TOLENTINO v. SECRETARY OF FINANCE (CALLUENG) because the second and third readings were done on the same day.
and third readings were done on the same day. However, this
August 24, 1994 | Mendoza, J. | Appropriation Bills Must Originate Exclusively
from the House of Representatives
PETITIONER: Arturo M. Tolentino
RESPONDENTS: The Secretary of Finance and The Commissioner of Internal
Revenue
SUMMARY: The value-added tax (VAT) is levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services. RA 7716
seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code. There are various
suits challenging the constitutionality of RA 7716 on various grounds. One
contention is that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in
fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630.
Another contention is that S. No. 1630 did not pass 3 readings as required by the
Constitution. Issue: WoN RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution. SC held that the argument that RA 7716 did not originate exclusively
in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution
will not bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute and not only the bill which initiated
the legislative process culminating in the enactment of the law must substantially
be the same as the House bill would be to deny the Senate’s power not only to
concur with amendments but also to propose amendments. Indeed, what the
Constitution simply means is that the initiative for filing revenue, tariff or tax bills,
bills authorizing an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the theory that,
elected as they are from the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. Nor does the Constitution
prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of
the bill from the House, so long as action by the Senate as a body is withheld
pending receipt of the House bill. The next argument of the petitioners was that S.
No. 1630 did not pass 3 readings on separate days as required by the Constitution
was because the President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing but also that of
reading the bill on separate days. That upon the certification of a bill by the
President the requirement of 3 readings on separate days and of printing and
distribution can be dispensed with is supported by the weight of legislative practice.
DOCTRINE: Initiative for filing revenue, tariff or tax bills, bills authorizing an
increase of the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the
local needs and problems.
FACTS:
1. The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of
goods or properties sold, bartered or exchanged or of the gross receipts from
the sale or exchange of services. Republic Act No. 7716 seeks to widen the
tax base of the existing VAT system and enhance its administration by
amending the National Internal Revenue Code.
2. The contention of petitioners is that in enacting Republic Act No. 7716, or
the Expanded Value-Added Tax Law, Congress violated the Constitution
because, although H. No. 11197 had originated in the House of
Representatives, it was not passed by the Senate but was simply
consolidated with the Senate version (S. No. 1630) in the Conference
Committee to produce the bill which the President signed into law.
3. The following provisions of the Constitution are cited in support of the
proposition that because Republic Act No. 7716 was passed in this manner,
it did not originate in the House of Representatives and it has not thereby
become a law:
a. Art. VI, § 24: All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application,
 and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.
b. Art. VI, § 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be
taken immediately thereafter, and the yeas and nays entered in the
Journal.
4. It appears that on various dates several bills were introduced in the House of
Representatives seeking to amend certain provisions of the National Internal
Revenue Code relative to the value-added tax or VAT. These bills were
referred to the House Ways and Means Committee which recommended for
approval a substitute measure, H. No. 11197.
5. The bill (H. No. 11197) was considered on second reading and it was
approved by the House of Representatives after third and final reading.
6. It was sent to the Senate and later referred by that body to its Committee on
Ways and Means.
7. The Senate Committee submitted its report recommending approval of S.
No. 1630
8. It was stated that the bill was being submitted "in substitution of Senate Bill
No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
9. The Senate began consideration of the bill (S. No. 1630). It finished debates
on the bill and approved it on second reading, March 24, 1994. On the same
day, it approved the bill on third reading by the affirmative votes of 13 of its
members, with one abstention.
10. H. No. 11197 and its Senate version (S. No. 1630) were then referred to a
conference committee which, after meeting four times recommended that
"House Bill No. 11197, in consolidation with Senate Bill No. 1630, be
approved in accordance with the attached copy of the bill as reconciled and
approved by the conferees."
11. The Conference Committee bill was thereafter approved by the House of
Representatives and by the Senate. The enrolled bill was then presented to
the President of the Philippines who, on May 5, 1994, signed it.
12. It became Republic Act No. 7716. Republic Act No. 7716 was published in
two newspapers of general circulation and, on May 28, 1994, it took effect,
although its implementation was suspended until June 30, 1994 to allow
time for the registration of business entities. It would have been enforced on
July 1, 1994 but its enforcement was stopped because the Court, by the vote
of 11 to 4 of its members, granted a temporary restraining order on June 30,
1994.
