured by the taxpayer,
should not be presumed to go beyond what the law expressly and clearly declares.[11] That such strict
construction is necessary in this case is evidenced by the change in the subject provision as presently
worded, which now expressly levies the said tax on shares of stock as against the privilege of issuing
certificates of stock as formerly provided:
SEC. 175. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on
organization, reorganization or for any lawful purpose, of shares of stockby any association, company or
corporation, there shall be collected a documentary stamp tax of Two pesos (P2.00) on each Two hundred

pesos (P200), or fractional part thereof, of the par value, of such shares of stock: Provided, That in the case
of the original issue of shares of stock without par value the amount of the documentary stamp tax herein
prescribed shall be based upon the actual consideration for the issuance of such shares of stock: Provided,
further, That in the case of stock dividends, on the actual value represented by each share.[12]
WHEREFORE, the decision of the Court of Appeals is REVERSED insofar as the deficiency tax
assessment on stock dividends is concerned and the decision of the Court of Tax Appeals is reinstated.
SO ORDERED.
EN BANC

[G.R. No. 117359. July 23, 1998]

DAVAO GULF LUMBER CORPORATION, petitioner, vs. COMMISSIONER


REVENUE and COURT OF APPEALS,respondents.

OF

INTERNAL

DECISION
PANGANIBAN, J.:
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this petition for review under Rule 45 of the Rules
of Court, assailing the Decision[1] of Respondent Court of Appeals[2] in CA-GR SP No. 34581 dated
September 26, 1994, which affirmed the June 21, 1994 Decision[3] of the Court of Tax Appeals[4] in CTA Case
No. 3574. The dispositive portion of the CTA Decision affirmed by Respondent Court reads:
WHEREFORE, judgment is hereby rendered ordering the respondent to refund to the petitioner the amount
of P2,923.15 representing the partial refund of specific taxes paid on manufactured oils and fuels.[5]
The Antecedent Facts
The facts are undisputed.[6] Petitioner is a licensed forest concessionaire possessing a Timber License
Agreement granted by the Ministry of Natural Resources (now Department of Environment and Natural
Resources). From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined
and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for the
exploitation and operation of its forest concession. Said oil companies paid the specific taxes imposed, under
Sections 153 and 156[7] of the 1977 National Internal Revenue Code (NIRC), on the sale of said products.
Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were
eventually passed on to the user, the petitioner in this case.
On December 13, 1982, petitioner filed before Respondent Commissioner of Internal Revenue (CIR) a
claim for refund in the amount of P120,825.11, representing25% of the specific taxes actually paid on the
above-mentioned fuels and oils that were used by petitioner in its operations as forest concessionaire. The
claim was based on Insular Lumber Co. vs. Court of Tax Appeals[8] and Section 5 of RA 1435 which reads:
Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds
of the political subdivision for whose benefit the tax is collected: Provided, however, That whenever any oils

mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of
the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof
of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one
hereof, amending section one hundred forty-two of the Internal Revenue Code: Provided, further, That no
new road shall be constructed unless the routes or location thereof shall have been approved by the
Commissioner of Public Highways after a determination that such road can be made part of an integral and
articulated route in the Philippine Highway System, as required in section twenty-six of the Philippine
Highway Act of 1953.
It is an unquestioned fact that petitioner complied with the procedure for refund, including the
submission of proof of the actual use of the aforementioned oils in its forest concession as required by the
above-quoted law. Petitioner, in support of its claim for refund, submitted to the CIR the affidavits of its
general manager, the president of the Philippine Wood Products Association, and three disinterested persons,
all attesting that the said manufactured diesel and fuel oils were actually used in the exploitation and
operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition for review docketed as CTA Case No.
3574. On June 21, 1994, the CTA rendered its decision finding petitioner entitled to a partial refund of
specific taxes the latter had paid in the reduced amount of P2,923.15. The CTA ruled that the claim on
purchases of lubricating oil (from July 1, 1980 to January 19, 1981), and on manufactured oils other than
lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed. Disallowed on the ground that they
were not included in the original claim filed before the CIR were the claims for refund on purchases of
manufactured oils from January 1, 1980 to June 30, 1980 and from February 1, 1982 to June 30, 1982. In
regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates deemed
paid under RA 1435, and not on the higher rates actually paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153
and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. As noted earlier, the Court of
Appeals affirmed the CTA Decision. Hence, this petition for review.[9]
Public Respondents Ruling
In its petition before the Court of Appeals, petitioner raised the following arguments:
I. The respondent Court of Tax Appeals failed to apply the Supreme Courts Decision in Insular Lumber Co.
v. Court of Tax Appeals which granted the claim for partial refund of specific taxes paid by the claimant,
without qualification or limitation.
II. The respondent Court of Tax Appeals ignored the increase in rates imposed by succeeding amendatory
laws, under which the petitioner paid the specific taxes on manufactured and diesel fuels.
III. In its decision, the respondent Court of Tax Appeals ruled contrary to established tenets of law when it
lent itself to interpreting Section 5 of R.A. 1435, when the construction of said law is not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions to be applied but rather, Sections 153 and
156 of the National Internal Revenue Code, as amended.
V. To rule that the basis for computation of the refunded taxes should be Sections 1 and 2 of R.A. 1435 rather
than Section 153 and 156 of the National Internal Revenue Code is unfair, erroneous, arbitrary, inequitable
and oppressive.[10]
The Court of Appeals held that the claim for refund should indeed be computed on the basis of the
amounts deemed paid under Sections 1 and 2 of RA 1435. In so ruling, it cited our pronouncement
in Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation [11] and our subsequent
Resolution dated June 15, 1992 clarifying the said Decision. Respondent Court further ruled that the claims
for refund which prescribed and those which were not filed at the administrative level must be excluded.
The Issue

In its Memorandum, petitioner raises one critical issue:


Whether or not petitioner is entitled under Republic Act No. 1435 to the refund of 25% of the amount of
specific taxes it actually paid on various refined and manufactured mineral oils and other oil products taxed
under Sec. 153 and Sec. 156 of the 1977 (Sec. 142 and Sec. 145 of the 1939) National Internal Revenue
Code.[12]
In the main, the question before us pertains only to the computation of the tax refund. Petitioner argues
that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in
Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it should be based on
specific taxes deemed paid under Sections 1 and 2 of RA 1435.
The Courts Ruling
The petition is not meritorious.
Petitioner Entitled to Refund
Under Sec. 5 of RA 1435
At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA
1435, which was enacted to provide means for increasing the Highway Special Fund.
The rationale for this grant of partial refund of specific taxes paid on purchases of manufactured diesel
and fuel oils rests on the character of the Highway Special Fund. The specific taxes collected on gasoline and
fuel accrue to the Fund, which is to be used for the construction and maintenance of the highway system. But
because the gasoline and fuel purchased by mining and lumber concessionaires are used within their own
compounds and roads, and their vehicles seldom use the national highways, they do not directly benefit from
the Fund and its use. Hence, the tax refund gives the mining and the logging companies a measure of relief in
light of their peculiar situation.[13] When the Highway Special Fund was abolished in 1985, the reason for the
refund likewise ceased to exist.[14] Since petitioner purchased the subject manufactured diesel and fuel oils
from July 1, 1980 to January 31, 1982 and submitted the required proof that these were actually used in
operating its forest concession, it is entitled to claim the refund under Section 5 of RA 1435.
Tax Refund Strictly Construed
Against the Grantee
Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it had actually paid
for the petroleum products used in its operations. In other words, it claims a refund based on the increased
rates under Sections 153 and 156 of the NIRC.[15] Petitioner argues that the statutory grant of the refund
privilege, specifically the phrase twenty-five per centum of the specific tax paid thereon shall be refunded by
the Collector of Internal Revenue, is clear and unambiguous enough to require construction or qualification
thereof.[16] In addition, it cites our pronouncement in Insular Lumber vs. Court of Tax Appeals:[17]
x x x Section 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of Section 1 only for the purpose of
prescribing the procedure for refund. This express reference cannot be expanded in scope to include the
limitation of the period of refund. If the limitation of the period of refund of specific taxes paid on oils used
in aviation and agriculture is intended to cover similar taxes paid on oil used by miners and forest
concessionaires, there would have been no need of dealing with oil used by miners and forest concessions
separately and Section 5 would very well have been included in Section 1 of Republic Act No. 1435,
notwithstanding the different rate of exemption.
Petitioner then reasons that the express mention of Section 1 of RA 1435 in Section 5 cannot be
expanded to include a limitation on the tax rates to be applied x x x [otherwise,] Section 5 should very well
have been included in Section 1 x x x.[18]

The Court is not persuaded. The relevant statutory provisions do not clearly support petitioners claim for
refund. RA 1435 provides:
SECTION 1. Section one hundred and forty-two of the National Internal Revenue Code, as amended, is
further amended to read as follows:
SEC. 142. Specific tax on manufactured oils and other fuels. -- On refined and manufactured mineral oils and
motor fuels, there shall be collected the following taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos;
(b) Lubricating oils, per liter of volume capacity, seven centavos;
(c) Naptha, gasoline, and all other similar products of distillation, per liter of volume capacity, eight
centavos; and
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo: Provided, That if the denatured alcohol is mixed with gasoline, the specific tax on which has
already been paid, only the alcohol content shall be subject to the tax herein prescribed. For the purpose of
this subsection, the removal of denatured alcohol of not less than one hundred eighty degrees proof
(ninety per centum absolute alcohol) shall be deemed to have been removed for motive power, unless shown
to the contrary.
Whenever any of the oils mentioned above are, during the five years from June eighteen, nineteen hundred
and fifty two, used in agriculture and aviation, fifty per centumof the specific tax paid thereon shall be
refunded by the Collector of Internal Revenue upon the submission of the following:
(1) A sworn affidavit of the producer and two disinterested persons proving that the said oils were actually
used in agriculture, or in lieu thereof
(2) Should the producer belong to any producers association or federation, duly registered with the Securities
and Exchange Commission, the affidavit of the president of the association or federation, attesting to the fact
that the oils were actually used in agriculture.
(3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving that the said oils were
actually used in aviation: Provided, That no such refunds shall be granted in respect to the oils used in
aviation by citizens and corporations of foreign countries which do not grant equivalent refunds or
exemptions in respect to similar oils used in aviation by citizens and corporations of the Philippines.
SEC. 2. Section one hundred and forty-five of the National Internal Revenue Code, as amended, is further
amended to read as follows:
SEC. 145. Specific Tax on Diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and on all
similar fuel oils, having more or less the same generating power, there shall be collected, per metric ton, one
peso.
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Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds
of the political subdivision for whose benefit the tax is collected: Provided, however, That whenever any oils
mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of
the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof
of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one
hereof, amending section one hundred forty-two of the Internal Revenue Code: Provided, further, That no
new road shall be constructed unless the route or location thereof shall have been approved by the
Commissioner of Public Highways after a determination that such road can be made part of an integral and
articulated route in the Philippine Highway System, as required in section twenty-six of the Philippine
Highway Act of 1953.

Subsequently, the 1977 NIRC, PD 1672 and EO 672 amended the first two provisions, renumbering
them and prescribing higher rates. Accordingly, petitioner paid specific taxes on petroleum products
purchased from July 1, 1980 to January 31, 1982 under the following statutory provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as follows:
SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and manufactured mineral oils and
motor fuels, there shall be collected the following taxes which shall attach to the articles hereunder
enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, seven centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, ninety-one
centavos: Provided, That, on premium and aviation gasoline, the tax shall be one peso per liter of volume
capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one centavo: Provided,
That, unless otherwise provided for by special laws, if the denatured alcohol is mixed with gasoline, the
specific tax on which has already been paid, only the alcohol content shall be subject to the tax herein
prescribed. For the purposes of this subsection, the removal of denatured alcohol of not less than one
hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed
for motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos;
(g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided, That, liquefied petroleum gas used
for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, eight centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As amended by Sec. 1, P.D. No.
1672.)
xxxxxxxxx
SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and on all
similar fuel oils, having more or less the same generating power, per liter of volume capacity, seventeen and
one-half centavos, which tax shall attach to this fuel oil as soon as it is in existence as such."
Then on March 21, 1981, these provisions were amended by EO 672 to read:
SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and manufactured mineral oils and
motor fuels, there shall be collected the following taxes which shall attach to the articles hereunder
enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, nine centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, one peso and
six centavos: Provided, That on premium and aviation gasoline, the tax shall be one peso and ten centavos
and one peso, respectively, per liter of volume capacity;

(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo; Provided, That unless otherwise provided for by special laws, if the denatured alcohol is mixed with
gasoline, the specific tax on which has already been paid, only the alcohol content shall be subject to the tax
herein prescribed. For the purpose of this subsection, the removal of denatured alcohol of not less than one
hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed
for motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, sixty-one centavos;
(g) Liquefied petroleum gas, per kilogram, twenty-one centavos: Provided, That, liquified petroleum gas
used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, twelve centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos.
xxxxxxxxx
SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and all similar
fuel oils, having more or less the same generating power, per liter of volume capacity, twenty-five and onehalf centavos, which tax shall attach to this fuel oil as soon as it is in existence as such.
A tax cannot be imposed unless it is supported by the clear and express language of a statute; [19] on the
other hand, once the tax is unquestionably imposed, [a] claim of exemption from tax payments must be
clearly shown and based on language in the law too plain to be mistaken. [20] Since the partial refund
authorized under Section 5, RA 1435, is in the nature of a tax exemption, [21] it must be
construed strictissimi juris against the grantee. Hence, petitioners claim of refund on the basis of the specific
taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken.
We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no expression
of a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere fact that
the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support petitioners
claim. When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher
rates which were nonexistent at the time of its enactment, this Court cannot presume otherwise. A legislative
lacuna cannot be filled by judicial fiat.[22]
The issue is not really novel. In Commissioner of Internal Revenue vs. Court of Appeals and Atlas
Consolidated Mining and Development Corporation [23] (the second Atlas case), the CIR contended that the
refund should be based on Sections 1 and 2 of RA 1435, not Sections 153 and 156 of the NIRC of 1977. In
categorically ruling that Private Respondent Atlas Consolidated Mining and Development Corporation was
entitled to a refund based on Sections 1 and 2 of RA 1435, the Court, through Mr. Justice Hilario G. Davide,
Jr., reiterated our pronouncement in Commissioner of Internal Revenue vs. Rio Tuba Nickel and Mining
Corporation:
Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision in the Rio Tuba case sets forth
the controlling doctrine. In that Resolution, we stated:
Since the private respondents claim for refund covers specific taxes paid from 1980 to July 1983 then we
find that the private respondent is entitled to a refund. It should be made clear, however, that Rio Tuba is not
entitled to the whole amount it claims as refund.
The specific taxes on oils which Rio Tuba paid for the aforesaid period were no longer based on the rates
specified by Sections 1 and 2 of R.A. No. 1435 but on the increased rates mandated under Sections 153 and
156 of the National Internal Revenue Code of 1977. We note however, that the latter law does not
specifically provide for a refund to these mining and lumber companies of specific taxes paid on
manufactured and diesel fuel oils.

In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]), the Court held that the authorized
partial refund under Section 5 of R.A. No. 1435 partakes of the nature of a tax exemption and therefore
cannot be allowed unless granted in the most explicit and categorical language. Since the grant of refund
privileges must be strictly construed against the taxpayer, the basis for the refund shall be the amounts
deemed paid under Sections 1 and 2 of R.A. No. 1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The private respondents
CLAIM for REFUND is GRANTED, computed on the basis of the amounts deemed paid under Sections 1
and 2 of R.A. NO. 1435, without interest.[24]
We rule, therefore, that since Atlass claims for refund cover specific taxes paid before 1985, it should be
granted the refund based on the rates specified by Sections 1 and 2 of R.A. No. 1435 and not on the
increased rates under Sections 153 and 156 of the Tax Code of 1977, provided the claims are not yet barred
by prescription. (Underscoring supplied.)
Insular Lumber Co. and First Atlas Case Not Inconsistent
With Rio Tuba
and Second Atlas Case
Petitioner argues that the applicable jurisprudence in this case should be Commissioner of Internal
Revenue vs. Atlas Consolidated and Mining Corp. (the first Atlas case), an unsigned resolution, and Insular
Lumber Co. vs. Court of Tax Appeals, an en banc decision.[25] Petitioner also asks the Court to take a second
look at Rio Tubaand the second Atlas case, both decided by Divisions, in view of Insular which was
decided en banc. Petitioner posits that [I]n view of the similarity of the situation of herein petitioner with
Insular Lumber Company (claimant in Insular Lumber) and Rio Tuba Nickel Mining Corporation (claimant
in Rio Tuba), a dilemma has been created as to whether or not Insular Lumber, which has been decided by
the Honorable Court en banc, or Rio Tuba, which was decided only [by] the Third Division of the Honorable
Court, should apply.[26]
We find no conflict between these two pairs of cases. Neither Insular Lumber Co. nor the first Atlas case
ruled on the issue of whether the refund privilege underSection 5 should be computed based on the specific
tax deemed paid under Sections 1 and 2 of RA 1435, regardless of what was actually paid under the
increased rates.Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum products purchased in
the year 1963, when the increased rates under the NIRC of 1977 were not yet in effect. Thus, the issue now
before us did not exist at the time, since the applicable rates were still those prescribed under Sections 1 and
2 of RA 1435.
On the other hand, the issue raised in the first Atlas case was whether the claimant was entitled to the
refund under Section 5, notwithstanding its failure to pay any additional tax under a municipal or city
ordinance. Although Atlas purchased petroleum products in the years 1976 to 1978 when the rates had
already been changed, the Court did not decide or make any pronouncement on the issue in that case.
Clearly, it is impossible for these two decisions to clash with our pronouncement in Rio Tuba and
second Atlas case, in which we ruled that the refund granted be computed on the basis of the amounts
deemed paid under Sections 1 and 2 of RA 1435. In this light, we find no basis for petitioners invocation of
the constitutional proscription that no doctrine or principle of law laid down by the Court in a decision
rendered en banc or in division may be modified or reversed except by the Court sitting en banc.[27]
Finally, petitioner asserts that equity and justice demand that the computation of the tax refunds be based
on actual amounts paid under Sections 153 and 156 of the NIRC. [28] We disagree. According to an eminent
authority on taxation, there is no tax exemption solely on the ground of equity.[29]
WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.

