WALTER LUTZ vs. J.

ANTONIO ARANETA
G.R. No. L-7859
December 22, 1955

FACTS:
Plaintiff, Walter Lutz, as judicial administrator, seeks to recover from the CIR
the sum of P14,666.40 paid by the estate as taxes under Sec.3 of
Commonwealth Act 567 from the years 1948-1950 alleging that such tax is
inconstitutional as it is being levied for the aid and support of the sugar
industry exclusively. Hence, the taxes are not collected for a public purpose.

ISSUE:
Whether or not the taxes imposed by Commonwealth Act No. 567, otherwise
known as the Sugar Adjustment Act is legally valid

RULING:
Petition is DENIED. Under Sec. 6 of the Sugar Adjustment Act, the tax is levied
with a regulatory purpose - to provide means for the rehabilitation and
stabilization of the threatened sugar industry. 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. This is a valid exercise of police
power.

Sison vs Ancheta
GR No. L-59431, 25 July 1984

Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero
M. Sison, as taxpayer, alleges that "he would be unduly discriminated against
by the imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are imposed upon fixed income
or salaried individual taxpayers. He characterizes said provision as arbitrary
amounting to class legislation, oppressive and capricious in character. It
therefore violates both the equal protection and due process clauses of the
Constitution as well asof the rule requiring uniformity in taxation.

Issue: Whether or not the assailed provision violates the equal protection and
due process clauses of the Constitution while also violating the rule that taxes
must be uniform and equitable.

Held: The petition is without merit.

On due process - it is undoubted that it may be invoked where a taxing statute
is so arbitrary that it finds no support in the Constitution. An obvious example
is where it can be shown to amount to the confiscation of property from abuse
of power. Petitioner alleges arbitrariness but his mere allegation does not
suffice and there must be a factual foundation of such unconsitutional taint.
On equal protection - it suffices that the laws operate equally and uniformly
on all persons under similar circumstances, both in the privileges conferred
and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable - this
requirement is met when the tax operates with the same force and effect in
every place where the subject may be found." Also, :the rule of uniformity
does not call for perfect uniformity or perfect equality, because this is hardly
unattainable." When the problem of classification became of issue, the Court
said: "Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purposes of taxation..." As provided by this Court, where "the differentation"
complained of "conforms to the practical dictates of justice and equity" it "is
not discriminatory within the meaning of this clause and is therefore uniform."

CIR vs. CA, CTA and FORTUNE TOBACCO CORPORATION G.R. No.
119761 August 29, 1996, Taxation

FACTS:
‘Champion,‘ ’Hope, ’and ‘More ’were classified as foreign brands since they were
listed in the World Tobacco Directory as belonging to foreign companies.
However, Fortune Tobacco changed the names of ‘Hope ’to ‘Hope Luxury ’and
‘More ’to ‘Premium More, ’thereby removing the said brands from the foreign
brand category and registered as a local brand.” Ad Valorem taxes were
imposed on these brands.

RMC 37-93, Reclassification of Cigarettes Subject to Excise Tax, was issued

by the BIR which aims to collect deficiencies on ad valorem taxes against
Fortune Tobacco following their reclassification as foreign branded cigarettes.
“HOPE,” “MORE” and “CHAMPION” being manufactured by Fortune Tobacco
Corporation were considered locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes under RA 7654.

Fortune Tobacco filed a petition for review with the CTA. RMC 37-93 is found
to be defective, invalid and unenforceable.

The CA sustained the decision of the CTA. Hence, this appeal.

ISSUE:
Is RMC 37-93 a mere interpretative ruling, therefore not requiring, for its
effectivity, hearing and filing with the UP Law Center?

RULING:
A reading of RMC 37-93, particularly considering the circumstances under
which it has been issued, convinces us that the circular cannot be viewed
simply as a corrective measure (revoking in the process the previous holdings
of past Commissioners) or merely as construing Section 142(c)(1) of the
NIRC, as amended, but has, in fact and most importantly, been made in order
to place “Hope Luxury,” “Premium More” and “Champion” within the
classification of locally manufactured cigarettes bearing foreign brands and to
thereby have them covered by RA 7654.