ISSUE/s:
1. WoN RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution.
NO. (Focus on Article VI, Section 24 this is the topic in the book)
RULING: WHEREFORE, the petitions in these cases are DISMISSED.
RATIO:
1. Petitioners' contention is that Republic Act No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, §24 of
the Constitution, because it is in fact the result of the consolidation of two
distinct bills, H. No. 11197 and S. No. 1630.
2. In this connection, petitioners point out that although Art. VI, SS 24 was
adopted from the American Federal Constitution, it is notable in two
respects: the verb "shall originate" is qualified in the Philippine Constitution
by the word "exclusively" and the phrase "as on other bills" in the American
version is omitted. This means, according to them, that to be considered as
having originated in the House, Republic Act No. 7716 must retain the
essence of H. No. 11197.
3. This argument will not bear analysis. To begin with, it is not the law —
but the revenue bill — which is required by the Constitution to
"originate exclusively" in the House of Representatives. It is important
 to emphasize this, because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a rewriting of the
whole.
4. At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute —
and not only the bill which initiated the legislative process culminating in
the enactment of the law — must substantially be the same as the House bill
would be to deny the Senate's power not only to "concur with
amendments" but also to "propose amendments." It would be to violate
the coequality of legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
5. The contention that the constitutional design is to limit the Senate's power
in respect of revenue bills in order to compensate for the grant to the Senate
of the treaty-ratifying power and thereby equalize its powers and those of
the House overlooks the fact that the powers being compared are different.
6. We are dealing here with the legislative power which under the Constitution
is vested not in any particular chamber but in the Congress of the
Philippines, consisting of "a Senate and a House of Representatives."  The
exercise of the treaty-ratifying power is not the exercise of legislative
power. It is the exercise of a check on the executive power. There is,
therefore, no justification for comparing the legislative powers of the House
and of the Senate on the basis of the possession of such nonlegislative
power by the Senate.
7. It is insisted, however, that S. No. 1630 was passed not in substitution of H.
No. 11197 but of another Senate bill (S. No. 1129) earlier filed and that
what the Senate did was merely to "take [H. No. 11197] into consideration"
in enacting S. No. 1630. There is really no difference between the Senate
preserving H. No. 11197 up to the enacting clause and then writing its
own version following the enacting clause (which, it would seem,
petitioners admit is an amendment by substitution), and, on the other hand,
separately presenting a bill of its own on the same subject matter. In
either case the result are two bills on the same subject.
8. Indeed, what the Constitution simply means is that the initiative for
filing revenue, tariff, or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are from
the districts, the members of the House can be expected to be more sensitive
to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the
national perspective. Both views are thereby made to bear on the enactment
of such laws.
9. Enough has been said to show that it was within the power of the Senate to
propose S. No. 1630. We now pass to the next argument of petitioners that
S. No. 1630 did not pass three readings on separate days as required by the
Constitution because the second and third readings were done on the same
day, March 24, 1994. But this was because on February 24, 1994 and again
on March 22, 1994, the President had certified S. No. 1630 as urgent.
10. The presidential certification dispensed with the requirement not only
of printing but also that of reading the bill on separate days. The phrase
"except when the President certifies to the necessity of its immediate
enactment, etc." in Art. VI, § 26(2) qualifies the two stated conditions
before a bill can become a law: (i) the bill has passed three readings on
separate days and (ii) it has been printed in its final form and distributed
three days before it is finally approved.
11. In other words, the "unless" clause must be read in relation to the "except"
clause, because the two are really coordinate clauses of the same sentence.
12. There is, therefore, no merit in the contention that presidential certification
dispenses only with the requirement for the printing of the bill and its
distribution three days before its passage but not with the requirement of
three readings on separate days, also.
13. It is nonetheless urged that the certification of the bill in this case was
invalid because there was no emergency, the condition stated in the
certification of a "growing budget deficit" not being an unusual condition in
this country.
14. It is noteworthy that no member of the Senate saw fit to controvert the
reality of the factual basis of the certification. To the contrary, by passing S.