SECOND DIVISION

COMMISSIONER
REVENUE,
Petitioner,

OF

INTERNAL G.R. No. 154068

- versus -

Present:
QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

ROSEMARIE ACOSTA, as represented Promulgated:


by Virgilio A. Abogado,
Respondent.
August 3, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
Assailed in this petition for review are the Decision [1] and Resolution[2] dated February 13, 2002 and
May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 which had reversed the
Resolution[3] dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 and ordered the
latter to resolve respondents petition for review.
The facts are as follows:
Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the period January 1,
1996 to December 31, 1996, respondent was assigned in a foreign country. During that period, Intel withheld
the taxes due on respondents compensation income and remitted to the Bureau of Internal Revenue (BIR) the
amount of P308,084.56.
On March 21, 1997, respondent and her husband filed with the BIR their Joint Individual Income Tax
Return for the year 1996. Later, on June 17, 1997, respondent, through her representative, filed an amended
return and a Non-Resident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in the
amount of P14,455.76. On October 8, 1997, she filed another amended return indicating an overpayment
of P358,274.63.
Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment
of P340,918.92,[4] respondent filed on April 15, 1999 a petition for review docketed as C.T.A. Case No. 5828
with the Court of Tax Appeals (CTA). The Commissioner of Internal Revenue (CIR) moved to dismiss the
petition for failure of respondent to file the mandatory written claim for refund before the CIR.
In its Resolution dated August 4, 1999, the CTA dismissed respondents petition. For one, the CTA
ruled that respondent failed to file a written claim for refund with the CIR, a condition precedent to the filing
of a petition for review before the CTA. [5] Second, the CTA noted that respondents omission, inadvertently or
otherwise, to allege in her petition the date of filing the final adjustment return, deprived the court of its
jurisdiction over the subject matter of the case.[6] The decretal portion of the CTAs resolution states:
WHEREFORE, in view of all the foregoing, Respondents Motion to Dismiss
is GRANTED. Accordingly[,] the Petition for Review is hereby DISMISSED.
SO ORDERED.[7]
Upon review, the Court of Appeals reversed the CTA and directed the latter to resolve respondents petition
for review. Applying Section 204(c)[8] of the 1997 National Internal Revenue Code (NIRC), the Court of
Appeals ruled that respondents filing of an amended return indicating an overpayment was sufficient

compliance with the requirement of a written claim for refund.[9] The decretal portion of the Court of Appeals
decision reads:
WHEREFORE, finding the petition to be meritorious, this Court GRANTS it due course
and REVERSES the appealed Resolutions and DIRECTS the Court of Tax Appeal[s] to
resolve the petition for review on the merits.
SO ORDERED.[10]
Petitioner sought reconsideration, but it was denied. Hence, the instant petition raising the following
questions of law:
I.
WHETHER OR NOT THE
RETROACTIVELY.

1997

TAX

REFORM ACT CAN

BE APPLIED

II.
WHETHER OR NOT THE CTA HAS JURISDICTION TO TAKE [COGNIZANCE] OF
RESPONDENTS PETITION FOR REVIEW.[11]
While the main concern in this controversy is the CTAs jurisdiction, we must first resolve two
issues. First, does the amended return filed by respondent indicating an overpayment constitute the written
claim for refund required by law, thereby vesting the CTA with jurisdiction over this case? Second, can the
1997 NIRC be applied retroactively?
Petitioner avers that an amended return showing an overpayment does not constitute the written claim
for refund required under Section 230[12] of the 1993 NIRC[13] (old Tax Code). He claims that an actual
written claim for refund is necessary before a suit for its recovery may proceed in any court.
On the other hand, respondent contends that the filing of an amended return indicating an
overpayment of P358,274.63 constitutes a written claim for refund pursuant to the clear proviso stated in the
last sentence of Section 204(c) of the 1997 NIRC (new Tax Code), to wit:
xxxx
Provided, however, That a return filed showing an overpayment shall be considered as
a written claim for credit or refund.
xxxx
Along the same vein, respondent invokes the liberal application of technicalities in tax refund cases,
conformably with our ruling in BPI-Family Savings Bank, Inc. v. Court of Appeals. [14] We are, however,
unable to agree with respondents submission on this score.
The applicable law on refund of taxes pertaining to the 1996 compensation income is Section 230 of
the old Tax Code, which was the law then in effect, and not Section 204(c) of the new Tax Code, which was
effective starting only on January 1, 1998.
Noteworthy, the requirements under Section 230 for refund claims are as follows:
1.
2.
3.

A written claim for refund or tax credit must be filed by the taxpayer with the
Commissioner;
The claim for refund must be a categorical demand for reimbursement;
The claim for refund or tax credit must be filed, or the suit or proceeding therefor must
be commenced in court within two (2) years from date of payment of the tax or
penalty regardless of any supervening cause.[15] (Emphasis ours.)

In our view, the law is clear. A claimant must first file a written claim for refund, categorically
demanding recovery of overpaid taxes with the CIR, before resorting to an action in court. This obviously is
intended, first, to afford the CIR an opportunity to correct the action of subordinate officers; and second, to
notify the government that such taxes have been questioned, and the notice should then be borne in mind in
estimating the revenue available for expenditure.[16]
Thus, on the first issue, we rule against respondents contention. Entrenched in our jurisprudence is
the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against
the taxpayer and liberally in favor of the government. As tax refunds involve a return of revenue from the
government, the claimant must show indubitably the specific provision of law from which her right arises; it
cannot be allowed to exist upon a mere vague implication or inference [17] nor can it be extended beyond the
ordinary and reasonable intendment of the language actually used by the legislature in granting the refund.
[18]
To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine
consistently applied in this jurisdiction.[19]
Under the circumstances of this case, we cannot agree that the amended return filed by respondent
constitutes the written claim for refund required by the old Tax Code, the law prevailing at that time. Neither
can we apply the liberal interpretation of the law based on our pronouncement in the case of BPI-Family
Savings Bank, Inc. v. Court of Appeals, as the taxpayer therein filed a written claim for refund aside from
presenting other evidence to prove its claim, unlike this case before us.
On the second issue, petitioner argues that the 1997 NIRC cannot be applied retroactively as the
instant case involved refund of taxes withheld on a 1996 income. Respondent, however, points out that when
the petition was filed with the CTA on April 15, 1999, the 1997 NIRC was already in effect, hence, Section
204(c) should apply, despite the fact that the refund being sought pertains to a 1996 income tax. Note that the
issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because the last paragraph of Section
204(c) was not found in Section 230 of the old Code. After a thorough consideration of this matter, we find
that we cannot give retroactive application to Section 204(c) abovecited. We have to stress that tax laws are
prospective in operation, unless the language of the statute clearly provides otherwise.[20]
Moreover, it should be emphasized that a party seeking an administrative remedy must not merely
initiate the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate
conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to
decide the matter itself correctly and prevent unnecessary and premature resort to court action. [21] This the
respondent did not follow through. Additionally, it could not escape notice that at the time respondent filed
her amended return, the 1997 NIRC was not yet in effect. Hence, respondent had no reason at that time to
think that the filing of an amended return would constitute the written claim for refund required by
applicable law.
Furthermore, as the CTA stressed, even the date of filing of the Final Adjustment Return was omitted,
inadvertently or otherwise, by respondent in her petition for review. This omission was fatal to respondents
claim, for it deprived the CTA of its jurisdiction over the subject matter of the case.
Finally, we cannot agree with the Court of Appeals finding that the nature of the instant case calls for
the application of remedial laws. Revenue statutes are substantive laws and in no sense must their application
be equated with that of remedial laws. As well said in a prior case, revenue laws are not intended to be
liberally construed.[22] Considering that taxes are the lifeblood of the government and in Holmess memorable
metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented.
WHEREFORE, the petition is GRANTED. Both the assailed Decision and Resolution
dated February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572
are REVERSED and SET ASIDE. The Resolution dated August 4, 1999 of the Court of Tax Appeals in
C.T.A. Case No. 5828 is hereby REINSTATED.
No pronouncement as to costs.
SO ORDERED.

SECOND DIVISION

[G.R. No. 158540. July 8, 2004]

SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. THE PHILIPPINE CEMENT


MANUFACTURERS CORP., THE SECRETARY OF THE DEPARTMENT OF TRADE &
INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE, and THE
COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.
DECISION
TINGA, J.:
Good fences make good neighbors, so observed Robert Frost, the archetype of traditional New
England detachment. The Frost ethos has been heeded by nations adjusting to the effects of the liberalized
global market.[1] The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition of
countervailing duties), Rep. Act No. 8752 (on the imposition of anti-dumping duties) and, finally, Rep. Act
No. 8800, also known as the Safeguard Measures Act (SMA) [2] soon after it joined the General Agreement on
Tariff and Trade (GATT) and the World Trade Organization (WTO) Agreement.[3]
The SMA provides the structure and mechanics for the imposition of emergency measures, including
tariffs, to protect domestic industries and producers from increased imports which inflict or could inflict
serious injury on them.[4] The wisdom of the policies behind the SMA, however, is not put into question by
the petition at bar.The questions submitted to the Court relate to the means and the procedures ordained in
the law to ensure that the determination of the imposition or non-imposition of a safeguard measure is
proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic corporation engaged in
the business of cement manufacturing, production, importation and exportation. Its principal stockholders are
Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the largest cement manufacturers
in Japan.[5]
Private respondent Philippine Cement Manufacturers Corporation[6] (Philcemcor) is an association of
domestic cement manufacturers. It has eighteen (18) members, [7]per Record. While Philcemcor heralds itself
to be an association of domestic cement manufacturers, it appears that considerable equity holdings, if not
controlling interests in at least twelve (12) of its member-corporations, were acquired by the three largest
cement manufacturers in the world, namely Financiere Lafarge S.A. of France, Cemex S.A. de C.V. of
Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then Holderfin B.V.).
[8]

On 22 May 2001, respondent Department of Trade and Industry (DTI) accepted an application
from Philcemcor, alleging that the importation of gray Portland cement [9]in increased quantities has caused
declines in domestic production, capacity utilization, market share, sales and employment; as well as caused
depressed local prices. Accordingly, Philcemcor sought the imposition at first of provisional, then later,
definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcorfiled the application
in behalf of twelve (12) of its member-companies.[10]
After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical
circumstances existed justifying the imposition of provisional measures. [11] On 7 November 2001, the DTI
issued an Order, imposing a provisional measure equivalent to Twenty Pesos and Sixty Centavos (P20.60)
per forty (40) kilogram bag on all importations of gray Portland cement for a period not exceeding two
hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the

implementing Customs Memorandum Order.[12] The corresponding Customs Memorandum Order was issued
on 10 December 2001, to take effect that same day and to remain in force for two hundred (200) days.[13]
In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for a
formal investigation to determine whether or not to impose a definitive safeguard measure on imports of gray
Portland cement, pursuant to Section 9 of the SMA and its Implementing Rules and Regulations. A notice of
commencement of formal investigation was published in the newspapers on 21 November 2001. Individual
notices were likewise sent to concerned parties, such as Philcemcor, various importers and exporters, the
Embassies of Indonesia, Japan and Taiwan, contractors/builders associations, industry associations, cement
workers groups, consumer groups, non-government organizations and concerned government agencies. [14] A
preliminary conference was held on 27 November 2001, attended by several concerned parties, including
Southern Cross.[15] Subsequently, the Tariff Commission received several position papers both in support and
against Philcemcorsapplication.[16] The Tariff Commission also visited the corporate offices and
manufacturing facilities of each of the applicant companies, as well as that of Southern Cross and two other
cement importers.[17]
On 13 March 2002, the Tariff Commission issued its Formal Investigation Report (Report). Among the
factors studied by the Tariff Commission in its Report were the market share of the domestic industry,
[18]
production and sales,[19] capacity utilization,[20] financial performance and profitability,[21] and return on
sales.[22] The Tariff Commission arrived at the following conclusions:
1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the
product under consideration (gray Portland cement) is not the subject of any Philippine
obligation or tariff concession under the WTO Agreement. Nonetheless, such inquiry is governed
by the national legislation (R.A. 8800) and the terms and conditions of the Agreement on
Safeguards.
2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the
total domestic production of gray Portland cement and blended Portland cement.
3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are like to
imported gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in increased quantities, both in
absolute terms and relative to domestic production, starting in 2000. The increase in volume of
imports is recent, sudden, sharp and significant.
5. The industry has not suffered and is not suffering significant overall impairment in its
condition, i.e., serious injury.
6. There is no threat of serious injury that is imminent from imports of gray Portland cement.
7. Causation has become moot and academic in view of the negative determination of the elements
of serious injury and imminent threat of serious injury.[23]
Accordingly, the Tariff Commission made the following recommendation, to wit:
The elements of serious injury and imminent threat of serious injury not having been established, it is hereby
recommended that no definitive general safeguard measure be imposed on the importation of gray Portland
cement.[24]
The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary Manuel
Roxas II (DTI Secretary) disagreed with the conclusion of the Tariff Commission that there was no serious
injury to the local cement industry caused by the surge of imports. [25] In view of this disagreement, the DTI
requested an opinion from the Department of Justice (DOJ) on the DTI Secretarys scope of options in acting
on the Commissions recommendations. Subsequently, then DOJ Secretary Hernando Perez rendered an
opinion stating that Section 13 of the SMA precluded a review by the DTI Secretary of the Tariff
Commissions negative finding, or finding that a definitive safeguard measure should not be imposed.[26]
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the Tariff
Commission, the DTI Secretary noted the DTIs disagreement with the conclusions. However, he also cited
the DOJ Opinion advising the DTI that it was bound by the negative finding of the Tariff Commission. Thus,
he ruled as follows:
The DTI has no alternative but to abide by the [Tariff] Commissions recommendations.

IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states:
In the event of a negative final determination; or if the cash bond is in excess of the definitive safeguard
duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written
instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder
thereof, as the case may be, previously collected as provisional general safeguard measure within ten (10)
days from the date a final decision has been made; Provided, that the government shall not be liable for
any interest on the amount to be returned. The Secretary shall not accept for consideration another
petition from the same industry, with respect to the same imports of the product under consideration
within one (1) year after the date of rendering such a decision.
The DTI hereby issues the following:
The application for safeguard measures against the importation of gray Portland cement filed by
PHILCEMCOR (Case No. 02-2001) is hereby denied.[27] (Emphasis in the original)
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Court
of Appeals a Petition for Certiorari, Prohibition and Mandamus[28]seeking to set aside the DTI Decision, as
well as the Tariff Commissions Report. Philcemcor likewise applied for a Temporary Restraining
Order/Injunction to enjoin the DTI and the BOC from implementing the questioned Decision and Report. It
prayed that the Court of Appeals direct the DTI Secretary to disregard the Report and to render judgment
independently of the Report. Philcemcor argued that the DTI Secretary, vested as he is under the law with the
power of review, is not bound to adopt the recommendations of the Tariff Commission; and, that the Report
is void, as it is predicated on a flawed framework, inconsistent inferences and erroneous methodology.[29]
On 10 June 2002, Southern Cross filed its Comment.[30] It argued that the Court of Appeals had no
jurisdiction over Philcemcors Petition, for it is on the Court of Tax Appeals (CTA) that the SMA conferred
jurisdiction to review rulings of the Secretary in connection with the imposition of a safeguard measure. It
likewise argued that Philcemcors resort to the special civil action of certiorari is improper, considering that
what Philcemcor sought to rectify is an error of judgment and not an error of jurisdiction or grave abuse of
discretion, and that a petition for review with the CTA was available as a plain, speedy and adequate remedy.
Finally, Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes a review by the DTI
Secretary of a negative finding of the Tariff Commission.
After conducting a hearing on 19 June 2002 on Philcemcors application for preliminary injunction, the
Court of Appeals Twelfth Division[31] granted the writ sought in its Resolution dated 21 June 2002.[32] Seven
days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of the provisional measure
expired. Despite the lapse of the period, the BOC continued to impose the provisional measure on all
importations of Portland cement made by Southern Cross. The uninterrupted assessment of the tariff,
according to Southern Cross, worked to its detriment to the point that the continued imposition would
eventually lead to its closure.[33]
Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September
2002. Alleging that Philcemcor was not entitled to provisional relief, Southern Cross likewise sought a
clarificatory order as to whether the grant of the writ of preliminary injunction could extend the earlier
imposition of the provisional measure beyond the two hundred (200)-day limit imposed by law. The appeals
court failed to take immediate action on Southern Crosss motion despite the four (4) motions for early
resolution the latter filed between September of 2002 and February of 2003. After six (6) months, on 19
February 2003, the Court of Appeals directed Philcemcor to comment on Southern Crosss Motion for
Reconsideration.[34] After Philcemcor filed its Opposition[35] on 13 March 2003, Southern Cross filed another
set of four (4) motions for early resolution.
Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for
Reconsideration. Instead, on 5 June 2003, it rendered a Decision,[36]granting in part Philcemcors petition. The
appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged grave abuse of
discretion. It refused to annul the findings of the Tariff Commission, citing the rule that factual findings of
administrative agencies are binding upon the courts and its corollary, that courts should not interfere in
matters addressed to the sound discretion and coming under the special technical knowledge and training of
such agencies.[37] Nevertheless, it held that the DTI Secretary is not bound by the factual findings of the Tariff
Commission since such findings are merely recommendatory and they fall within the ambit of the Secretarys