Specifically, the new law would have its amendatory provisions applied to
locally manufactured cigarettes which at the time of its effectivity were not so
classified as bearing foreign brands. Prior to the issuance of the questioned
circular, “Hope Luxury,” “Premium More,” and “Champion” cigarettes were in
the category of locally manufactured cigarettes not bearing foreign brand
subject to 45% ad valorem tax.

Hence, without RMC 37-93, the enactment of RA 7654, would have had no
new tax rate consequence on private respondent’s products. Evidently, in
order to place “Hope Luxury,” “Premium More,” and “Champion” cigarettes
within the scope of the amendatory law and subject them to an increased tax
rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not
simply intrepreted the law; verily, it legislated under its quasi-legislative
authority.The due observance of the requirements of notice, of hearing, and
of publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

In order that there shall be a just enforcement of rules and regulations, in

conformity with the basic element of due process, the following procedures
are hereby prescribed for the drafting, issuance and implementation of the
said Revenue Tax Issuances:

(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue
Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and
Revenue Memorandum Orders bearing on internal revenue tax rules and
regulations.

(2) Except when the law otherwise expressly provides, the aforesaid
internal revenue tax issuances shall not begin to be operative until after due
notice thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only after the
following procedures have been taken; xxxxx

(5) Strict compliance with the foregoing procedures is

enjoined.
Nothing on record could tell us that it was either impossible or impracticable
for the BIR to observe and comply with the above requirements before giving
effect to its questioned circular.
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has
fallen short of a valid and effective administrative issuance.

The decision of the Court of Appeals, sustaining that of the Court of Tax
Appeals, is AFFIRMED.

G.R. No. 96016 October 17, 1991

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE COURT OF APPEALS and EFREN P. CASTANEDA, respondents.

RETIREMENT BENEFIT, TERMINAL LEAVE PAY IS NOT SUBJECT TO INCOME

TAX

In fine, not being part of the gross salary or income of a government official
or employee but a retirement benefit, terminal leave pay is not subject to
income tax.
FACTS:

• Private respondent Efren P. Castaneda retired from the government service

in 1982. Upon retirement, he received, among other benefits, terminal leave
pay from which petitioner Commissioner of Internal Revenue withheld
P12,557.13 allegedly representing income tax thereon.

• Castaneda filed a formal written claim with petitioner for a refund of the
P12,557.13, contending that the cash equivalent of his terminal leave is
exempt from income tax. To comply with the two-year prescriptive period
within which claims for refund may be filed, Castaneda filed on 16 July 1984
with the Court of Tax Appeals a Petition for Review, seeking the refund of
income tax withheld from his terminal leave pay.

• The Court of Tax Appeals decided in favor of Castaneda and ordered the CIR
to refund Castaneda the sum of P12,557.13 withheld as income tax. Petitioner
appealed the above-mentioned Court of Tax Appeals decision to this Court. In
turn, we referred the case to the Court of Appeals for resolution. On 26
September 1990, the Court of Appeals dismissed the petition for review and
affirmed the decision of the Court of Tax Appeals. Hence, the present recourse
by the Commissioner of Internal Revenue.

• The Solicitor General, acting on behalf of the Commissioner of Internal

Revenue, contends that the terminal leave pay is income derived from
employer-employee relationship, citing in support of his stand Section 28 of
the NIRC.

ISSUE:
Whether or not terminal leave pay received by a government official or
employee on the occasion of his compulsory retirement from the government
service is subject to withholding (income) tax.