No. 1630 on second and third readings on March 24, 1994, the Senate
accepted the President's certification. Should such certification be now
reviewed by this Court, especially when no evidence has been shown that,
because S. No. 1630 was taken up on second and third readings on the same
day, the members of the Senate were deprived of the time needed for the
study of a vital piece of legislation?

Second TOLENTINO v. SECRETARY OF FINANCE (PRESH)
October 30, 1995 | Mendoza, J. | Progressive Taxation
PETITIONER: Arturo M. Tolentino
RESPONDENTS: The Secretary of Finance and The Commisioner of Internal
Revenue
SUMMARY: The present case involves motions seeking reconsideration of the
Court’s decision dismissing the petitions filed in these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added
Tax Law. The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. RA 7716 seeks to
widen the tax base of the existing VAT system and enhance its administration by
amending the National Internal Revenue Code. There are various suits challenging the
constitutionality of RA 7716 on various grounds.
The petitioners contend that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in
fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630.
They also contend that S. No. 1630 did not pass 3 readings as required by the
Constitution.
The issues are W/N RA 7716 violates Art VI Sec 24 of the Constitution? – NO
It is not the law but the revenue bill which is required by Constitution to “originate
exclusively” in the House of Representatives. Because a bill originating in the House
may undergo such extensive changes in the Senate that the result may be a rewriting
of the whole. As a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute must substantially be the same as the House Bill would be
to deny the Senate’s power not only to “concur with amendments” but also to
“propose amendments”. It would be to violate the coequality of legislative power of
the two houses of Congress and in fact make the House superior to the Senate. Given
the power of the Senate to propose amendments, the Senate can propose its own
version even with respect to bills which are required by the Constitution to originate in
the House. Thus, because revenue bills are required to originate exclusively in the
House of Representatives, the Senate cannot enact revenue measures of its own
without such bills. After a revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version on the same subject matter.
This follows from the coequality of the two chambers of Congress.
DOCTRINE: Because the revenue bills are required to originate exclusively in the
House of Representatives, the Senate cannot enact revenue measures of its own
without such bills. After a revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version on the subject matter.
FACTS:
1. These are motions seeking reconsideration of our decision dismissing the
petitions filed in these cases for the declaration of unconstitutionality of R.A.
No. 7716, otherwise known as the Expanded Value-Added Tax Law. The
motions, of which there are 10 in all, have been filed by the several petitioners
in these cases.
2. Some of the petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL),
Roco, and Chamber of Real Estate and Builders Association (CREBA))
reiterate previous claims made by them that R.A. No. 7716 did not “originate
exclusively” in the House of Representatives as required by Art. VI, §24 of the
Constitution.
3. Although they admit that H. No. 11197 was filed in the House of
Representatives where it passed three readings and that afterward it was sent to
the Senate where after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not pass it on second and
third readings.
4. Instead, what the Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197 by striking out the
text of the bill and substituting it with the text of S. No. 1630. That way, it is
said, “the bill remains a House bill and the Senate version just becomes the text
(only the text) of the House bill.”
ISSUES:
1. (TOPIC)W/N RA 7716 violates Art VI Sec 241 of the Constitution? - NO
2. W/N RA 7716 violates Art VI Sec 26 (2)2 violate the Constitution? - NO
RULING: WHEREFORE, the motions for reconsideration are denied with finality and
the temporary restraining order previously issued is hereby lifted.
RATIO:
1. The enactment of S. No. 1630 is not the only instance in which the Senate
proposed an amendment to a House revenue bill by enacting its own version of
a revenue bill. On at least two occasions during the Eighth Congress, the Senate
passed its own version of revenue bills, which, in consolidation with House bills
earlier passed, became the enrolled bills. 
2. Thus, the enactment of S. No. 1630 is not the only instance in which the Senate,
in the exercise of its power to propose amendments to bills required to originate
in the House, passed its own version of a House revenue measure. It is
noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and
Roco, as members of the Senate, voted to approve it on second and third
readings.
3. On the other hand, amendment by substitution, in the manner urged by
petitioner Tolentino, concerns a mere matter of form. Petitioner has not shown
what substantial difference it would make if, as the Senate actually did in this
case, a separate bill like S. No. 1630 is instead enacted as a substitute measure,
“taking into Consideration . . . H.B. 11197.”
Article VI, Sec. 24
1
Art VI Sec 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills, shall originate exclusively in the House of Representatives, but
the Senate may propose or concur with amendments.