discretionary review. It determined that the legislative intent is to grant the DTI Secretary the power to make
a final decision on the Tariff Commissions recommendation.[38]The dispositive portion of the Decision reads:
WHEREFORE, based on the foregoing premises, petitioners prayer to set aside the findings of the Tariff
Commission in its assailed Report dated March 13, 2002 is DENIED. On the other hand, the assailed April
5, 2002 Decision of the Secretary of the Department of Trade and Industry is hereby SET
ASIDE. Consequently, the case is REMANDED to the public respondent Secretary of Department of Trade
and Industry for a final decision in accordance with RA 8800 and its Implementing Rules and Regulations.
SO ORDERED.[39]
On 23 June 2003, Southern Cross filed the present petition, assailing the appellate courts Decision for
departing from the accepted and usual course of judicial proceedings, and not deciding the substantial
questions in accordance with law and jurisprudence. The petition argues in the main that the Court of
Appeals has no jurisdiction over Philcemcors petition, the proper remedy being a petition for review with the
CTA conformably with the SMA, and; that the factual findings of the Tariff Commission on the existence or
non-existence conditions warranting the imposition of general safeguard measures are binding upon the DTI
Secretary.
The timely filing of Southern Crosss petition before this Court necessarily prevented the Court of
Appeals Decision from becoming final.[40] Yet on 25 June 2003, the DTI Secretary issued a new Decision,
ruling this time that that in light of the appellate courts Decision there was no longer any legal impediment to
his deciding Philcemcors application for definitive safeguard measures. [41] He made a determination that,
contrary to the findings of the Tariff Commission, the local cement industry had suffered serious injury as a
result of the import surges.[42] Accordingly, he imposed a definitive safeguard measure on the importation of
gray Portland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three
years on imported gray Portland Cement.[43]
On 7 July 2003, Southern Cross filed with the Court a Very Urgent Application for a Temporary
Restraining Order and/or A Writ of Preliminary Injunction (TRO Application), seeking to enjoin the DTI
Secretary from enforcing his Decision of 25 June 2003 in view of the pending petition before this
Court. Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that has
jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI
Secretarys 25 June 2003 Decision which imposed the definite safeguard measure. Prescinding from this
action, Philcemcor filed with this Court a Manifestation and Motion to Dismiss in regard to Southern Crosss
petition, alleging that it deliberately and willfully resorted to forum-shopping. It points out that Southern
Crosss TRO Application seeks to enjoin the DTI Secretarys second decision, while its Petition before the
CTA prays for the annulment of the same decision.[44]
Reiterating its Comment on Southern Crosss Petition for Review, Philcemcor also argues that the CTA,
being a special court of limited jurisdiction, could only review the ruling of the DTI Secretary when a
safeguard measure is imposed, and that the factual findings of the Tariff Commission are not binding on the
DTI Secretary.[45]
After giving due course to Southern Crosss Petition, the Court called the case for oral argument on 18
February 2004.[46] At the oral argument, attended by the counsel for Philcemcor and Southern Cross and the
Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the
DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals has
jurisdiction, whether its Decision is in accordance with law; and, (iii) whether a Temporary Restraining
Order is warranted.[47]
During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the
general safeguard measures, Southern Cross was forced to cease operations in the Philippines in November
of 2003.[48]
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Crosss application for provisional
relief. It sought to enjoin the DTI Secretary from enforcing the definitive safeguard measure he imposed in

his 25 June 2003 Decision. The Court did not grant the provisional relief for it would be tantamount to
enjoining the collection of taxes, a peremptory judicial act which is traditionally frowned upon, [49] unless
there is a clear statutory basis for it. [50] In that regard, Section 218 of the Tax Reform Act of 1997 prohibits
any court from granting an injunction to restrain the collection of any national internal revenue tax, fee or
charge imposed by the internal revenue code.[51] A similar philosophy is expressed by Section 29 of the SMA,
which states that the filing of a petition for review before the CTA does not stop, suspend, or otherwise toll
the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard
measures.[52] This evinces a clear legislative intent that the imposition of safeguard measures, despite the
availability of judicial review, should not be enjoined notwithstanding any timely appeal of the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven, or
that sanction should befall upon Southern Cross and its counsel. The standard by Section 5, Rule 7 of the
1997 Rules of Civil Procedure in order that sanction may be had is that the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping. [53] The standard implies a malicious intent to subvert
procedural rules, and such state of mind is not evident in this case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over
Philcemcors Petition, discussed the issue of whether or not the DTI Secretary is bound to adopt the negative
recommendation of the Tariff Commission on the application for safeguard measure. The Court of Appeals
maintained that it had jurisdiction over the petition, as it alleged grave abuse of discretion on the part of the
DTI Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the DTI
Secretary in rendering the assailed April 5, 2002 Decision wherein it was ruled that he had no alternative but
to abide by the findings of the Commission on the matter of safeguard measures for the local cement
industry. Abuse of discretion is admittedly within the ambit of certiorari.
Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to
lack of jurisdiction. It is alleged that, in the assailed Decision, the DTI Secretary gravely abused his
discretion in wantonly evading to discharge his duty to render an independent determination or decision in
imposing a definitive safeguard measure.[54]
We do not doubt that the Court of Appeals certiorari powers extend to correcting grave abuse of
discretion on the part of an officer exercising judicial or quasi-judicial functions. [55] However, the special
civil action of certiorari is available only when there is no plain, speedy and adequate remedy in the ordinary
course of law.[56] Southern Cross relies on this limitation, stressing that Section 29 of the SMA is a plain,
speedy and adequate remedy in the ordinary course of law which Philcemcor did not avail of.The Section
reads:
Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the Secretary in
connection with the imposition of a safeguard measure may file with the CTA, a petition for review of
such ruling within thirty (30) days from receipt thereof. Provided, however, that the filing of such petition for
review shall not in any way stop, suspend or otherwise toll the imposition or collection of the appropriate
tariff duties or the adoption of other appropriate safeguard measures, as the case may be.
The petition for review shall comply with the same requirements and shall follow the same rules of
procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on tax
matters to the Court of Appeals.[57] (Emphasis supplied)
It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to
review the ruling of the DTI Secretary in connection with the imposition of a safeguard measure. The Court

has long recognized the legislative determination to vest sole and exclusive jurisdiction on matters involving
internal revenue and customs duties to such a specialized court. [58] By the very nature of its function, the CTA
is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an
expertise on the subject.[59]
At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a
case should be clearly conferred and should not be deemed to exist on mere implication. [60] Concededly, Rep.
Act No. 1125, the statute creating the CTA, does not extend to it the power to review decisions of the DTI
Secretary in connection with the imposition of safeguard measures. [61] Of course, at that time which was
before the advent of trade liberalization the notion of safeguard measures or safety nets was not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings
of the DTI Secretary in connection with the imposition of safeguard measures. However, Philcemcor and the
public respondents agree that the CTA has appellate jurisdiction over a decision of the DTI Secretary
imposing a safeguard measure, but not when his ruling is not to impose such measure.
In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the CTA
jurisdiction over [d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product,
commodity or article xxx involving xxx safeguard measures under Republic Act No. 8800, where either
party may appeal the decision to impose or not to impose said duties.[62] Had Rep. Act No. 9282 already
been in force at the beginning of the incidents subject of this case, there would have been no need to make
any deeper inquiry as to the extent of the CTAs jurisdiction. But as Rep. Act No. 9282 cannot be applied
retroactively to the present case, the question of whether such jurisdiction extends to a decision not to impose
a safeguard measure will have to be settled principally on the basis of the SMA.
Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire jurisdiction over
the petition for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition
must be filed by an interested party adversely affected by the ruling; and (iii) such ruling must be in
connection with the imposition of a safeguard measure. The first two requisites are clearly present. The third
requisite deserves closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary
decides not to impose a safeguard measure, it is the CTA which has jurisdiction to review his decision. The
reasons are as follows:
First. Split jurisdiction is abhorred.
Essentially, respondents position is that judicial review of the DTI Secretarys ruling is exercised by two
different courts, depending on whether or not it imposes a safeguard measure, and in either case the court
exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision involves the imposition
of a safeguard measure it is the CTA which has appellate jurisdiction; otherwise, it is the Court of
Appeals. Such setup is as novel and unusual as it is cumbersome and unwise. Essentially, respondents
advocate that Section 29 of the SMA has established split appellate jurisdiction over rulings of the DTI
Secretary on the imposition of safeguard measure.
This interpretation cannot be favored, as the Court has consistently refused to sanction split jurisdiction.
The power of the DTI Secretary to adopt or withhold a safeguard measure emanates from the same
statutory source, and it boggles the mind why the appeal modality would be such that one appellate court is
qualified if what is to be reviewed is a positive determination, and it is not if what is appealed is a negative
determination. In deciding whether or not to impose a safeguard measure, provisional or general, the DTI
Secretary would be evaluating only one body of facts and applying them to one set of laws. The reviewing
tribunal will be called upon to examine the same facts and the same laws, whether or not the determination is
positive or negative.
[63]

In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies
of jurisdiction over basically the same subject matterprecisely the split-jurisdiction situation which is
anathema to the orderly administration of justice.[64] The Court cannot accept that such was the legislative
motive especially considering that the law expressly confers on the CTA, the tribunal with the specialized
competence over tax and tariff matters, the role of judicial review without mention of any other court that
may exercise corollary or ancillary jurisdiction in relation to the SMA. The provision refers to the Court of
Appeals but only in regard to procedural rules and dispositions of appeals from the CTA to the Court of
Appeals.[65]

The principle enunciated in Tejada v. Homestead Property Corporation[66] is applicable to the case at
bar:
The Court agrees with the observation of the [that] when an administrative agency or body is conferred
quasi-judicial functions, all controversies relating to the subject matter pertaining to its specialization
are deemed to be included within the jurisdiction of said administrative agency or
body. Split jurisdiction is not favored.[67]
Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate
jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from
reviewing a negative determination by the DTI Secretary nor conferred on the Court of Appeals such review
authority. Respondents note, on the other hand, that neither did the law expressly grant to the CTA the power
to review a negative determination. However, under the clear text of the law, the CTA is vested with
jurisdiction to review the ruling of the DTI Secretary in connection with the imposition of a safeguard
measure. Had the law been couched instead to incorporate the phrase the ruling imposing a safeguard
measure, then respondents claim would have indisputable merit. Undoubtedly, the phrase in connection with
not only qualifies but clarifies the succeeding phrase imposition of a safeguard measure. As expounded later,
the phrase also encompasses the opposite or converse ruling which is the non-imposition of a safeguard
measure.
In the American case of Shaw v. Delta Air Lines, Inc.,[68] the United States Supreme Court, in
interpreting a key provision of the Employee Retirement Security Act of 1974, construed the phrase relates to
in its normal sense which is the same as if it has connection with or reference to. [69] There is no serious
dispute that the phrase in connection with is synonymous to relates to or reference to, and that all three
phrases are broadly expansive. This is affirmed not just by jurisprudential fiat, but also the acquired
connotative meaning of in connection with in common parlance. Consequently, with the use of the phrase in
connection with, Section 29 allows the CTA to review not only the ruling imposing a safeguard measure, but
all other rulings related or have reference to the application for such measure.
Now, let us determine the maximum scope and reach of the phrase in connection with as used in Section
29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the US Supreme Court in New
York State Blue Cross Plans v. Travelers Ins.[70] conceded that the phrases relate to or in connection with may
be extended to the farthest stretch of indeterminacy for, universally, relations or connections are infinite and
stop nowhere.[71] Thus, in the case the US High Court, examining the same phrase of the same provision of
law involved in Shaw, resorted to looking at the statute and its objectives as the alternative to an uncritical
literalism.[72] A similar inquiry into the other provisions of the SMA is in order to determine the scope of
review accorded therein to the CTA.[73]
The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of nonagricultural products, and in the Secretary of the Department of Agriculture in the case of agricultural
products.[74] Section 29 is likewise explicit that only the rulings of the DTI Secretary or the Agriculture
Secretary may be reviewed by the CTA.[75] Thus, the acts of other bodies that were granted some powers by
the SMA, such as the Tariff Commission, are not subject to direct review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within
thirty (30) days from receipt of a petition seeking the imposition of a safeguard measure, or from the date he
made motu proprio initiation, the Secretary shall make a preliminary determination on whether the increased
imports of the product under consideration substantially cause or threaten to cause serious injury to the
domestic industry.[76] Such ruling is crucial since only upon the Secretarys positive preliminary determination
that a threat to the domestic industry exists shall the matter be referred to the Tariff Commission for formal
investigation, this time, to determine whether the general safeguard measure should be imposed or not.
[77]
Pursuant to a positive preliminary determination, the Secretary may also decide that the imposition of a
provisional safeguard measure would be warranted under Section 8 of the SMA. [78] The Secretary is also
authorized to decide, after receipt of the report of the Tariff Commission, whether or not to impose the
general safeguard measure, and if in the affirmative, what general safeguard measures should be applied.
[79]
Even after the general safeguard measure is imposed, the Secretary is empowered to extend the safeguard
measure,[80] or terminate, reduce or modify his previous rulings on the general safeguard measure.[81]
With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI
Secretary, it follows that he is empowered to rule on several issues.These are the issues which arise in

connection with, or in relation to, the imposition of a safeguard measure. They may arise at different stages
the preliminary investigation stage, the post-formal investigation stage, or the post-safeguard measure stage
yet all these issues do become ripe for resolution because an initiatory action has been taken seeking the
imposition of a safeguard measure. It is the initiatory action for the imposition of a safeguard measure that
sets the wheels in motion, allowing the Secretary to make successive rulings, beginning with the preliminary
determination.
Clearly, therefore, the scope and reach of the phrase in connection with, as intended by Congress, pertain
to all rulings of the DTI Secretary or Agriculture Secretary which arise from the time an application
or motu proprio initiation for the imposition of a safeguard measure is taken. Indeed, the incidents which
require resolution come to the fore only because there is an initial application or action seeking the
imposition of a safeguard measure. From the legislative standpoint, it was a matter of sense and practicality
to lump up the questions related to the initiatory application or action for safeguard measure and to assign
only one court and; that is the CTA to initially review all the rulings related to such initiatory application or
action. Both directions Congress put in place by employing the phrase in connection with in the law.
Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do
not doubt that a negative ruling refusing to impose a safeguard measure falls within the scope of its
jurisdiction. On a literal level, such negative ruling is a ruling of the Secretary in connection with the
imposition of a safeguard measure, as it is one of the possible outcomes that may result from the initial
application or action for a safeguard measure. On a more critical level, the rulings of the DTI Secretary in
connection with a safeguard measure, however diverse the outcome may be, arise from the same grant of
jurisdiction on the DTI Secretary by the SMA. [82] The refusal by the DTI Secretary to grant a safeguard
measure involves the same grant of authority, the same statutory prescriptions, and the same degree of
discretion as the imposition by the DTI Secretary of a safeguard measure.
The position of the respondents is one of uncritical literalism [83] incongruent with the animus of the law.
Moreover, a fundamentalist approach to Section 29 is not warranted, considering the absurdity of the
consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.[84]
Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a
negative ruling of the DTI Secretary, the Court is precluded from favoring an interpretation that would cause
inconvenience and absurdity.[85] Adopting the respondents position favoring the CTAs minimal jurisdiction
would unnecessarily lead to illogical and onerous results.
Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing
a safeguard measure but not to those declining to impose the measure. Respondents might argue that the right
to relief from a negative ruling is not lost since the applicant could, as Philcemcor did, question such ruling
through a special civil action for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an
appeal to the CTA. Yet these two reliefs are of differing natures and gravamen. While an appeal may be
predicated on errors of fact or errors of law, a special civil action for certiorari is grounded on grave abuse of
discretion or lack of or excess of jurisdiction on the part of the decider. For a special civil action for certiorari
to succeed, it is not enough that the questioned act of the respondent is wrong. As the Court clarified
in Sempio v. Court of Appeals:
A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to determine the
case. There is excess of jurisdiction where, being clothed with the power to determine the case, the tribunal,
board or officer oversteps its/his authority as determined by law. And there is grave abuse of discretion where
the tribunal, board or officer acts in a capricious, whimsical, arbitrary or despotic manner in the exercise of
his judgment as to be said to be equivalent to lack of jurisdiction. Certiorari is often resorted to in order to
correct errors of jurisdiction. Where the error is one of law or of fact, which is a mistake of judgment, appeal
is the remedy.[86]
It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the
evidence, may either make a negative preliminary determination as he is so empowered under Section 7 of
the SMA, or refuse to adopt the definitive safeguard measure under Section 13 of the same law. Adopting the
respondents theory, this negative ruling is susceptible to reversal only through a special civil action for
certiorari, thus depriving the affected party the chance to elevate the ruling on appeal on the rudimentary
grounds of errors in fact or in law. Instead, and despite whatever indications that the DTI Secretary acted
with measure and within the bounds of his jurisdiction are, the aggrieved party will be forced to resort to a