HELD:

• The Court has already ruled that the terminal leave pay received by a
government official or employee is not subject to withholding (income) tax. In
the recent case of Jesus N. Borromeo vs. The Hon. Civil Service Commission,
et al., G.R. No. 96032, 31 July 1991, the Court explained the rationale behind
the employee's entitlement to an exemption from withholding (income) tax on
his terminal leave pay as follows: . . . commutation of leave credits, more
commonly known as terminal leave, is applied for by an officer or employee
who retires, resigns or is separated from the service through no fault of his
own. (Manual on Leave Administration Course for Effectiveness published by
the Civil Service Commission, pages 16-17). In the exercise of sound
personnel policy, the Government encourages unused leaves to be
accumulated. The Government recognizes that for most public servants,
retirement pay is always less than generous if not meager and scrimpy. A
modest nest egg which the senior citizen may look forward to is thus avoided.
Terminal leave payments are given not only at the same time but also for the
same policy considerations governing retirement benefits.

• In fine, not being part of the gross salary or income of a government official
or employee but a retirement benefit, terminal leave pay is not subject to
income tax.

CIR VS. FORTUNE TOBACCO (G.R. NO. 167274)

FACTS: The Tax Reform Code imposed a new rate effective January 1, 2000,
affecting cigars and cigarettes. There was a shift away from the ad valorem
system. During the transition period, the law states that the excise tax to be
paid must not be lower than the tax due from each brand on October 1, 1996.
However, the CIR issued a revenue regulation (RR) fixing the rates prior to
January 1, 2000.

ISSUE: Is the RR valid?

HELD: No, the RR is not valid.

Fortune Tobacco was erroneously assessed and collected from. Implementing

rules and regulations must be in harmony with the law they seek to interpret
and enforce. Otherwise, they are ultra vires and taxes collected not supported
by the clear language of the law but by additions made by RR must be
refunded to the taxpayer.

Commissioner of Internal Revenue vs. Fortune Tobacco Corporation

G.R. Nos. 167274-75, July 21, 2008

FACTS:
Fortune Tobacco is a manufacturer and producer of some cigarette brands.
Prior to January 1, 1997, its cigarette brands were subject to ad valorem tax
but on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the
ad valorem tax (AVT) system to the specific tax system was made and
subjecting its cigarette brands to specific tax.
For the period covering January 1-31, 2000, Fortune Tobacco paid specific
taxes on all brands manufactured so it filed a claim for refund or tax credit of
its overpaid excise tax for the month of January 2000.
The Court of Tax Appeals (CTA) and the Court of Appeals, granted the tax
refund or tax credit representing specific taxes erroneously collected from its
tobacco products. However, the Commissioner of Internal Revenue reclaims
the grant of tax refund. Hence, this petition.

ISSUE:
Whether or not Fortune Tobacco is entitled to tax refund.

RULING:
Yes. Although tax refund partakes the nature of a tax exemption, this rule
does not apply to Fortune Tobacco’s claim. The parity between tax refund and
tax exemption exists only when the former is based either on a tax exemption
statute or a tax refund statute. In the present case, Fortune Tobacco’s claim
for refund is premised on its erroneous payment of the tax, or the
government’s exaction in the absence of a law.
Tax exemption is granted by the legislature thus, the one who claims an
exemption from the burden of taxation must justify his claim by showing that
the legislature intended to exempt him by words too plain to be mistaken. In
the same manner, a claim for tax refund may also be based on statutes
granting tax exemption or tax refund. In this case, the rule of strict
interpretation against the taxpayer is applicable as the claim for refund
partakes of the nature of an exemption.
However, tax refunds (or tax credits) are not founded principally on legislative
grant but on the legal principle of solutio indebiti, the government cannot
unjustly enrich itself at the expense of the taxpayers. Under the Tax Code, in
recognition of the pervasive quasi-contract principle, a claim for tax refund
may be based on the following:
(a) erroneously or illegally assessed or collected internal revenue taxes;
(b) penalties imposed without authority; and
(c) any sum alleged to have been excessive or in any manner wrongfully
collected.