2
Art VI Sec 26 (2): No Bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been distributed to its members
three days before its passage, except when the president certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto
shall be allowed, and the vote theeon shall be taken immediately thereafter, and the yeas and nays entered
in the journal.
1. It is not the law but the revenue bill which is required by Constitution to
“originate exclusively” in the House of Representatives. Because a bill
originating in the House may undergo such extensive changes in the Senate that
the result may be a rewriting of the whole. As a result of the Senate action, a
distinct bill may be produced.
2. To insist that a revenue statute must substantially be the same as the House Bill
would be to deny the Senate’s power not only to “concur with amendments” but
also to “propose amendments”. It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the House
superior to the Senate.
3. Given the power of the Senate to propose amendments, the Senate can propose
its own version even with respect to bills which are required by the Constitution
to originate in the House.
4. What the Constitution simply means is that the initiative for filing revenue,
tariff, or tax bills, bills authorizing an increase of the public debt, private bills
and bills of local application must come from the House of Representatives on
the theory that elected as they are from the districts, the members of the House
of Representatives can be expected to be more sensitive to the local needs and
problems. The Senators, on the other hand, are expected to approach the
problem on national perspective. Both views are thereby made to bear on the
enactment of such laws.
5. HISTORY: The addition of the word “exclusively” in the Philippine
Constitution and the decision to drop the phrase “as on other Bills” in the
American version, according to petitioners, shows the intention of the framers
of our Constitution to restrict the Senate’s power to propose amendments to
revenue bills. Petitioner Tolentino contends that the word “exclusively” was
inserted to modify “originate” and “the words ‘as in any other bills’ (sic) were
eliminated so as to show that these bills were not to be like other bills but must
be treated as a special kind.”
6. The history of this provision does not support this contention. It will be recalled
that the 1935 Constitution originally provided for a unicameral National
Assembly. When it was decided in 1939 to change to a bicameral legislature, it
became necessary to provide for the procedure for lawmaking by the Senate and
the House of Representatives. The work of proposing amendments to the
Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly’s
lawmaking powers, sought to curtail the powers of the proposed Senate.
Accordingly, they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of
local application, and private bills shall originate exclusively in the
Assembly, but the Senate may propose or concur with amendments. In
case of disapproval by the Senate of any such bills, the Assembly may
repass the same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted and may be
submitted to the President for corresponding action. In the event that
the Senate should fail to finally act on any such bills, the Assembly
may, after thirty days from the opening of the next regular session of
the same legislative term, reapprove the same with a vote of two-thirds
of all the members of the Assembly. And upon such reapproval, the
bill shall be deemed enacted and may be submitted to the President for
corresponding action.
7. The special committee on the revision of laws of the Second National Assembly
vetoed the proposal. It deleted everything after the first sentence. As rewritten,
the proposal was approved and amended. The proposed amendment was
submitted to the people and ratified by them in the elections held on June 18,
1940.
8. This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art.
VI, §24 of the present Constitution was derived. It explains why the word
“exclusively” was added to the American text from which the framers of the
Philippine Constitution borrowed and why the phrase “as on other Bills” was
not copied. Considering the defeat of the proposal, the power of the Senate to
propose amendments must be understood to be full, plenary and complete “as
on other Bills.”
9. Thus, because revenue bills are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue measures of its own without
such bills. After a revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version on the same subject
matter. This follows from the coequality of the two chambers of Congress.
Article VI, Section 26 (2)
10. The president had certified S.No. 1630 as urgent. The presidential certification
dispensed with the requirement not only of printing but also that of reading the
bill on separate days. That upon the certification of a bill by the President the
requirement of three readings on separate days and of printing and distribution
can be dispensed with is supported by the weight of the legislative practice.
 ASSOCIATION OF CUSTOMS BROKERS v. THE
MUNICIPALITY BOARD (PRESH)
May 22, 1953 | Bautista Angelo, J. | Tax Uniformity
PETITIONER: Association of Customs Brokers, Inc. and G. Manlapit, Inc.