gymnastic exercise, contorting the straight and narrow in an effort to discombobulate the courts into
believing that what was within was actually beyond and what was studied and deliberate actually whimsical
and capricious. What then would be the remedy of the party aggrieved by a negative ruling that simply erred
in interpreting the facts or the law? It certainly cannot be the special civil action for certiorari, for as the
Court held in Silverio v. Court of Appeals: Certiorari is a remedy narrow in its scope and inflexible in its
character. It is not a general utility tool in the legal workshop.[87]
Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a
way that it places under the CTAs judicial review all rulings of the DTI Secretary, which are connected with
the imposition of a safeguard measure. This is sound and proper in light of the specialized jurisdiction of the
CTA over tax matters. In the same way that a question of whether to tax or not to tax is properly a tax matter,
so is the question of whether to impose or not to impose a definitive safeguard measure.
On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings
of the DTI Secretary over safeguard measures should first be reviewed by the CTA and not the Court of
Appeals. It reads:
The petition for review shall comply with the same requirements and shall follow the same rules of
procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on tax
matters to the Court of Appeals.
This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of
Congress is that the petition conform to the requirements and procedure under Rule 43 of the Rules of Civil
Procedure. Since Congress mandated that the form and procedure adopted be analogous to a review of a CTA
ruling by the Court of Appeals, the legislative contemplation could not have been that the appeal be directly
taken to the Court of Appeals.
Issue of Binding Effect of Tariff
Commissions Factual Determination
on DTI Secretary.
The next issue for resolution is whether the factual determination made by the Tariff Commission under
the SMA is binding on the DTI Secretary. Otherwise stated, the question is whether the DTI Secretary may
impose general safeguard measures in the absence of a positive final determination by the Tariff
Commission.
The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff
Commission do not necessarily constitute a final decision. Section 13 details the procedure for the adoption
of a safeguard measure, as well as the steps to be taken in case there is a negative final determination. The
implication of the Court of Appeals holding is that the DTI Secretary may adopt a definitive safeguard
measure, notwithstanding a negative determination made by the Tariff Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard
measures may be imposed. However, the most fundamental restriction on the DTI Secretarys power in
that respect is contained in Section 5 of the SMAthat there should first be a positive final
determination of the Tariff Commissionwhich the Court of Appeals curiously all but ignored. Section 5
reads:
Sec. 5. Conditions for the Application of General Safeguard Measures. The Secretary shall apply a general
safeguard measure upon a positive final determination of the [Tariff] Commission that a product is
being imported into the country in increased quantities, whether absolute or relative to the domestic
production, as to be a substantial cause of serious injury or threat thereof to the domestic industry; however,
in the case of non-agricultural products, the Secretary shall first establish that the application of such
safeguard measures will be in the public interest. (emphasis supplied)
The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a
positive final determination. This power lodged in the Tariff Commission, must be distinguished from the
power to impose the general safeguard measure which is properly vested on the DTI Secretary.[88]

All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose
a general safeguard measure on grey Portland cement. First, there must be a positive final determination by
the Tariff Commission that a product is being imported into the country in increased quantities (whether
absolute or relative to domestic production), as to be a substantial cause of serious injury or threat to the
domestic industry. Second, in the case of non-agricultural products the Secretary must establish that the
application of such safeguard measures is in the public interest. [89] As Southern Cross argues, Section 5 is
quite clear-cut, and it is impossible to finagle a different conclusion even through overarching methods of
statutory construction. There is no safer nor better settled canon of interpretation that when language is clear
and unambiguous it must be held to mean what it plainly expresses:[90] In the quotable words of an illustrious
member of this Court, thus:
[I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without
attempted interpretation. The verba legis or plain meaning rule rests on the valid presumption that the words
employed by the legislature in a statute correctly express its intent or will and preclude the court from
construing it differently. The legislature is presumed to know the meaning of the words, to have used words
advisedly, and to have expressed its intent by the use of such words as are found in the statute.[91]
Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA, [92] which interprets Section 5
of the law, likewise requires a positive final determination on the part of the Tariff Commission before the
application of the general safeguard measure.
The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI
Secretary. The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make
a positive final determination. This power, which belongs to the Tariff Commission, must be distinguished
from the power to impose general safeguard measure properly vested on the DTI Secretary. The distinction is
vital, as a positive final determination clearly antecedes, as a condition precedent, the imposition of a general
safeguard measure. At the same time, a positive final determination does not necessarily result in the
imposition of a general safeguard measure. Under Section 5, notwithstanding the positive final determination
of the Tariff Commission, the DTI Secretary is tasked to decide whether or not that the application of the
safeguard measures is in the public interest.
It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the
Tariff Commission does not entail a mere gathering of statistical data. In order to arrive at such
determination, it has to establish causal linkages from the statistics that it compiles and evaluates: after
finding there is an importation in increased quantities of the product in question, that such importation is a
substantial cause of serious threat or injury to the domestic industry.
The Court of Appeals relies heavily on the legislative record of a congressional debate during
deliberations on the SMA to assert a purported legislative intent that the findings of the Tariff Commission
do not bind the DTI Secretary.[93] Yet as explained earlier, the plain meaning of Section 5 emphasizes that
only if the Tariff Commission renders a positive determination could the DTI Secretary impose a safeguard
measure. Resort to the congressional records to ascertain legislative intent is not warranted if a statute is
clear, plain and free from ambiguity. The legislature is presumed to know the meaning of the words, to have
used words advisedly, and to have expressed its intent by the use of such words as are found in the statute.[94]
Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as
legislative debates and proceedings are powerless to vary the terms of the statute when the meaning is clear.
[95]
Our holding in Civil Liberties Union v. Executive Secretary[96] on the resort to deliberations of the
constitutional convention to interpret the Constitution is likewise appropriate in ascertaining statutory intent:
While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional
convention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto may be
had only when other guides fail as said proceedings are powerless to vary the terms of the Constitution when
the meaning is clear. Debates in the constitutional convention "are of value as showing the views of the
individual members, and as indicating the reasons for their votes, but they give us no light as to the views of
the large majority who did not talk xxx. We think it safer to construe the constitution from what appears upon
its face.[97]
Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to assert
a misleading interpretation. The effect can be dangerous. Minority or solitary views, anecdotal ruminations,
or even the occasional crude witticisms, may improperly acquire the mantle of legislative intent by the sole

virtue of their publication in the authoritative congressional record. Hence, resort to legislative deliberations
is allowable when the statute is crafted in such a manner as to leave room for doubt on the real intent of the
legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretarys power to impose a general
safeguard measure by preconditioning such imposition on a positive determination by the Tariff
Commission. Such legislative intent should be given full force and effect, as the executive power to impose
definitive safeguard measures is but a delegated powerthe power of taxation, by nature and by command of
the fundamental law, being a preserve of the legislature. [98] Section 28(2), Article VI of the 1987 Constitution
confirms the delegation of legislative power, yet ensures that the prerogative of Congress to impose
limitations and restrictions on the executive exercise of this power:
The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national development program of the
Government.[99]
The safeguard measures which the DTI Secretary may impose under the SMA may take the following
variations, to wit: (a) an increase in, or imposition of any duty on the imported product; (b) a decrease in or
the imposition of a tariff-rate quota on the product; (c) a modification or imposition of any quantitative
restriction on the importation of the product into the Philippines; (d) one or more appropriate adjustment
measures, including the provision of trade adjustment assistance; and (e) any combination of the abovedescribed actions. Except for the provision of trade adjustment assistance, the measures enumerated by the
SMA are essentially imposts, which precisely are the subject of delegation under Section 28(2), Article VI of
the 1987 Constitution.[100]
This delegation of the taxation power by the legislative to the executive is authorized by the Constitution
itself.[101] At the same time, the Constitution also grants the delegating authority (Congress) the right to
impose restrictions and limitations on the taxation power delegated to the President. [102] The restrictions and
limitations imposed by Congress take on the mantle of a constitutional command, which the executive
branch is obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of the President,[103] to impose definitive general
safeguard measures, which basically are tariff imposts of the type spoken of in the Constitution. However,
the law did not grant him full, uninhibited discretion to impose such measures. The DTI Secretary authority
is derived from the SMA; it does not flow from any inherent executive power. Thus, the limitations imposed
by Section 5 are absolute, warranted as they are by a constitutional fiat.[104]
Philcemcor cites our 1912 ruling in Lamb v. Phipps[105] to assert that the DTI Secretary, having the final
decision on the safeguard measure, has the power to evaluate the findings of the Tariff Commission and
make an independent judgment thereon. Given the constitutional and statutory limitations governing the
present case, the citation is misplaced. Lamb pertained to the discretion of the Insular Auditor of the
Philippine Islands, whom, as the Court recognized, [t]he statutes of the United States require[d] xxx to
exercise his judgment upon the legality xxx [of] provisions of law and resolutions of Congress providing for
the payment of money, the means of procuring testimony upon which he may act.[106]
Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on
the Insular Auditor, it also recognized that such latitude flowed from, and is consequently limited by,
statutory grant. However, in this case, the provision of the Constitution in point expressly recognizes the
authority of Congress to prescribe limitations in the case of tariffs, export/import quotas and other such
safeguard measures. Thus, the broad discretion granted to the Insular Auditor of the Philippine Islands cannot
be analogous to the discretion of the DTI Secretary which is circumscribed by Section 5 of the SMA.
For that matter, Cario v. Commissioner on Human Rights,[107] likewise cited by Philcemcor, is also
inapplicable owing to the different statutory regimes prevailing over that case and the present
petition. In Cario, the Court ruled that the constitutional power of the Commission on Human Rights (CHR)
to investigate human rights violations did not extend to adjudicating claims on the merits. [108] Philcemcor
claims that the functions of the Tariff Commission being only investigatory, it could neither decide nor
adjudicate.[109]
The applicable law governing the issue in Cario is Section 18, Article XIII of the Constitution, which
delineates the powers and functions of the CHR. The provision does not vest on the CHR the power to
adjudicate cases, but only to investigate all forms of human rights violations. [110] Yet, without modifying the

thorough disquisition of the Court in Cario on the general limitations on the investigatory power, the
precedent is inapplicable because of the difference in the involved statutory frameworks. The Constitution
does not repose binding effect on the results of the CHRs investigation. [111] On the other hand, through
Section 5 of the SMA and under the authority of Section 28(2), Article VI of the Constitution, Congress did
intend to bind the DTI Secretary to the determination made by the Tariff Commission. [112] It is of no
consequence that such determination results from the exercise of investigatory powers by the Tariff
Commission since Congress is well within its constitutional mandate to limit the authority of the DTI
Secretary to impose safeguard measures in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMAs
Implementing Rules in support of the view that the DTI Secretary may decide independently of the
determination made by the Tariff Commission. Admittedly, there are certain infelicities in the language of
Section 13 and Rule 13. But reliance should not be placed on the textual imprecisions. Rather, Section 13
and Rule 13 must be viewed in light of the fundamental prescription imposed by Section 5.[113]
Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its
report. The provision reads in full:
SEC. 13. Adoption of Definitive Measures. Upon its positive determination, the Commission shall
recommend to the Secretary an appropriate definitive measure, in the form of:
(a) An increase in, or imposition of, any duty on the imported product;
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product;
(c) A modification or imposition of any quantitative restriction on the importation of the
product into the Philippines;
(d) One or more appropriate adjustment measures, including the provision of trade adjustment
assistance;
(e) Any combination of actions described in subparagraphs (a) to (d).
The Commission may also recommend other actions, including the initiation of international negotiations to
address the underlying cause of the increase of imports of the product, to alleviate the injury or threat thereof
to the domestic industry, and to facilitate positive adjustment to import competition.
The general safeguard measure shall be limited to the extent of redressing or preventing the injury and to
facilitate adjustment by the domestic industry from the adverse effects directly attributed to the increased
imports: Provided, however, That when quantitative import restrictions are used, such measures shall not
reduce the quantity of imports below the average imports for the three (3) preceding representative years,
unless clear justification is given that a different level is necessary to prevent or remedy a serious injury.
A general safeguard measure shall not be applied to a product originating from a developing country if its
share of total imports of the product is less than three percent (3%): Provided, however, That developing
countries with less than three percent (3%) share collectively account for not more than nine percent (9%) of
the total imports.
The decision imposing a general safeguard measure, the duration of which is more than one (1) year, shall be
reviewed at regular intervals for purposes of liberalizing or reducing its intensity. The industry benefiting
from the application of a general safeguard measure shall be required to show positive adjustment within the
allowable period. A general safeguard measure shall be terminated where the benefiting industry fails to
show any improvement, as may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the concerned government agencies to
implement the appropriate general safeguard measure as determined by the Secretary within fifteen (15) days
from receipt of the report.
In the event of a negative final determination, or if the cash bond is in excess of the definitive safeguard duty
assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written instruction to the
Commissioner of Customs, authorizing the return of the cash bond or the remainder thereof, as the case may
be, previously collected as provisional general safeguard measure within ten (10) days from the date a final

decision has been made: Provided, That the government shall not be liable for any interest on the amount to
be returned. The Secretary shall not accept for consideration another petition from the same industry, with
respect to the same imports of the product under consideration within one (1) year after the date of rendering
such a decision.
When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be subject or
limited to the maximum levels of tariff as set forth in Section 401(a) of the Tariff and Customs Code of
the Philippines.
To better comprehend Section 13, note must be taken of the distinction between the investigatory and
recommendatory functions of the Tariff Commission under the SMA.
The word determination, as used in the SMA, pertains to the factual findings on whether there are
increased imports into the country of the product under consideration, and on whether such increased imports
are a substantial cause of serious injury or threaten to substantially cause serious injury to the domestic
industry.[114]The SMA explicitly authorizes the DTI Secretary to make a preliminary determination, [115] and
the Tariff Commission to make the final determination. [116] The distinction is fundamental, as these functions
are not interchangeable. The Tariff Commission makes its determination only after a formal investigation
process, with such investigation initiated only if there is a positive preliminary determination by the DTI
Secretary under Section 7 of the SMA.[117] On the other hand, the DTI Secretary may impose definitive
safeguard measure only if there is a positive final determination made by the Tariff Commission.[118]
In contrast, a recommendation is a suggested remedial measure submitted by the Tariff Commission
under Section 13 after making a positive final determination in accordance with Section 5. The Tariff
Commission is not empowered to make a recommendation absent a positive final determination on its part.
[119]
Under Section 13, the Tariff Commission is required to recommend to the [DTI] Secretary an appropriate
definitive measure.[120] The Tariff Commission may also recommend other actions, including the initiation of
international negotiations to address the underlying cause of the increase of imports of the products, to
alleviate the injury or threat thereof to the domestic industry and to facilitate positive adjustment to import
competition.[121]
The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the
DTI Secretary. Nothing in the SMA mandates the DTI Secretary to adopt the recommendations made by the
Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of such
safeguard measures is in the public interest, notwithstanding the Tariff Commissions recommendation on the
appropriate safeguard measure based on its positive final determination.[122] The non-binding force of the
Tariff Commissions recommendations is congruent with the command of Section 28(2), Article VI of the
1987 Constitution that only the President may be empowered by the Congress to impose appropriate tariff
rates, import/export quotas and other similar measures.[123] It is the DTI Secretary, as alter egoof the
President, who under the SMA may impose such safeguard measures subject to the limitations imposed
therein. A contrary conclusion would in essence unduly arrogate to the Tariff Commission the executive
power to impose the appropriate tariff measures. That is why the SMA empowers the DTI Secretary to adopt
safeguard measures other than those recommended by the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination has a different effect on the
DTI Secretary. Only on the basis of a positive final determination made by the Tariff Commission under
Section 5 can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI Secretary
is bound by thedetermination made by the Tariff Commission.
Some confusion may arise because the sixth paragraph of Section 13 [124] uses the variant word
determined in a different context, as it contemplates the appropriate general safeguard measure as determined
by the Secretary within fifteen (15) days from receipt of the report. Quite plainly, the word determined in this
context pertains to the DTI Secretarys power of choice of the appropriate safeguard measure, as opposed to
the Tariff Commissions power to determine the existence of conditions necessary for the imposition of any
safeguard measure. In relation to Section 5, such choice also relates to the mandate of the DTI Secretary to
establish that the application of safeguard measures is in the public interest, also within the fifteen (15) day
period. Nothing in Section 13 contradicts the instruction in Section 5 that the DTI Secretary is allowed to
impose the general safeguard measures only if there is a positive determination made by the Tariff
Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned Final Determination by the
Secretary. The assailed Decision and Philcemcor latch on this phraseology to imply that the factual