Philex Mining vs CIR

PHILEX MINING CORP. v. CIR

GR No. 125704, August 28, 1998
294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals affirming the Court of Tax
Appeals decision ordering it to pay the amount of P110.7 M as excise tax
liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand
for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in
the amount of P120 M plus interest. Therefore these claims for tax
credit/refund should be applied against the
tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims
of tax refund of the petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance.
Evidently, to countenance Philex's
whimsical reason would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in
jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities
on the ground that it has a
pending tax claim for refund or credit against the government which has not
yet been granted.Taxes cannot be
subject to compensation for the simple reason that the government and the
taxpayer are not creditors and
debtors of each other. There is a material distinction between a tax and debt.
Debts are due to the Government
in its corporate capacity, while taxes are due to the Government in its
sovereign capacity. xxx There can be no
off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit
against the government
City of Baguio vs. De Leon

CITY OF BAGUIO vs. DE LEON

25 SCRA 938
GR No. L-24756, October 31, 1968

"There is no double taxation where one tax is imposed by the state and the
other is imposed by the city."

FACTS: The City of Baguio passed an ordinance imposing a license fee on any
person, entity or corporation doing business in the City. The ordinance sourced
its authority from RA No. 329, thereby amending the city charter empowering
it to fix the license fee and regulate businesses, trades and occupations as
may be established or practiced in the City. De Leon was assessed for P50
annual fee it being shown that he was engaged in property rental and deriving
income therefrom. The latter assailed the validity of the ordinance arguing
that it is ultra vires for there is no statury authority which expressly grants
the City of Baguio to levy such tax, and that there it imposed double taxation,
and violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised
Administrative Code empowering the City Council not only to impose a license
fee but to levy a tax for purposes of revenue, thus the ordinance cannot be
considered ultra vires for there is more than ample statury authority for the
enactment thereof.
Second, an argument against double taxation may not be invoked where
one tax is imposed by the state and the other is imposed by the city, so that
where, as here, Congress has clearly expressed its intention, the statute must
be sustained even though double taxation results.
And third, violation of uniformity is out of place it being widely recognized
that there is nothing inherently obnoxious in the requirement that license fees
or taxes be exacted with respect to the same occupation, calling or activity by
both the state and the political subdivisions thereof.

CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.- CTA, Double

Taxation

FACTS:
Respondent paid the local business tax only as a manufacturers as it was
expressly exempted from the business tax under a different section and which
applied to businesses subject to excise, VAT or percentage tax under the Tax
Code. The City of Manila subsequently amended the ordinance by deleting the
provision exempting businesses under the latter section if they have already
paid taxes under a different section in the ordinance. This amending ordinance
was later declared by the Supreme Court null and void. Respondent then filed
a protest on the ground of double taxation. RTC decided in favor of
Respondent and the decision was received by Petitioner on April 20, 2007. On
May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time to
File Petition for Review asking for a 15-day extension or until May 20, 2007
within which to file its Petition. A second Motion for Extension was filed on May
18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner
finally filed the Petition on May 30, 2007 even if the CTA had earlier issued a
resolution dismissing the case for failure to timely file the Petition.

ISSUES:
(1) Has Petitioner’s the right to appeal with the CTA lapsed?
(2) Does the enforcement of the latter section of the tax ordinance constitute
double taxation?

HELD:
(1) NO. Petitioner complied with the reglementary period for filing the petition.
From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within
which to file their Petition for Review with the CTA. The Motion for Extension
filed by the petitioners on May 18, 2007, prior to the lapse of the 30-day
period on 20 May 2007, in which they prayed for another extended period of
10 days, or until 30 May 2007, to file their Petition for Review was, in reality,
only the first Motion for Extension of petitioners. Thus, when Petitioner filed
their Petition via registered mail their Petition for Review on 30 May 2007,
they were able to comply with the period for filing such a petition.
(2) YES. There is indeed double taxation if respondent is subjected to the
taxes under both Sections 14 and 21 of the tax ordinance since these are
being imposed: (1) on the same subject matter — the privilege of doing
business in the City of Manila; (2) for the same purpose — to make persons
conducting business within the City of Manila contribute to city revenues; (3)
by the same taxing authority — petitioner City of Manila; (4) within the same
taxing jurisdiction — within the territorial jurisdiction of the City of Manila; (5)
for the same taxing periods — per calendar year; and (6) of the same kind or
character — a local business tax imposed on gross sales or receipts of the
business.