RESPONDENTS: The Municipality Board, the City Treasurer, the City Assessor,
and the City Mayor
SUMMARY: Ordinance No. 3379, entitled, "An Ordinance Levying a Property
Tax on All Motor Vehicles Operating Within the City of Manila" grants to the
municipal board the power "to tax motor and other vehicles operating within
the City of Manila the provisions of any existing law to the contrary
notwithstanding." It is contended that this power is broad enough to confer upon
the City of Manila the power to enact an ordinance imposing the property tax on
motor vehicles operating within the city limits. Sec.1 provides that the tax should
be 1 per cent ad valorem per annum and that the proceeds of the tax "shall accrue to
the Streets and Bridges Funds of the City and shall be expended exclusively for the
repair, maintenance and improvement of its streets and bridges.
The Association of Customs Brokers, Inc. challenge the validity of the said
ordinance on the ground that (1) while it levies a so--called property tax it is in
reality a license tax which is beyond the power of the Municipal Board of the
City of Manila; (2) said ordinance offends against the rule of uniformity of
taxation; and (3) it constitutes double taxation.
The issue in this case is WoN the tax imposed is property tax. – NO and (TOPIC)
WoN the ordinance infringes on the rule of the uniformity of taxation – YES
The Supreme Court held that the ordinance is invalid for levying an excise tax
which is not within the scope of the City’s power and for violating the rule on
uniformity. ON PROPERTY TAX: The Motor Vehicles Law states that no fees
may be demanded for the operation of any motor vehicle other than those therein
provided, the only exception being that which refers to the property tax which may
be imposed by a municipal corporation. The character of the tax as a property tax or
a license or occupation tax must be determined by its incidents, and from the
natural and legal effect of the language employed in the act or ordinance, and not
by the name by which it is described, or by the mode adopted in fixing its amount.
The ordinance in question falls under the foregoing rules. While it refers to
property tax and it is fixed ad valorem, it is merely levied on motor vehicles
operating within the City of Manila with the main purpose of raising funds to be
expended exclusively for the repair, maintenance and improvement of the streets
and bridges in said city. The ordinance merely imposes a license fee although under
the cloak of an ad valorem tax to circumvent the prohibition above adverted to.
ON UNIFORMITY (TOPIC): The ordinance infringes the rule of the uniformity of
taxation ordained by our Constitution. It exacts the tax upon all motor vehicles
operating within the City of Manila. It does not distinguish between a motor vehicle
for hire and one which is purely for private use. Neither does it distinguish between
a motor vehicle registered in the City of Manila and one registered in another place
but occasionally comes to Manila and uses its streets and public highways.
DOCTRINE: The rule on taxation shall be uniform and equitable.
FACTS:
1. Ordinance No. 3379, entitled, "An Ordinance Levying a Property Tax on
All Motor Vehicles Operating Within the City of Manila", and that in its
section 1, it provides that the tax should be 1 per cent ad valorem per
annum. It also provides that the proceeds of the tax "shall accrue to the
Streets and Bridges Funds of the City and shall be expended exclusively for
the repair, maintenance and improvement of its streets and bridges."
2. The ordinance was passed by Municipal Board of the City of Manila under
the authority conferred by section 18 (p) of Republic Act No. 409. Said
section confers upon the municipal board the power "to tax motor and other
vehicles operating within the City of Manila the provisions of any existing
law to the contrary notwithstanding." It is contended that this power is
broad enough to confer upon the City of Manila the power to enact an
ordinance imposing the property tax on motor vehicles operating within the
city limits.
3. The Association of Customs Brokers, Inc., which is composed of all brokers
and public service operators of motor vehicles in the City of Manila, and G.
Manlapit, Inc., a member of said association, also a public service operator
of the trucks in said City, challenge the validity of said ordinance on the
ground that (1) while it levies a so-called property tax it is in reality a
license tax which is beyond the power of the Municipal Board of the City of
Manila; (2) said ordinance offends against the rule of uniformity of
taxation; and (3) it constitutes double taxation.
4. The City of Manila, by the city fiscal, contend on their part that the
 challenged ordinance imposes a property tax which is within the power
of the City of Manila to impose under its Revised Charter [Section 18
(p) of Republic Act No. 409], and that the tax in question does not
violate the rule of uniformity of taxation, nor does it constitute double
taxation.