determination rendered by the Tariff Commission under Section 5 may be amended or reversed by the DTI
Secretary. Of course, implementing rules should conform, not clash, with the law that they seek to
implement, for a regulation which operates to create a rule out of harmony with the statute is a nullity. [125] Yet
imperfect draftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can set aside the
determination made by the Tariff Commission under the aegis of Section 5. This can be seen by examining
the specific provisions of Rule 13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the Commission, the Secretary
shall make a decision, taking into consideration the measures recommended by the Commission.
RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2) calendar days after
making his decision, a written instruction to the heads of the concerned government agencies to immediately
implement the appropriate general safeguard measure as determined by him. Provided, however, that in the
case of non-agricultural products, the Secretary shall first establish that the imposition of the safeguard
measure will be in the public interest.
RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall also order its
publication in two (2) newspapers of general circulation. He shall also furnish a copy of his Order to the
petitioner and other interested parties, whether affirmative or negative. (Emphasis supplied.)
Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission
for it is not subordinate to the Department of Trade and Industry (DTI). It falls under the supervision, not of
the DTI nor of the Department of Finance (as mistakenly asserted by Southern Cross),[126] but of the National
Economic Development Authority, an independent planning agency of the government of co-equal
rank as the DTI.[127] As the supervision and control of a Department Secretary is limited to the bureaus,
offices, and agencies under him,[128] the DTI Secretary generally cannot exercise review authority over
actions of the Tariff Commission. Neither does the SMA specifically authorize the DTI Secretary to alter,
amend or modify in any way the determination made by the Tariff Commission. The most that the DTI
Secretary could do to express displeasure over the Tariff Commissions actions is to ignore its
recommendation, but not its determination.
The word determination as used in Rule 13.2 of the Implementing Rules is dissonant with the same word
as employed in the SMA, which in the latter case is undeviatingly in reference to the determination made by
the Tariff Commission. Beyond the resulting confusion, however, the divergent use in Rule 13.2 is explicable
as the Rule textually pertains to the power of the DTI Secretary to review the recommendations of the Tariff
Commission, not the latters determination. Indeed, an examination of the specific provisions show that there
is no real conflict to reconcile. Rule 13.2 respects the logical order imposed by the SMA. The Rule does not
remove the essential requirement under Section 5 that a positive final determination be made by the Tariff
Commission before a definitive safeguard measure may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory
and points to the DTI Secretary as the authority who renders the final decision. [129] At the same time,
Philcemcor asserts that the Tariff Commissions functions are merely investigatory, and as such do not
include the power to decide or adjudicate. These contentions, viewed in the context of the fundamental
requisite set forth by Section 5, are untenable. They run counter to the statutory prescription that a positive
final determination made by the Tariff Commission should first be obtained before the definitive safeguard
measures may be laid down.
Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may
preclude the DTI, an office of higher rank, from imposing a safeguard measure? Of course, this Court does
not inquire into the wisdom of the legislature but only charts the boundaries of powers and functions set in its
enactments.But then, it is not difficult to see the internal logic of this statutory framework.
For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is
not its subordinate office.
Moreover, the mechanism established by Congress establishes a measure of check and balance involving
two different governmental agencies with disparate specializations. The matter of safeguard measures is of
such national importance that a decision either to impose or not to impose then could have ruinous effects on

companies doing business in the Philippines. Thus, it is ideal to put in place a system which affords all due
deliberation and calls to fore various governmental agencies exercising their particular specializations.
Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard
measure, it is because such safeguard measure is the exception, rather than the rule. The Philippines is
obliged to observe its obligations under the GATT, under whose framework trade liberalization, not
protectionism, is laid down. Verily, the GATT actually prescribes conditions before a member-country may
impose a safeguard measure. The pertinent portion of the GATT Agreement on Safeguards reads:
2. A Member may only apply a safeguard measure to a product only if that member has determined, pursuant
to the provisions set out below, that such product is being imported into its territory in such increased
quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to
cause serious injury to the domestic industry that produces like or directly competitive products.[130]
3. (a) A Member may apply a safeguard measure only following an investigation by the competent
authorities of that Member pursuant to procedures previously established and made public in consonance
with Article X of the GATT 1994. This investigation shall include reasonable public notice to all interested
parties and public hearings or other appropriate means in which importers, exporters and other interested
parties could present evidence and their views, including the opportunity to respond to the presentations of
other parties and to submit their views, inter alia, as to whether or not the application of a safeguard measure
would be in the public interest. The competent authorities shall publish a report setting forth their findings
and reasoned conclusions reached on all pertinent issues of fact and law.[131]
The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down
in Section 5 for a positive final determination are the same conditions provided under the GATT Agreement
on Safeguards for the application of safeguard measures by a member country. Moreover, the investigatory
procedure laid down by the SMA conforms to the procedure required by the GATT Agreement on
Safeguards. Congress has chosen the Tariff Commission as the competent authority to conduct such
investigation. Southern Cross stresses that applying the provision of the GATT Agreement on Safeguards, the
Tariff Commission is clearly empowered to arrive at binding conclusions. [132] We agree: binding on the DTI
Secretary is the Tariff Commissions determinations on whether a product is imported in increased quantities,
absolute or relative to domestic production and whether any such increase is a substantial cause of serious
injury or threat thereof to the domestic industry.[133]
Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the
flaws in the reasoning of the Court of Appeals and in the arguments of the respondents become apparent. To
better understand the dynamics of the procedure set up by the law leading to the imposition of definitive
safeguard measures, a brief step-by-step recount thereof is in order.
1. After the initiation of an action involving a general safeguard measure, [134] the DTI Secretary makes a
preliminary determination whether the increased imports of the product under consideration substantially
cause or threaten to substantially cause serious injury to the domestic industry,[135] and whether the imposition
of a provisional measure is warranted under Section 8 of the SMA. [136] If the preliminary determination is
negative, it is implied that no further action will be taken on the application.
2. When his preliminary determination is positive, the Secretary immediately transmits the records
covering the application to the Tariff Commission for immediate formal investigation.[137]
3. The Tariff Commission conducts its formal investigation, keyed towards making a final
determination. In the process, it holds public hearings, providing interested parties the opportunity to present
evidence or otherwise be heard.[138] To repeat, Section 5 enumerates what the Tariff Commission is tasked to
determine: (a) whether a product is being imported into the country in increased quantities, irrespective of
whether the product is absolute or relative to the domestic production; and (b) whether the importation in
increased quantities is such that it causes serious injury or threat to the domestic industry.[139] The findings of
the Tariff Commission as to these matters constitute the final determination, which may be either positive or
negative.
4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff
Commission recommends to the [DTI] Secretary an appropriate definitive measure. The Tariff Commission
may also recommend other actions, including the initiation of international negotiations to address the
underlying cause of the increase of imports of the products, to alleviate the injury or threat thereof to the
domestic industry, and to facilitate positive adjustment to import competition.[140]

5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide,
within fifteen (15) days from receipt of the report, as to what appropriate safeguard measures should he
impose.
6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot
impose any definitive safeguard measure. Under Section 13, he is instructed instead to return whatever cash
bond was paid by the applicant upon the initiation of the action for safeguard measure.
The Effect of the Courts Decision
The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that the
DTI Secretary may impose a general safeguard measure even if there is no positive final determination from
the Tariff Commission. More crucially, the Court of Appeals could not have acquired jurisdiction over
Philcemcors petition for certiorari in the first place, as Section 29 of the SMA properly vests jurisdiction on
the CTA. Consequently, the assailed Decision is an absolute nullity, and we declare it as such.
What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI
Secretary imposing the general safeguard measure? We have recognized that any initial judicial review of a
DTI ruling in connection with the imposition of a safeguard measure belongs to the CTA. At the same time,
the Court also recognizes the fundamental principle that a null and void judgment cannot produce any legal
effect. There is sufficient cause to establish that the 5 June 2003 Decision of the DTI Secretary resulted from
the assailed Court of Appeals Decision, even if the latter had not yet become final. Conversely, it can be
concluded that it was because of the putative imprimatur of the Court of Appeals Decision that the DTI
Secretary issued his ruling imposing the safeguard measure. Since the 5 June 2003 Decision derives its legal
effect from the void Decision of the Court of Appeals, this ruling of the DTI Secretary is consequently
void. The spring cannot rise higher than the source.
The DTI Secretary himself acknowledged that he drew stimulating force from the appellate
courts Decision for in his own 5 June 2003 Decision, he declared:
From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final decision.
Thus, there is no legal impediment for the Secretary to decide on the application.[141]
The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of
Appeals to justify his rendering a second Decision. He explicitly invoked the Court of Appeals Decision as
basis for rendering his 5 June 2003 ruling, and implicitly recognized that without such Decision he would not
have the authority to revoke his previous ruling and render a new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it
being an attempt to carry out such null judgment. There is therefore no choice but to declare it void as well,
lest we sanction the perverse existence of a fruit from a non-existent tree. It does not even matter what the
disposition of the 25 June 2003 Decision was, its nullity would be warranted even if the DTI Secretary chose
to uphold his earlier ruling denying the application for safeguard measures.
It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision
which is not yet final and actually pending review on appeal. Had it been a judge who attempted to enforce a
decision that is not yet final and executory, he or she would have readily been subjected to sanction by this
Court. The DTI Secretary may be beyond the ambit of administrative review by this Court, but we are
capacitated to allocate the boundaries set by the law of the land and to exact fealty to the legal order,
especially from the instrumentalities and officials of government.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is
also DECLARED NULL AND VOID and SET ASIDE. No Costs.
SO ORDERED.

Lutz v Araneta (1955)

Lutz v Araneta
GR No L-7859 December 22, 1955
FACTS:
Walter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, sought to recover
the sum of
P14,666.40 paid by the estate as taxes from the Commissioner under Section e of Commonwealth Act 567 or
the Sugar Adjustment Act, alleging that such tax is unconstitutional as it levied for the aid and support of the
sugar industry exclusively, which is in his opinion not a public purpose.
ISSUE:
Is the tax valid?
HELD:
Yes. The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and stabilization
of the threatened sugar industry. The act is primarily an exercise of police power and is not a pure exercise of
taxing power.
As sugar production is one of the great industries of the Philippines and its promotion, protection and
advancement redounds greatly to the general welfare, the legislature found that the general welfare
demanded that the industry should be stabilized, and provided that the distribution of benefits had to sustain.
Further, it cannot be said that the devotion of tax money to experimental stations to seek increase of
efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of living and
working conditions in sugar mills and plantations without any part of such money being channeled directly
to private persons, constitute expenditure of tax money for private purposes.
Hence, the tax is valid.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. Nos. L-19824, L-19825 and 19826

July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,


vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAYSILAY MILLING COMPANY, defendants-appellants.
Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for defendants-appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio Torres and Solicitor
Ceferino Padua, for plaintiff-appellee.
REGALA, J.:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co.,
Inc., and Talisay-Silay Milling Co., sister companies under one controlling ownership and management, from
a decision of the Court of First Instance of Manila finding them liable for special assessments under Section
15 of Republic Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public
corporation created for the following purposes and objectives:
(a) To conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the
purpose of introducing into the sugar industry such practices or processes that will reduce the cost of
production, increase and improve the industrialization of the by-products of sugar cane, and achieve greater
efficiency in the industry;

(b) To improve existing methods of raising sugar cane and of sugar manufacturing;
(c) To insure a permanent, sufficient and balanced production of sugar and its by-products for local
consumption and exportation;
(d) To establish and maintain such balanced relation between production and consumption of sugar and its
by-products, and such marketing conditions therefor, as well insure stabilized prices at a level sufficient to
cover the cost of production plus a reasonable profit;
(e) To promote the effective merchandising of sugar and its by-products in the domestic and foreign markets
so that those engaged in the sugar industry will be placed on a basis of economic security; and
(f) To improve the living and economic conditions of laborers engaged in the sugar industry by the gradual
and effective correction of the inequalities existing in the industry. (Section 2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide:
Sec. 15. Capitalization. To raise the necessary funds to carry out the provisions of this Act and the
purposes of the corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS
[P0.10] per picul of sugar to be collected for a period of five (5) years beginning the crop year 1951-1952.
The amount shall be borne by the sugar cane planters and the sugar centrals in the proportion of their
corresponding milling share, and said levy shall constitute a lien on their sugar quedans and/or warehouse
receipts.
Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside to constitute a special fund to
be known as the "Sugar Research and Stabilization Fund," which shall be available exclusively for the use of
the corporation. All the income and receipts derived from the special fund herein created shall accrue to, and
form part of the said fund to be available solely for the use of the corporation.
The specific and general powers of the Philsugin are set forth in Section 8 of the same law, to wit:
Sec. 3. Specific and General Powers. For carrying out the purposes mentioned in the preceding section,
the PHILSUGIN shall have the following powers:
(a) To establish, keep, maintain and operate, or help establish, keep, maintain, and operate one central
experiment station and such number of regional experiment stations in any part of the Philippines as may be
necessary to undertake extensive research in sugar cane culture and manufacture, including studies as to the
feasibility of merchandising sugar cane farms, the control and eradication of pests, the selected and
propagation of high-yielding varieties of sugar cane suited to Philippine climatic conditions, and such other
pertinent studies as will be useful in adjusting the sugar industry to a position independent of existing trade
preference in the American market;
(b) To purchase such machinery, materials, equipment and supplies as may be necessary to prosecute
successfully such researches and experimental work;
(c) To explore and expand the domestic and foreign markets for sugar and its by-products to assure mutual
benefits to consumers and producers, and to promote and maintain a sufficient general production of sugar
and its by-products by an efficient coordination of the component elements of the sugar industry of the
country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries, equipment,
materials, merchant vessels, rails, railroad lines, and any other means of transportation, warehouses,
buildings, and any other equipment and material to the production, manufacture, handling, transportation and
warehousing of sugar and its by-products;
(e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;
(f) To enter, make and execute contracts of any kind as may be necessary or incidental to the attainment of its
purposes with any person, firm, or public or private corporation, with the Government of the Philippines or

of the United States, or any state, territory, or persons therefor, or with any foreign government and, in
general, to do everything directly or indirectly necessary or incidental to, or in furtherance of, the purposes of
the corporation;
(g) To do all such other things, transact all such business and perform such functions directly or indirectly
necessary, incidental or conducive to the attainment of the purposes of the corporation; and
(h) Generally, to exercise all the powers of a Corporation under the Corporation Law insofar as they are not
inconsistent with the provisions of this Act.
The facts of this case bearing relevance to the issue under consideration, as recited by the lower court and
accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 1953-1954, 1954-1955
and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an unpaid
balance of P216,070.50; defendant Ma-ao Sugar Central Co., Inc., has paid P117,613.44 but left unpaid
balance of P235,800.20; defendant Talisay-Silay Milling Company has paid P251,812.43 but left unpaid
balance of P208,193.74; and defendant Central Azucarera del Danao made a payment of P49,897.78 but left
unpaid balance of P48,059.77. There is no question regarding the correctness of the amounts paid and the
amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951,
the Philippine Sugar Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a
total consideration of P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3 installments
from the process of the sugar tax to be collected, under Republic Act 632. The evidence further discloses that
the operation of the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was disastrous in the
sense that PHILSUGIN incurred tremendous losses as shown by an examination of the statements of income
and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former acting
general manager of PHILSUGIN and at present technical consultant of said entity, presented by the
defendants as witnesses, it has been shown that the operation of the Insular Sugar Refinery has consumed
70% of the thinking time and effort of the PHILSUGIN management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not
authorized by Republic Act 632 and that the continued operation of the said refinery was inimical to their
interests, the appellants refused to continue with their contributions to the said fund. They maintained that
their obligation to contribute or pay to the said Fund subsists only to the limit and extent that they are
benefited by such contributions since Republic Act 632 is not a revenue measure but an Act which
establishes a "Special assessments." Adverting to the finding of the lower court that proceeds of the said
Fund had been used or applied to absorb the "tremendous losses" incurred by Philsugin in its "disastrous
operation" of the said refinery, the appellants herein argue that they should not only be released from their
obligation to pay the said assessment but be refunded, besides, of all that they might have previously paid
thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be
collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be
devoted only to the specific purpose for which the assessment was authorized, a special assessment being a
levy upon property predicated on the doctrine that the property against which it is levied derives some
special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government.
Consequently, once it has been determined that no benefit accrues or inures to the property owners paying
the assessment, or that the proceeds from the said assessment are being misapplied to the prejudice of those
against whom it has been levied, then the authority to insist on the payment of the said assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under the aforementioned law,
Republic Act 632, upon the following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and operate machineries,
equipment, merchant vessels, etc., and any other equipment and material for the production, manufacture,
handling, transportation and warehousing of sugar and its by-products. It was, therefore, authorized to
purchase and operate a sugar refinery.

Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of directors composed
of 5 members, 3 of whom shall be appointed upon recommendation of the National Federation of Sugar
Cane Planters and 2 upon recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has
not been shown that this particular provision was not observed in this case. Therefore, the appellants herein
may not rightly claim that there had been a misapplication of the Philsugin funds when the same was used to
procure the Insular Sugar Refinery because the decision to purchase the said refinery was made by a board in
which the applicants were fully and duly represented, the appellants being members of the Philippine Sugar
Association.
Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office, which must be
presumed to have passed upon the legality and prudence of the disbursements of the Fund. Additionally,
other offices of the Government review such transactions as reflected in the annual report obliged of the
Philsugin to prepare. Among those offices are the Office of the President of the Philippines, the
Administrator of Economic Coordination and the Presiding Officers of the two chambers of Congress. With
all these safeguards against any imprudent or unauthorized expenditure of Philsugin Funds, the acquisition of
the Insular Sugar Refinery must be upheld in its legality and propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to continue with
their contribution to the Fund for that conduct is no different "from the case of an ordinary taxpayer who
refuses to pay his taxes on the ground that the money is being misappropriated by Government officials."
This is taking the law into their own hands.
Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate power could have been
committed by Philsugin solely because its charter incorporates so many devices or safeguards to preclude
such abuse. This reasoning of the lower court does not reconcile with that actually happened in this case.
Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not its powers when
it purchased the Insular Sugar Refinery. The issue, rather, is whether Philsugin had any power or authority at
all to acquire the said refinery. The appellants deny that Philsugin is possessed of any such authority because
what it is empowered to purchase is not a "sugar refinery but a central experiment station or perhaps at the
most a sugar central to be used for that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the appellants
cite the case of Collector vs. Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled that
We are of the opinion that a "sugar central," as that term is used in Section 189, applies to "a large mill that
makes sugar out of the cane brought from a wide surrounding territory," or a sugar mill which manufactures
sugar for a number of plantations. The term "sugar central" could not have been intended by Congress to
refer to all sugar mills or sugar factories as contended by respondent. If respondent's interpretation is to be
followed, even sugar mills run by animal power (trapiche) would be considered sugar central. We do not
think Congress ever intended to place owners of (trapiches) in the same category as operators of sugar
centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from Commonwealth Act No. 470
(Assessment Law). In prescribing the principle governing valuation and assessment of real property. Section
4 of said Act provides
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall be assessed."
This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or "sugar refineries."
Second. The appellants' refusal to continue paying the assessment under Republic Act 632 may not rightly be
equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction
between a "special assessment" and an ordinary tax. The purpose of the former is to finance the improvement
of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof who,
after all, pay the assessment. The purpose of an ordinary tax, on the other hand, is to provide the Government
with revenues needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary
taxes may not indeed be sanctioned because it would impair government functions, the same would not hold
true in the case of a refusal to comply with a special assessment.

Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection of a special
assessment upon property owners who receive no benefit from such assessment amounts to a denial of due
process. Thus, in the case of Norwood vs. Baer, 172 US 269, the ruling was laid down that
As already indicated, the principle underlying special assessments to meet the cost of public improvements is
that the property upon which they are imposed is peculiarly benefited, and therefore, the panels do not, in
fact, pay anything in excess of what they received by reason of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction of a special assessment would
be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably arbitrary or plain abuse" (Gast
Realty Investment Co. vs. Schneider Granite Co., 240 U.S. 57). In other words, the assessment is violative of
the due process guarantee of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at bar has already been discussed and explained by
this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567,
otherwise known as the Sugar Adjustment Act, levies on owners or persons in control of lands devoted to the
cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land. (Sec. 3).1wph1.t
Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a
special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and
shall be paid out only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law." It then proceeds to enumerate the said purposes, among which are
"to place the sugar industry in a position to maintain itself; ... to readjust the benefits derived from the sugar
industry ... so that all might continue profitably to engage therein; to limit the production of sugar to areas
more economically suited to the production thereof; and to afford laborers employed in the industry a living
wage and to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was
unconstitutional because it was being "levied for the aid and support of the sugar industry exclusively," and
therefore, not for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for in Commonwealth Act
No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that
the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our
nation, sugar occupying a leading position among its export products; that it gives employment to thousands
of laborers in fields and factories; that it is a great source of the state's wealth, is one, of the important
sources to foreign exchange needed by our government, and is thus pivotal in the plans of a regime
committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence, it was competent for the Legislature to find that the general welfare
demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the
law-making body could provide that the distribution of benefits therefrom be readjusted among its
components, to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs.
Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy
Inc. vs. Mayo, 103 Fla. 552, 139 So. 121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in Florida
"The protection of a large industry constituting one of the great source of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to
such an extent by public interests as to be within the police power of the sovereign." (128 So. 857).

Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject
only to the test of reasonableness; and it is not contended that the means provided in Section 6 of the law
(above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation may be made the implement of the state's police power. (Great
Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477;
M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
On the authority of the above case, then, We hold that the special assessment at bar may be considered as
similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of
taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general
welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may
lawfully resist.
Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work for the sugar
industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar
industry such practices or processes that will reduce the cost of production, ..., and achieve greater efficiency
in the industry." This provision, first of all, more than justifies the acquisition of the refinery in question. The
case dispute that the operation of a sugar refinery is a phase of sugar production and that from such operation
may be learned methods of reducing the cost of sugar manufactured no less than it may afford the
opportunity to discover the more effective means of achieving progress in the industry. Philsugin's
experience alone of running a refinery is a gain to the entire industry. That the operation resulted in a
financial loss is by no means an index that the industry did not profit therefrom, as other farms of a different
nature may have been realized. Thus, from its financially unsuccessful venture, the Philsugin could very well
have advanced in its appreciation of the problems of management faced by sugar centrals. It could have
understood more clearly the difficulties of marketing sugar products. It could have known with better
intimacy the precise area of the industry in need of the more help from the government. The view of the
appellants herein, therefore, that they were not benefited by the unsuccessful operation of the refinery in
question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry out save
through the actual operation of a refinery. Quite obviously, the most practical or realistic approach to the
problem of what "practices or processes" might most effectively cut the cost of production is to experiment
on production itself. And yet, how can such an experiment be carried out without the tools, which is all that a
refinery is?
In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.

Republic of the Philippines


Supreme Court
Manila
SECOND DIVISION

REPUBLIC OF THE PHILIPPINES, represented


by NATIONAL TELECOMMUNICATIONS
COMMISSION (NTC),
Petitioner,
- versus -

INTERNATIONAL COMMUNICATIONS
CORPORATION (ICC),
Respondent.

G.R. No. 141667


Present:
PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
Promulgated:
July 17, 2006

x - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Republic, through the National
Telecommunications Commission (NTC), seeks the annulment and setting aside of the Amended
Decision[1] dated September 30, 1999 of the Court of Appeals (CA), setting aside the orders dated June 4,
1996 and June 25, 1997 of the NTC insofar as said orders required respondent International Communications
Corporation (ICC) to pay the amount of P1,190,750.50 by way of permit fee as a condition for the grant of a
provisional authority to operate an international telecommunications leased circuit service, and
the Resolution[2] dated January 24, 2000, denying NTC's motion for reconsideration.
There is no dispute as to the facts:
On April 4, 1995, respondent ICC, holder of a legislative franchise under Republic Act (RA) No. 7633 to
operate domestic telecommunications, filed with the NTC an application for a Certificate of Public
Convenience and Necessity to install, operate, and maintain an internationaltelecommunications leased
circuit service between the Philippines and other countries, and to charge rates therefor, with provisional
authority for the purpose.
In an Order[3] dated June 4, 1996, the NTC approved the application for a provisional authority subject,
among others, to the condition:
2. That applicant [ICC] shall pay a permit fee in the amount of P1,190,750.00, in accordance
with section 40(g) of the Public Service Act,[4] as amended;
Respondent ICC filed a motion for partial reconsideration of the Order insofar as the same required the
payment of a permit fee. In a subsequent Order dated June 25, 1997, the NTC denied the motion.
Therefrom, ICC went to the CA on a petition for certiorari with prayer for a temporary restraining order
and/or writ of preliminary injunction,questioning the NTC's imposition against it of a permit fee
of P1,190,750.50 as a condition for the grant of the provisional authority applied for.

In its original decision[5] dated January 29, 1999, the CA ruled in favor of the NTC whose challenged orders
were sustained, and accordingly denied ICC's certiorari petition, thus:
WHEREFORE, the instant petition is hereby DENIED. In view thereof, the assailed orders
dated 4 June 1996 and 25 June 1997, requiring the payment of permit fees in the amount of
One Million One Hundred Ninety Thousand Seven Hundred Fifty and 50/100 Pesos
(P1,190,750.50) as a condition for the grant of a Provisional Authority to operate an
International Circuit service, are hereby AFFIRMED. ACCORDINGLY, the International
Communications Corporation is hereby ordered to pay the amount of One Million One
Hundred Ninety Thousand Seven Hundred Fifty and 50/100 Pesos (P1,190,750.50) to the
National Telecommunications Commission.
SO ORDERED.
In time, ICC moved for a reconsideration. This time, the CA, in its Amended Decision dated September 30,
1999, reversed itself, to wit:
WHEREFORE, the instant Motion for Reconsideration is hereby GRANTED. Accordingly,
the Decision dated 29 January 1999 including the imposition by the public respondent of
permit fees with respect to [ICCs] international leased circuit service is hereby REVERSED.
Judgment is hereby rendered, setting aside the questioned orders dated 04 June 1996 and 25
June 1997, insofar as they impose upon petitioner ICC the payment of the amount of One
Million One Hundred Ninety Thousand Seven Hundred Fifty and Fifty Centavos
(P1,190,750.50) by way of permit fees as a condition for the grant of a provisional authority
to operate an International Leased Circuit Service. No costs.
SO ORDERED. (Word in bracket added).

Petitioner NTC filed a motion for reconsideration, but its motion was denied by the CA in its equally
challenged Resolution dated January 24, 2000. Hence, NTC's present recourse claiming that the CA erred in
ruling that:
1.
2.
3.
4.

NTC has arrogated upon itself the power to tax an entity;


Section 40(g) of the Public Service Act has been amended by Section 5(g) of
R.A. 7925;[6]
The imposition of permit fees is no longer authorized by R.A. 7925; and
The imposed permit fee in the amount of P1,190,750.50 for respondent's
provisional authority is exorbitant.

Before addressing the issues raised, we shall first dwell on the procedural matter raised by respondent ICC,
namely, that the present petition should be dismissed outright for having been filed out of time. It is
respondent's posture that petitioner's motion for reconsideration filed with the CA vis-a-vis the latter's
Amended Decision is a pro forma motion and, therefore, did not toll the running of the reglementary period
to come to this Court via this petition for review.
Under Section 2 of Rule 45 of the Rules of Court, a recourse to this Court by way of a petition for review
must be filed within fifteen (15) days from notice of the judgment or final order or resolution appealed
from, or of the denial of the petitioner's motion for new trial or reconsiderationfiled in due time after notice
of the judgment. While a motion for reconsideration ordinarily tolls the period for appeal, one that fails to
point out the findings or conclusions which were supposedly contrary to law or the evidence does not have
such
an effect on the reglementary period as it is merely a pro forma motion.[7]

In arguing for the outright dismissal of this petition, respondent ICC claims that the motion for
reconsideration filed by petitioner NTC in connection with the CAs Amended Decision failed to point out
specifically the findings or conclusions of the CA which were supposedly contrary to
law. Respondent contends that the issues raised by the petitioner in its motion for reconsideration were mere
reiterations of the same issues which had already been considered and passed upon by the CA when it
promulgated its Amended Decision. On this premise, respondent maintains that petitioners aforementioned
motion for reconsideration is a mere pro forma motion that did not toll the period for filing the present
petition.
Under established jurisprudence, the mere fact that a motion for reconsideration reiterates issues already
passed upon by the court does not, by itself, make it a pro forma motion.[8] Among
the ends to which a motion for reconsideration is addressed is precisely to convince the court that its ruling is
erroneous and improper, contrary to the law or evidence; and in so doing, the movant has to dwell of
necessity on issues already passed upon. If a motion for reconsideration may not discuss those issues, the
consequence would be that after a decision is rendered, the losing party would be confined to filing only
motions for reopening and new trial.[9]
Where there is no apparent intent to employ dilatory tactics, courts should be slow in declaring outright a
motion for reconsideration as pro forma. The doctrine relating to pro forma motions has a direct bearing
upon the movant's valuable right to appeal. Hence, if petitioner's motion for reconsideration was indeed pro
forma, it would still be in the interest of justice to review the Amended Decision a quo on the merits, rather
than to abort the appeal due to a technicality, especially where, as here, the industry involved
(telecommunications) is vested with public interest. All the more so given that the instant petition raises
some arguments that are well-worth resolving for future reference.
This brings us to the substantive merits of the petition.
In its Amended Decision, the CA ruled that petitioner NTC had arrogated upon itself the power to tax an
entity, which it is not authorized to do.Petitioner disagreed, contending the fee in question is not in the nature
of a tax, but is merely a regulatory measure.
Section 40(g) of the Public Service Act provides:
Sec. 40. The Commission is authorized and ordered to charge and collect from any public
service or applicant, as the case may be, the following fees as reimbursement of its expenses
in the authorization, supervision and/or regulation of the public services:
xxx xxx xxx
g) For each permit, authorizing the increase in equipment, the installation of new units or
authorizing the increase of capacity, or the extension of means or general extensions in the
services, twenty centavos for each one hundred pesos or fraction of the additional capital
necessary to carry out the permit. (Emphasis supplied)

Clearly, Section 40(g) of the Public Service Act is not a tax measure but a simple regulatory provision for the
collection of fees imposed pursuant to the exercise of the States police power. A tax is imposed under the
taxing power of government principally for the purpose of raising revenues. The law in question, however,
merely authorizes and requires the collection of fees for the reimbursement of the Commission's expenses in
the authorization, supervision and/or regulation of public services. There can be no doubt then that petitioner
NTC is authorized to collect such fees. However, the amount thereof must be reasonably related to the cost
of such supervision and/or regulation.[10]
Petitioner NTC also assails the CA's ruling that Section 40(g) of the Public Service Act had been amended by
Section 5(g) of R.A. No. 7925, whichreads:
Sec. 5. Responsibilities of the National Telecommunications Commission. - The National
Telecommunications Commission (Commission) shall be the principal administrator of this
Act and as such shall take the necessary measures to implement the policies and objectives set

forth in this Act. Accordingly, in addition to its existing functions, the Commission shall be
responsible for the following:
xxx xxx xxx
g) In the exercise of its regulatory powers, continue to impose such fees and charges as may
be necessary to cover reasonable costs and expenses for the regulation and supervision of
the operations of telecommunications entities. (Emphasis supplied)
The CA ratiocinated that while Section 40(g) of the Public Service Act (CA 146, as
amended), supra, allowed NTC to impose fees asreimbursement of its expenses related to, among
other things, the authorization of public services, Section 5(g), above, of R.A. No. 7921 no longer speaks of
authorization but only of regulation and supervision. To the CA, the omission by Section 5(g) of R.A. No.
7921 of the word authorization found in Section 40(g) of the Public Service Act, as amended, meant
that the fees which NTC may impose are only for reimbursement of its expenses for regulation and
supervision but no longer for authorization purposes.
We find, however, that NTC is correct in saying that there is no showing of legislative intent to repeal, even
impliedly, Section 40(g), supra, of the Public Service Act, as amended. An implied repeal is predicated on a
substantial conflict between the new and prior laws. In the absence of an express repeal, a subsequent law
cannot be construed as repealing a prior one unless an irreconcilable inconsistency and repugnancy exist in
the terms of the new and old laws.[11] The two laws must be absolutely incompatible such that they cannot be
made to stand together.[12]
Courts of justice, when confronted with apparently conflicting statutes or provisions, should endeavor to
reconcile the same instead of declaring outright the validity of one as against the other. Such alacrity should
be avoided. The wise policy is for the judge to harmonize such statutes or provisions if this is possible,
bearing in mind that they are equally the handiwork of the same legislature, and so give effect to both while
at the same time also according due respect to a coordinate department of the government. It is this
policy the Court will apply in arriving at the interpretation of the laws and the conclusions that should follow
therefrom.[13]
It is a rule of statutory construction that repeals by implication are not favored. An implied repeal will not be
allowed unless it is convincingly andunambiguously demonstrated that the two laws
are so clearly repugnant and patently inconsistent with each other that they cannot co-exist. This is based on
the rationale that the will of the legislature cannot be overturned by the judicial function of construction and
interpretation.
Courts
cannot
take the place of Congress in repealing statutes.
Their
function
is to try to harmonize, as much as possible, seeming conflicts in the laws and resolve doubts in favor of their
validity and co-existence.[14]
Here, there does not even appear to be a conflict between Section 40(g) of the Public Service Act, as
amended, and Section 5(g) of R.A. 7925. In fact, the latter provision directs petitioner NTC to continue to
impose such fees and charges as may be necessary to cover reasonable costs and expenses for the regulation
and supervision of telecommunications entities. The absence alone of the word authorization in Section 5(g)
of R.A.No. 7921 cannot be construed to mean that petitioner NTC had thus been deprived of the power to
collect such fees. As pointed out by thepetitioner, the words authorization, supervision and/or regulation used
in Section 40(g) of the Public Service Act are not distinct and completely separable concepts which may be
taken singly or piecemeal. Taken in their entirety, they are the quintessence of the Commission's regulatory
functions, and must go hand-in-hand with one another. In petitioner's own words, [t]he Commission
authorizes, supervises and regulates telecommunications entities and these functions... cannot be considered
singly without destroying the whole concept of the Commission's regulatory functions. [15] Hence, petitioner
NTC is correct in asserting that the passage of R.A. 7925 did not bring with it the abolition of permit fees.
However, while petitioner had made some valid points of argument, its position must, of necessity, crumble
on the fourth issue raised in its petition. Petitioner itself admits that the fees imposed are precisely regulatory
and supervision fees, and not taxes. This necessarily implies, however, that such fees must
be commensurate to the costs and expenses involved in discharging its supervisory and regulatory functions.
In the words of Section 40(g) of the Public Service Act itself, the fees and charges which petitioner NTC is
authorized to collect from any public service or applicant are limited to the reimbursement of its expenses in

the
authorization,
supervision
and/or
regulation
of
public
services.
It
is difficult tocomprehend how the cost of licensing, regulating, and surveillance could amount
to P1,190,750.50. The CA was correct in finding the amount imposed as permit fee exorbitant and in
complete disregard of the basic limitation that the fee should be at least approximately commensurate to the
expense. Petitioner itself admits that it had imposed the maximum amount possible under the Public Service
Act, as amended. That is hardly taking into consideration the actual costs of fulfilling its regulatory and
supervisory functions.
Independent of the above, there is one basic
consideration
for the dismissal of this petition, about which petitioner NTC did not bother to comment at all. We refer to
the fact that, as respondent ICC aptly observed, the principal ground given by the CA in striking
down the imposition of the P1,190,750.50 fee is that respondent ICC is entitled to the benefits of the socalled parity clause embodied in Section 23 of R.A. No. 7925, to wit:
Section 23. Equality of Treatment in the Telecommunications Industry. - Any advantage,
favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter
be granted, shall ipso facto become part of previously granted telecommunications franchises
and shall be accorded immediately and unconditionally to the grantees of such franchises x x
x.
In this connection, it is significant to note that the subsequent congressional franchise granted to the
Domestic Satellite Corporation under Presidential Decree No. 947, states:
Section 6. In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Republic of the Philippines during the life of this franchise a tax of one-half percent of
gross earnings derived by the grantee from its operation under this franchise and which
originate from the Philippines. Such tax shall be due and payable annually within ten days
after the audit and approval of the accounts by the Commission on Audit as prescribed in
Section 11 hereof and shall be in lieu of all taxes, assessments, charges, fees, or levies of
any kind, nature, or description levied, established or collected by any municipal,
provincial, or national authority x x x (Emphasis supplied)
The CA was correct in ruling that the above-quoted provision is, by law, considered as ipso facto part
of ICC's franchise due to the parity clauseembodied in Section 23 of R.A. No. 7925. Accordingly, respondent
ICC cannot be made subject to the payment of the subject fees because itspayment of the franchise tax is in
lieu of all other taxes and fees.
WHEREFORE, the petition is hereby DENIED and the assailed Amended Decision and Resolution of the
CA are AFFIRMED.
SO ORDERED.