5. The CFI of Manila declared the ordinance valid and dismissed the petition.
ISSUE/s:
1. WoN the tax imposed is property tax. – NO.
2. TOPIC: WoN the ordinance infringes on the rule of the uniformity of
taxation - YES
RULING: Wherefore, reversing the decision appealed from, we hereby declare the
ordinance null and void.
RATIO:
On Property Tax
1. Section 70 (b) of the Motor Vehicles Law, as amended (Act No. 3992)
provide that no fees may be exacted or demanded for the operation of any
motor vehicle other than those therein provided, the only exception being
that which refers to the property tax which may be imposed by a municipal
corporation.
1. This provision is all-inclusive in that sense that it applies to all
motor vehicles.
2. This provision should be construed as limiting the broad grant
of power conferred upon the City of Manila by its Charter to
impose taxes.
3. When section 18 of said Charter provides that the City of Manila
can impose a tax on motor vehicles operating within its limit, it can
only refer to property tax.
2. While as a rule an ad valorem tax is a property tax, and this rule is
supported by some authorities, the rule should not be taken in its absolute
sense if the nature and purpose of the tax as gathered from the context show
that it is in effect an excise or a license tax.
3. It has been held that "If a tax is in its nature an excise, it does not become a
property tax because it is proportioned in amount to the value of the
property used in connection with the occupation, privilege or act which is
taxed. Every excise necessarily must finally fall upon and be paid by
property and so may be indirectly a tax upon property; but if it is really
imposed upon the performance of an act, enjoyment of a privilege, or the
engaging in an occupation, it will be considered an excise."
4. The character of the tax as a property tax or a license or occupation tax must
be determined by its incidents, and from the natural and legal effect of the
language employed in the act or ordinance, and not by the name by which it
is described, or by the mode adopted in fixing its amount.
5. If it is clearly a property tax, it will be so regarded, even though nominally
and in form it is a license or occupation tax; and, on the other hand, if the
tax is levied upon persons on account of their business, it will be construed
as a license or occupation tax, even though it is graduated according to the
property used in such business, or on the gross receipts of the business.
6. While it refers to property tax and it is fixed ad valorem yet we cannot
reject the idea that it is merely levied on motor vehicles operating within the
City of Manila with the main purpose of raising funds to be expended
exclusively for the repair, maintenance and improvement of the streets and
bridges in said city.
7. This prohibition is intended to prevent duplication in the imposition of fees
for the same purpose. It is for this reason that SC believes that the
ordinance in question merely imposes a license fee although under the
cloak of an ad valorem tax to circumvent the prohibition above
adverted to.
Uniformity of Taxation
8. The ordinance infringes the rule of the uniformity of taxation ordained by
our Constitution. It exacts the tax upon all motor vehicles operating within
the City of Manila. It does not distinguish between a motor vehicle for hire
and one which is purely for private use. Neither does it distinguish between
a motor vehicle registered in the City of Manila and one registered in
another place but occasionally comes to Manila and uses its streets and
public highways.
9. The distinction is important if we note that the ordinance intends to burden
with the tax only those registered in the City of Manila as may be inferred
from the word "operating" used therein. The word "operating" denotes a
connotation which is akin to a registration, for under the Motor Vehicle
Law no motor vehicle can be operated without previous payment of the
 registration fees.
10. The ordinance equally applies to motor vehicles who come to Manila for a
temporary stay or for short errands, and it cannot be denied that they
contribute in no small degree to the deterioration of the streets and public
highway. The fact that they are benefited by their use they should also be
made to share the corresponding burden. And yet such is not the case. This
is an inequality which we find in the ordinance, and which renders it
offensive to the Constitution.

Separate Opinions: FERIA, J., concurring:

I concur on the ground that it is a license tax.
 003 TAN v. DEL ROSARIO (Cruz)
October 3, 1994 | Vitug, J. | Uniformity of Taxation
GR 109289
PETITIONER: Rufino R. Tan
RESPONDENTS: Ramon del Rosario, Jr., as Secretary of Finance & Jose U. Ong
as Commissioner of Internal Revenue
GR 109446
PETITIONER: Carag, Caballes, Jamora and Somera Law Offices, Carlo A.