THIRD DIVISION
COMMISSIONER OF INTERNAL G.R. No. 159647
REVENUE,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
CENTRAL LUZON DRUG Promulgated:
CORPORATION,
Respondent. April 15, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:
T he 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax
deduction from the gross income or gross sale of the establishment concerned. A tax credit is used by a
private establishment only after the tax has been computed; a tax deduction, before the tax is computed. RA
7432 unconditionally grants a tax credit to all covered entities. Thus, the provisions of the revenue regulation
that withdraw or modify such grant are void. Basic is the rule that administrative regulations cannot amend
or revoke the law.

The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the
August 29, 2002 Decision[2] and the August 11, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR
SP No. 67439. The assailed Decision reads as follows:
WHEREFORE, premises
is AFFIRMED in toto. No costs.[4]

considered,

the

Resolution

appealed

from

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts
The CA narrated the antecedent facts as follows:
Respondent is a domestic corporation primarily engaged in retailing of medicines and other
pharmaceutical products. In 1996, it operated six (6) drugstores under the business name and
style Mercury Drug.
From January to December 1996, respondent granted twenty (20%) percent sales discount to
qualified senior citizens on their purchases of medicines pursuant to Republic Act No. [R.A.]
7432 and its Implementing Rules and Regulations. For the said period, the amount allegedly
representing the 20% sales discount granted by respondent to qualified senior citizens
totaled P904,769.00.
On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996
declaring therein that it incurred net losses from its operations.
On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the
amount of P904,769.00 allegedly arising from the 20% sales discount granted by respondent
to qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain affirmative
response from petitioner, respondent elevated its claim to the Court of Tax Appeals [(CTA or
Tax Court)] via a Petition for Review.
On February 12, 2001, the Tax Court rendered a Decision[5] dismissing respondents Petition
for lack of merit. In said decision, the [CTA] justified its ruling with the following
ratiocination:

x x x, if no tax has been paid to the government, erroneously or illegally, or if


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

Ruling of the Court of Appeals


The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue a tax
credit certificate in favor of respondent in the reduced amount of P903,038.39. It reasoned that Republic Act
No. (RA) 7432 required neither a tax liability nor a payment of taxes by private establishments prior to the
availment of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but
rather a just compensation for the taking of private property for public use.
Hence this Petition.[8]
The Issues

Petitioner raises the following issues for our consideration:


Whether the Court of Appeals erred in holding that respondent may claim the 20% sales
discount as a tax credit instead of as a deduction from gross income or gross sales.
Whether the Court of Appeals erred in holding that respondent is entitled to a refund.[9]

These two issues may be summed up in only one: whether respondent, despite incurring a net loss, may still
claim the 20 percent sales discount as a tax credit.
The Courts Ruling

The Petition is not meritorious.


Sole Issue:

Claim of 20 Percent Sales Discount


as Tax Credit Despite Net Loss
Section 4a) of RA 7432[10] grants to senior citizens the privilege of obtaining a 20 percent discount on their
purchase of medicine from any private establishment in the country.[11] The latter may then claim the cost of
the discount as a tax credit.[12] But can such credit be claimed, even though an establishment operates at a
loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in our Tax Code, [13] tax credit generally refers to an amount that
is subtracted directly from ones total tax liability.[14] It is an allowance against the tax itself [15] or a deduction
from what is owed[16] by a taxpayer to the government. Examples of tax credits are withheld taxes, payments
of estimated tax, and investment tax credits.[17]
Tax credit should be understood in relation to other tax concepts. One of these is tax deduction -- defined as a
subtraction from income for tax purposes,[18] or an amount that is allowed by law to reduce income prior to
[the] application of the tax rate to compute the amount of tax which is due. [19] An example of a tax
deduction is any of the allowable deductions enumerated in Section 34[20] of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due, including -whenever applicable -- the income tax that is determined after applying the corresponding tax rates
to taxable income.[21] A tax deduction, on the other, reduces the income that is subject to tax [22] in order to
arrive at taxable income.[23] To think of the former as the latter is to avoid, if not entirely confuse, the issue.
A tax credit is used only after the tax has been computed; a tax deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax
credit can be applied. Without that liability, any tax credit application will be useless. There will be no reason
for deducting the latter when there is, to begin with, no existing obligation to the government. However, as
will be presented shortly, the existence of a tax credit or its grant by law is not the same as
the availment or use of such credit. While the grant is mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will
obviously be no tax liability against which any tax credit can be applied.[24] For the establishment to choose
the immediate availment of a tax credit will be premature and impracticable. Nevertheless, the irrefutable
fact remains that, under RA 7432, Congress has granted without conditions a tax credit benefit to all covered
establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax
liability that calls for its application. Neither can it be reduced to nil by the quick yet callow stroke of an
administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax
credit may still be deducted from a future, not a present, tax liability, without which it does not have any use.
In the meantime, it need not move. But it breathes.

Prior Tax Payments Not


Required for Tax Credit
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the
contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is
needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no
taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain
limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar provision
for donors taxes -- again when paid to a foreign country -- in computing for the donors tax due. The tax
credits in both instances allude to the prior payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether or not
subject to the VAT -- is also allowed a tax credit that includes a ratable portion of any input tax not directly
attributable to either activity. This input tax may either be the VAT on the purchase or importation of goods
or services that is merely due from -- not necessarily paid by -- such VAT-registered person in the course of
trade or business; or the transitional input tax determined in accordance with Section 111(A). The latter type
may in fact be an amount equivalent to only eight percent of the value of a VAT-registered persons beginning
inventory of goods, materials and supplies, when such amount -- as computed -- is higher than the actual
VAT paid on the said items. [25] Clearly from this provision, the tax credit refers to an input tax that is either
due only or given a value by mere comparison with the VAT actually paid -- then later prorated. No tax is
actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the
purchase of primary agricultural products used as inputs -- either in the processing of sardines, mackerel and
milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price of public work
contracts entered into with the government, again, no prior tax payments are needed for the use of the tax
credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under
Section 112(A), apply for the issuance of a tax credit certificate for the amount of creditable input taxes
merely due -- again not necessarily paid to -- the government and attributable to such sales, to the extent that
the input taxes have not been applied against output taxes.[26] Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the amount of
creditable input taxes due that are not directly and entirely attributable to any one of these transactions shall
be proportionately allocated on the basis of the volume of sales. Indeed, in availing of such tax credit for
VAT purposes, this provision -- as well as the one earlier mentioned -- shows that the prior payment of taxes
is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed, even
though no prior tax payments are not required. Specifically, in this provision, the imposition of a final
withholding tax rate on cash and/or property dividends received by a nonresident foreign corporation from a
domestic corporation is subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid. [27] Although true, this provision
actually refers to the tax credit as a condition only for the imposition of a lower tax rate, not as
a deduction from the corresponding tax liability. Besides, it is not our government but the domiciliary
country that credits against the income tax payable to the latter by the foreign corporation, the tax to be
foregone or spared.[28]
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the
income tax imposable under Title II, the amount of income taxes merely incurred -- not necessarily paid -- by
a domestic corporation during a taxable year in any foreign country. Moreover, Section 34(C)(5) provides
that for such taxes incurred but not paid, a tax credit may be allowed, subject to the condition precedent that
the taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as
may be required; and further conditioned upon payment by the taxpayer of any tax found due, upon
petitioners redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that
grant or allow tax credits, even though no prior tax payments have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is
taxed in the state of source is also taxable in the state of residence, but the tax paid in the former is merely
allowed as a credit against the tax levied in the latter.[29] Apparently, payment is made to the state of source,
not the state of residence. No tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the
incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas Pambansa
Blg. (BP) 391, include tax credits equivalent to either five percent of the net value earned, or five or ten
percent of the net local content of exports.[30] In order to avail of such credits under the said law and still
achieve its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment
of a tax credit. Thus, the CA correctly held that the availment under RA 7432 did not require prior tax
payments by private establishments concerned.[31] However, we do not agree with its finding[32] that the carryover of tax credits under the said special law to succeeding taxable periods, and even their application
against internal revenue taxes, did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not the existence
or grant, of a tax credit. Regarding this matter, a private establishment reporting a net loss in its financial
statements is no different from another that presents a net income. Both are entitled to the tax credit provided
for under RA 7432, since the law itself accords that unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no tax is due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they grant.
[33]
In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the procedures for its
availment.[34] To deny such credit, despite the plain mandate of the law and the regulations carrying out that
mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers to tax credit as the amount representing the 20
percent discount that shall be deducted by the said establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or other percentage tax purposes. [35] In ordinary
business language, the tax credit represents the amount of such discount. However, the manner by which the
discount shall be credited against taxes has not been clarified by the revenue regulations.
By ordinary acceptation, a discount is an abatement or reduction made from the gross amount or value of
anything.[36] To be more precise, it is in business parlance a deduction or lowering of an amount of money;
[37]
or a reduction from the full amount or value of something, especially a price. [38] In business there are
many kinds of discount, the most common of which is that affecting the income statement[39] or financial
report upon which the income tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business establishments to credit customers for their prompt
payment.[40] It is a reduction in price offered to the purchaser if payment is made within a shorter period of
time than the maximum time specified.[41] Also referred to as a sales discount on the part of the seller and
a purchase discount on the part of the buyer, it may be expressed in such
terms as 5/10, n/30.[42]
A quantity discount, however, is a reduction in price allowed for purchases made in large quantities, justified
by savings in packaging, shipping, and handling.[43] It is also called a volume or bulk discount.[44]
A percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by wholesalers
to retailers[45] is known as a trade discount. No entry for it need be made in the manual or
computerized books of accounts, since the purchase or sale is already valued at the net price actually charged
the buyer.[46] The purpose for the discount is to encourage trading or increase sales, and the prices at which

the purchased goods may be resold are also suggested. [47] Even a chain discount -- a series of discounts from
one list price -- is recorded at net.[48]
Finally, akin to a trade discount is a functional discount. It is a suppliers price discount given to a purchaser
based on the [latters] role in the [formers] distribution system. [49] This role usually involves warehousing or
advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying generally accepted
accounting principles (GAAP) in the country, this type of discount is reflected in the income statement[50] as a
line item deducted -- along with returns, allowances, rebates and other similar expenses -- from gross sales to
arrive at net sales.[51] This type of presentation is resorted to, because the accounts
receivable and sales figures that arise from sales discounts, -- as well as from quantity, volume or bulk
discounts -- are recorded in the manual and computerized books of accounts and reflected in the financial
statements at the gross amounts of the invoices.[52] This manner of recording credit sales -- known as
the gross method -- is most widely used, because it is simple, more convenient to apply than the net method,
and produces no material errors over time.[53]
However, under the net method used in recording trade, chain or functional discounts, only the net amounts
of the invoices -- after the discounts have been deducted -- are recorded in the books of accounts[54] and
reflected in the financial statements. A separate line item cannot be shown, [55] because the transactions
themselves involving both accounts receivable and sales have already been entered into, net of the said
discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to amounts
whose sum -- along with sales returns, allowances and cost of goods sold[56] -- is deducted from gross
sales to come up with the gross income, profit or margin[57] derived from business.[58] In another provision
therein, sales discounts that are granted and indicated in the invoices at the time of sale -- and that do not
depend upon the happening of any future event -- may be excluded from the gross sales within the same
quarter they were given.[59]While determinative only of the VAT, the latter provision also appears as a suitable
reference point for income tax purposes already embraced in the former. After all, these two provisions
affirm that sales discounts are amounts that are always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA 7432 is the private establishments outright
deduction of the discount from the invoice price of the medicine sold to the senior citizen. [60] It is, therefore,
expected that for each retail sale made under this law, the discount period lasts no more than a day, because
such discount is given -- and the net amount thereof collected -- immediately upon perfection of the sale.
[61]
Although prompt payment is made for an arms-length transaction by the senior citizen, the real and
compelling reason for the private establishment giving the discount is that the law itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount privilege, not a sales discount or any of the above
discounts in particular. Prompt payment is not the reason for (although a necessary consequence of) such
grant. To be sure, the privilege enjoyed by the senior citizen must be equivalent to the tax credit benefit
enjoyed by the private establishment granting the discount. Yet, under the revenue regulations promulgated
by our tax authorities, this benefit has been erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from a sales
discount. However, to a private establishment, the effect is different from a simple reduction in price that
results from such discount. In other words, the tax credit benefit is not the same as a sales discount. To repeat
from our earlier discourse, this benefit cannot and should not be treated as a tax deduction.
To stress, the effect of a sales discount on the income statement and income tax return of an establishment
covered by RA 7432 is different from that resulting from the availment or use of its tax credit benefit. While
the former is a deduction before, the latter is a deduction after, the income tax is computed. As mentioned
earlier, a discount is not necessarily a sales discount, and a tax credit for a simple discount privilege should
not be automatically treated like a sales discount. Ubi lex non distinguit, nec nos distinguere debemus. Where
the law does not distinguish, we ought not to distinguish.

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount
deductible from gross income for income tax purposes, or from gross sales for VAT or other percentage tax
purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived
definition is improper, considering that the latter has to be deducted from gross sales in order to compute
the gross income in the income statement and cannot be deducted again, even for purposes of computing
the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount -when claimed -- shall be treated as a reduction from any tax liability, plain and simple. The option to avail of
the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to a sales
discount -- which is not even identical to the discount privilege that is granted by law -- does not define it at
all and serves no useful purpose. The definition must, therefore, be stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that operates to create a rule
out
of
harmony
with
the statute is a mere nullity;[62] it cannot prevail.
It is a cardinal rule that courts will and should respect the contemporaneous construction placed upon a
statute by the executive officers whose duty it is to enforce it x x x. [63] In the scheme of judicial tax
administration, the need for certainty and predictability in the implementation of tax laws is crucial. [64] Our
tax authorities fill in the details that Congress may not have the opportunity or competence to provide. [65] The
regulations these authorities issue are relied upon by taxpayers, who are certain that these will be followed
by the courts.[66] Courts, however, will not uphold these authorities interpretations when clearly absurd,
erroneous or improper.
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a
meaning utterly in contrast to what RA 7432 provides. Their interpretation has muddled up the intent of
Congress in granting a mere discount privilege, not a sales discount. The administrative agency issuing these
regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft
additional requirements not contemplated by the legislature.[67]
In case of conflict, the law must prevail.[68] A regulation adopted pursuant to law is law.[69] Conversely, a
regulation or any portion thereof not adopted pursuant to law is no law and has neither the force nor the
effect of law.[70]
Availment of Tax
Credit Voluntary
Third,
the
word may in
the
text
of
the
statute[71] implies
that
the
availability of the tax credit benefit is neither unrestricted nor mandatory.[72] There is no absolute right
conferred upon respondent, or any similar taxpayer, to avail itself of the tax credit remedy whenever it
chooses; neither does it impose a duty on the part of the government to sit back and allow an important facet
of tax collection to be at the sole control and discretion of the taxpayer.[73] For the tax authorities to compel
respondent to deduct the 20 percent discount from either its gross income or its gross sales[74] is, therefore,
not only to make an imposition without basis in law, but also to blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not imperative.
Respondent is given two options -- either to claim or not to claim the cost of the discounts as a tax credit. In
fact, it may even ignore the credit and simply consider the gesture as an act of beneficence, an expression of
its social conscience.
Granting that there is a tax liability and respondent claims such cost as a tax credit, then the tax credit can
easily be applied. If there is none, the credit cannot be used and will just have to be carried over and
revalidated[75] accordingly. If, however, the business continues to operate at a loss and no other taxes are due,
thus compelling it to close shop, the credit can never be applied and will be lost altogether.

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

Furthermore, Congress has allowed all private establishments a simple tax credit, not a deduction. In fact, no
cash outlay is required from the government for the availment or use of such credit. The deliberations on
February 5, 1992 of the Bicameral Conference Committee Meeting on Social Justice, which finalized RA
7432, disclose the true intent of our legislators to treat the sales discounts as a tax credit, rather than as a
deduction from gross income. We quote from those deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from taxable
income. I think we incorporated there a provision na - on the
responsibility of the private hospitals and drugstores, hindi ba?
SEN. ANGARA. Oo.
THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about the
deductions from taxable income of that private hospitals, di ba ganon
'yan?
MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and
public institutions, so, puwede na po nating hindi isama yung mga less
deductions ng taxable income.
THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung isiningit
natin?
MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the microphone).
SEN. ANGARA. Hindi pa, hindi pa.
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?
SEN. ANGARA. Oo. You want to insert that?
THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided
that, the private hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible)
income.
SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?
REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na
covered.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered?
SEN. ANGARA. Restaurant lodging houses, recreation centers.
REP. AQUINO. All establishments covered siguro?
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can we
go back to Section 4 ha?
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from
all establishments et cetera, et cetera, provided that said establishments

- provided that private establishments may claim the cost as a tax


credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".[89]
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law. x x x [T]he
rule is that on a specific matter the special law shall prevail over the general law, which shall
be resorted to only to supply deficiencies in the former.[90] In addition, [w]here there are two statutes, the
earlier special and the later general -- the terms of the general broad enough to include the matter provided
for in the special -- the fact that one is special and the other is general creates a presumption that the special
is to be considered as remaining an exception to the general, [91] one as a general law of the land, the other as
the law of a particular case. [92] It is a canon of statutory construction that a later statute, general in its
terms and not expressly repealing a prior special statute, will ordinarily not affect the special provisions of
such earlier statute.[93]
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax Code -- a
later law. When the former states that a tax credit may be claimed, then the requirement of prior tax
payments under certain provisions of the latter, as discussed above, cannot be made to apply. Neither can the
instances of or references to a tax deduction under the Tax Code[94] be made to restrict RA 7432. No
provision of any revenue regulation can supplant or modify the acts of Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
M.E. HOLDING CORPORATION,
Petitioner,

G.R. No. 160193


Present:

- versus -

THE HON. COURT OF APPEALS,


COURT OF TAX APPEALS, and THE

QUISUMBING, J.,*
CARPIO, Acting Chairperson,
CARPIO MORALES,
AZCUNA,**
TINGA, and
VELASCO, JR., JJ.

COMMISSIONER OF INTERNAL
REVENUE,
Respondents.

Promulgated:

March 3, 2008
x-----------------------------------------------------------------------------------------x

D E C I S I O N
VELASCO, JR., J.:
This case involves Republic Act No. (RA) 7432, otherwise known as An Act to Maximize
the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for Other
Purposes, passed on April 23, 1992. It granted, among others, a 20% sales discount on purchases of
medicines by qualified senior citizens.
On April 15, 1996, petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual
Income Tax Return, claiming the 20% sales discount it granted to qualified senior citizens. M.E. treated the
discount as deductions from its gross income purportedly in accordance with Revenue Regulation No. (RR)
2-94, Section 2(i) of the Bureau of Internal Revenue (BIR) issued on August 23, 1993. Sec. 2(i) states:
Section 2. DEFINITIONS. For purposes of these regulations:
xxxx
i. Tax Credit refers to the amount representing the 20% discount granted to a qualified
senior citizen by all establishments relative to their utilization of transportation services,
hotels and similar lodging establishments, restaurants, drugstores, recreation centers, theaters,
cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure
and amusement, which discount shall be deducted by the said establishments from their
gross income for income tax purposes and from their gross sales for value-added tax or
other percentage tax purposes. (Emphasis supplied.)
The deductions M.E. claimed amounted to PhP 603,424. However, it filed the return under protest,
arguing that the discount to senior citizens should be treated as tax credit under Sec. 4(a) of RA 7432, and not
as mere deductions from M.E.s gross income as provided under RR 2-94.
Sec. 4(a) of RA 7432 states:
SECTION 4. Privileges for the Senior Citizens.The senior citizens shall be entitled to the
following:
a)
the grant of twenty percent (20%) discount from all establishments relative to the
utilization of transportation services, hotels and similar lodging establishments, restaurants
and recreation centers and purchase of medicines anywhere in the country: Provided,
That private establishments may claim the cost as tax credit; (Emphasis supplied.)
Subsequently, on December 27, 1996, M.E. sent BIR a letter-claim dated December 6, 1996,[1] stating
that it overpaid its income tax owing to the BIRs erroneous interpretation of Sec. 4(a) of RA 7432.
Due to the inaction of the BIR, and to toll the running of the two-year prescriptive period in filing a
claim for refund, M.E. filed an appeal before the Court of Tax Appeals (CTA), reiterating its position that the
sales discount should be treated as tax credit, and that RR 2-94, particularly Section 2(i), was without effect
for being inconsistent with RA 7432.
On April 25, 2000, the CTA rendered a Decision[2] in favor of M.E., the fallo of which reads:
WHEREFORE, in view of the foregoing, petitioners claim for refund is hereby
partially GRANTED. Respondent is hereby ORDERED to REFUND in favor of petitioner the
amount of P122,195.74, representing overpaid income tax [for] the year 1995.
SO ORDERED.

The CTA ruled that the 20% sales discount granted to qualified senior citizens should be treated as
tax credit and not as item deduction from the gross income or sales, pointing out that Sec. 4(a) of RA 7432
was unequivocal on this point. The CTA held that Sec. 2(i) of RR 2-94 contravenes the clear proviso of RA
7432 prescribing that the 20% sales discount should be claimed as tax credit. Further, it ruled that RA 7432 is
a law that necessarily prevails over an administrative issuance such as RR 2-94.
Unfortunately, what appears to be the victory of M.E. before the CTA was watered down by the tax
courts declaration that, while the independent auditor M.E. hired found the amount PhP 603,923.46 as having
been granted as sales discount to qualified senior citizens, M.E. failed to properly support the claimed
discount with corresponding cash slips. Thus, the CTA reduced M.E.s claim for PhP 603,923.46 sales
discount to PhP 362,574.57 after the CTA disallowed PhP 241,348.89 unsupported claims, and consequently
lowered the refundable amount to PhP 122,195.74.
On May 24, 2000, M.E. filed a Motion for Reconsideration, therein attributing its failure to submit
and offer certain documents, specifically the cash slips, to the inadvertence of its independent auditor who
failed to transmit the documents to M.E.s counsel. It also argued that the tax credit should be based on the
actual discount and not on the acquisition cost of the medicines.
On July 11, 2000, the CTA denied M.E.s motion for reconsideration which contained a prayer to
present additional evidence consisting of duplicate copies of the cash slips allegedly not submitted to M.E.
by its independent auditor.[3] In refuting M.E.s contention that the tax credit should be based on the actual
discount and not on the acquisition cost of the medicines, the CTA applied the Court of Appeals (CA) ruling
in CIR v. Elmas Drug Corporation,[4] where the term cost of the discount was interpreted to mean only the
direct acquisition cost, excluding administrative and other incremental costs.
Aggrieved, M.E. went to the CA on a petition for review docketed as CA-G.R. SP No.
60134. On July 1, 2003, the CA rendered its Decision,[5] dismissing the petition.
Even as it laid the entire blame on M.E. for its failure to present its additional evidence, the CA
pointed out that forgotten evidence is not newly discovered evidence which can be presented to the appellate
tax court, even after it had already rendered its decision. Likewise, the CA interpreted, as did the CTA, the
term cost to mean only the direct acquisition cost, adding that to interpret the word cost to include all
administrative and incremental costs to sales to senior citizens would open the floodgates for drugstores to
pad the costs of the sales with such broad, undefined, and varied administrative and incremental costs such
that the government would ultimately bear the escalated costs of the sales. And citing Commissioner of
Internal Revenue v. Tokyo Shipping Co., Ltd., the CA held that claims for refund, being in the nature of a
claim for exemption, should be construed in strictissimi juris against the taxpayer.[6]
The CA denied petitioners Motion for Reconsideration on September 24, 2003.[7]
Hence, the instant petition for review, anchored essentially on the same issues raised before the CA,
as follows:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY
ERRED AND HAS DEVIATED FROM APPLICABLE LAWS AND JURISPRUDENCE IN
NOT APPRECIATING OTHER COMPETENT EVIDENCE PROVING THE AMOUNT OF
DISCOUNTS GRANTED TO SENIOR CITIZENS AND MERELY RELYING SOLELY ON
THE CASH SLIPS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY
ERRED AND HAS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR IN EXCESS OF JURISDICTION IN AFFIRMING THE COURT OF TAX
APPEALS DENIAL OF PETITIONERS MOTION TO ORDER AND SUBMIT AS

DOCUMENTARY [EVIDENCE] THE CASH SLIPS WHICH THE INDEPENDENT


CERTIFIED PUBLIC ACCOUNTANT INADVERTENTLY DID NOT TURN OVER TO
THE PETITIONERS COUNSEL.
III.
WHETHER OR NOT THE TERM COST UNDER PARAGRAPH (A) SECTION 4
OF REPUBLIC ACT 7432 IS EQUIVALENT ONLY TO ACQUISITION COST.[8]

Our Ruling
The petition is partly meritorious.

The 20% sales discount to senior citizens may be claimed by an establishment owner as tax credit.
RA 7432, the applicable law, is unequivocal on this. The implementing RR 2-94 that considers such discount
as mere deductions to the taxpayers gross income or gross sales clearly clashes with the clear language of RA
7432, the law sought to be implemented. We need not delve on the nullity of the implementing rule all over
again as we have already put this issue at rest in a string of cases.[9]
Now, we will discuss the remaining issues in seriatim.
On the first issue, M.E. faults the CA for merely relying on the cash slips as basis for determining the
total 20% sales discount given to senior citizens. To M.E., there are other competent pieces of evidence
available to prove the same point, such as the Special Record Book required by the Bureau of Food and
Drugs[10] and the Special Record Book required under RR 2-94. According to M.E., these special record
books containing, as it were, the same information embodied in the cash slips were submitted to the CTA
during M.E.s formal offer of evidence. Moreover, M.E. avers that the CA ought to have considered the
special record books since their authenticity and the veracity of their contents were corroborated by the store
supervisor, Amelita Gonzales, and Rene Amby Reyes, its independent auditor.

M.E. fails to persuade. The determination of the exact amount M.E. claims as the 20% sales discount
it granted to the senior citizens calls for an evaluation of factual matters. The unyielding rule is that the
findings of fact of the trial court, particularly when affirmed by the CA, are binding upon this Court, [11] save
when the lower courts had overlooked, misunderstood, or misinterpreted certain facts or circumstances of
weight, which, if properly considered, would affect the result of the case and warrant a reversal of the
decision. The instant case does not fall under the exception; hence, we do not find any justification to review
all over again the evidence presented before the CTA, and the factual conclusions deduced therefrom.
Lest it be overlooked, the Rules of Court is of suppletory application in quasi-judicial proceedings.
Be this as it may, the CTA was correct in disallowing and not considering the belatedly-submitted cash slips
to be part of the 20% sales discount for M.E.s taxable year 1995. This is as it should be in the light of Sec. 34
of Rule 132 prescribing that no evidence shall be considered unless formally offered with a statement of the
purpose why it is being offered. In addition, the rule is that the best evidence under the circumstance must be
adduced to prove the allegations in a complaint, petition, or protest. Only when the best evidence cannot be
submitted may secondary evidence be considered. But, in the instant case, the disallowed cash slips, the best
evidence at that time, were not part of M.E.s offer of evidence. While it may be true that the authenticated
special record books yield the same data found in the cash slips, they cannot plausibly be considered by the
courts a quo and made to corroborate pieces of evidence that have, in the first place, been disallowed. Recall
also that M.E. offered the disallowed cash slips as evidence only after the CTA had rendered its assailed
decision. Thus, we cannot accept the excuse of inadvertence of the independent auditor as excusable
negligence. As aptly put by the CA, the belatedly-submitted cash slips do not constitute newly-found
evidence that may be submitted as basis for a new trial or reconsideration of the decision.

We reiterate at this juncture that claims for tax refund/credit, as in the instant case, are in the nature of
claims for exemption. Accordingly, the law relied upon is not only construed in strictissimi juris against the
taxpayer, but also the proofs presented entitling a taxpayer to an exemption are strictissimi scrutinized.
On the second issue, M.E. strongly asserts that the CA gravely abused its discretion in denying M.E.
the opportunity to submit the disallowed cash slips despite the independent auditors admission, via an
Affidavit,[12] of guilt for inadvertence. M.E.s counsel explains that he relied on the independent auditors
representation that all the cash slips were turned over. Besides, M.E. asserts that the independent auditor,
being an officer of the court, having been commissioned by the CTA, is presumed to have done his duty in a
regular manner, and, therefore, his negligence should not be taken against M.E.
We do not agree with M.E. Grave abuse of discretion connotes capricious, whimsical, arbitrary, or
despotic exercise of jurisdiction. The CA surely cannot be guilty of gravely abusing its discretion when it
refused to consider, in lieu of the unsubmitted additional cash slips, the special record books which are only
secondary evidence. The cash slips were the best evidence. Also, the CA noted that the belatedly-offered cash
slips were presented only after the CTA had rendered its decision. All these factors argue against the notion
that the CA had, in sustaining the CTA, whimsically and capriciously exercised its discretion.
On the third and last issue, M.E. contends that it is entitled, as a matter of law, to claim as tax credit
the full amount of the sales discount granted to senior citizens.
M.E.s contention is correct. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v.
Commissioner of Internal Revenue, we interpreted the term cost found in Sec. 4(a) of RA 7432 as referring to
the amount of the 20% discount extended by a private establishment to senior citizens in their purchase of
medicines.[13] There we categorically said that it is the Government that should fully shoulder the cost of the
sales discount granted to senior citizens. Thus, we reversed and set aside the CAs Decision in CA-G.R. SP
No. 49946, which construed the same word cost to mean the theoretical acquisition cost of the medicines
purchased by qualified senior citizens. Accordingly, M.E. is entitled to a tax credit equivalent to the actual
20% sales discount it granted to qualified senior citizens.
With the disallowance of PhP 241,348.89 for being unsupported, and the net amount of PhP
362,574.57 for the actual 20% sales discount granted to qualified senior citizens properly allowed by the
CTA and fully appreciated as tax credit, the amount due as tax credit in favor of M.E. is PhP 151,201.71,
computed as follows:
Net Sales PhP 94,724,284.00
Add: 20% Discount to Senior Citizens
(Per Petitioners Summary) 603,923.46
Gross Sales PhP 95,328,207.46
Less: Cost of Sales
Merchandise Inventory, beg. PhP 9,519,210.00
Add Purchases 87,288,988.00
Total Goods available for Sale PhP 96,808,198.00
Less: Merchandise Inventory, End PhP 9,469.349.00 PhP 87,338,849.00
Gross Income PhP 7,989,358.46
Less: Operating Expenses 17,006,032.00
Net Operating Income /(Loss) (PhP 9,016,673.54)
Add: Miscellaneous Income 43,489,663.00
Net Income PhP 34,472,989.46
Less: Interest Income Subject to Final Tax 22,242,227.00
Net Taxable Income PhP 12,230,762.46
Tax Due (PhP 12,230,762.46 x 35%) PhP 4,280,766.86
Less: 1) Tax Credit (20% Discount with supporting
documents) PhP 362,574.57
2) Income Tax Payment for the Year 4,069,394.00
Total PhP 4,431,968.57
AMOUNT OF TAX CREDIT PhP 151,201.71

Parenthetically, we note that M.E. originally prayed for a tax refund for its tax overpayment for CY
1995. The CTA and the CA granted the desired refund, albeit at a lower amount due to their interpretation,
erroneous as it turned out to be, of the term cost. However, we cannot agree with the courts a quo on what
M.E. is entitled to. RA 7432 expressly provides that the sales discount may be claimed as tax credit, not as
tax refund.
It ought to be noted, however, that on February 26, 2004, RA 9257, or The Expanded Senior Citizens
Act of 2003, amending RA 7432, was signed into law, ushering in, upon its effectivity on March 21, 2004, a
new tax treatment for sales discount purchases of qualified senior citizens of medicines. Sec. 4(a) of RA
9257 provides:
SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the
following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and recreation
centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of
senior citizens, x x x;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That the
cost of the discount shall be allowed as deduction from gross income for the same taxable
year that the discount is granted. Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their gross sales receipts
for tax purposes and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code, as amended. (Emphasis supplied.)

Conformably, starting taxable year 2004, the 20% sales discount granted by establishments to
qualified senior citizens is to be treated as tax deduction, no longer as tax credit.[14]

IN
VIEW
OF
THE
FOREGOING,
this
petition
is PARTLY
GRANTED. The CAs Decision dated July 1, 2003 and its Resolution of September 24, 2003 in CA-G.R. SP
No. 60134, affirming the Decision of the CTA dated April 25, 2000 in CTA Case No. 5604,
are AFFIRMED with MODIFICATIONSinsofar as the amount and mode of payment of M.E.s claim are
concerned. As modified, the fallo of the April 25, 2000 Decision of the CTA shall read:
WHEREFORE, in view of the foregoing, petitioner M.E.s claim for refund is hereby
PARTIALLY GRANTED in the form of a tax credit. Respondent Commissioner of Internal
Revenue is ORDERED to issue a tax credit certificate in favor of M.E. in the amount
of PhP 151,201.71.
No pronouncement as to costs.
SO ORDERED.