Carag, Manuelito O. Caballes, Elpidio C. Jamora, Jr. and Benjamin A. Somera, Jr.,
RESPONDENTS:Ramon del Rosario, in his capacity as Secretary of Finance and
Jose U. Ong, in his capacity as commissioner of Internal Revenue
SUMMARY: This is a consolidated special civil actions, challenging the
constitutionality of RA 7496 or the SNIT, amending certain provisions of the
National Internal Revenue Code and the validity of Section 6, Revenue Regulations
No. 2-93, promulgated by del Rosario, as Secretary of Finance & Ong as
Commissioner of Internal Revenue pursuant to said law. Petitioners, as taxpayers,
contends that the law attempted to tax single proprietorships and professionals
differently from the manner it imposed the tax on corporations and partnerships,
violating the rule on uniformity of taxation. Ths issue is W/N RA 7496 is
unconstitutional. The SC ruled in the negative. The legislative intent of the law is to
to increasingly shift the income tax system towards the schedular approach in the
income taxation of individual taxpayers and to maintain, by and large, the present
global treatment on taxable corporations. The classification is neither arbitrary nor
inappropriate.
DOCTRINE: Uniformity of taxation, like the kindred concept of equal protection,
merely requires that all subjects or objects of taxation, similarly situated, are to be
treated alike both in privileges and liabilities. Uniformity does not forfend
classification as long as: (1) the standards that are used therefor are substantial and
not arbitrary, (2) the categorization is germane to achieve the legislative purpose,
(3) the law applies, all things being equal, to both present and future conditions,
and (4) the classification applies equally well to all those belonging to the same
class
FACTS:
1. These two consolidated special civil actions for prohibition challenge, the
constitutionality of RA 7496 or the Simplified Net Income Taxation
Scheme ("SNIT"), amending certain provisions of the National Internal
Revenue Code and the validity of Section 6, Revenue Regulations No. 2-93,
promulgated by Ramon del Rosario, Jr. (del Rosario), as Secretary of
Finance & Jose U. Ong (Ong) as Commissioner of Internal Revenue
pursuant to said law.
2. Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation.
3. In G.R. No. 109289, it is asserted that the enactment of RA No. 7496
violates Article VI, Section 26(1)3, Article VI, Section 28(1)4, and Article
III, Section 15 of the Constitution
a. Tan contends that the title of House Bill No. 34314, originator of
RA No. 7496, is a misnomer or, at least, deficient for being merely
entitled, "Simplified Net Income Taxation Scheme for the Self-
3
Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be expressed in the
title thereof.
4
Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation.
5
Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person be denied
the equal protection of the laws.
 Employed and Professionals Engaged in the Practice of their
Profession"
b. Tan contends that the amendatory law should be considered as
having now adopted a gross income, instead of as having still
retained the net income, taxation scheme.
c. Tan contends that RA 7496 contravenes that constitutional
requirement that taxation "shall be uniform and equitable" in that
the law would now attempt to tax single proprietorships and
professionals differently from the manner it imposes the tax on
corporations and partnerships.
4. In G.R. No. 109446, petitioners assailing Section 66 of Revenue Regulations
No. 2-93, argue that del Rosario and Ong have exceeded their rule-making
authority in applying SNIT to general professional partnerships.
ISSUE/s:
1. WoN the SNIT (RA 7496) is unconstitutional for violating uniformity of
taxation- NO
2. del Rosario and Ong have exceeded their rule-making authority in applying
SNIT to general professional partnerships - NO
RULING: WHEREFORE, the petitions are DISMISSED. No special
pronouncement on costs.
SO ORDERED.
RATIO:
T the title of House Bill No. 34314, originator of RA No. 7496, is sufficient
1) the full text of the title actually reads:
a. An Act Adopting the Simplified Net Income Taxation Scheme For
The Self-Employed and Professionals Engaged In The Practice of
Their Profession, Amending Sections 217 and 298 of the National
Internal Revenue Code, as Amended.
6
Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the partners
comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the
direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by
partners in their individual capacities in the practice of their profession which are not reimbursed or paid by the
partnership but are not considered as direct cost, are not deductible from his gross income.
7
Sec. 21. Tax on citizens or residents. —
xxx xxx xxx
RA7496 still retained the net income, taxation scheme.
1) The allowance for deductible items, it is true, may have significantly been
reduced by the questioned law in comparison with that which has prevailed
prior to the amendment; limiting, however, allowable deductions from gross
income is neither discordant with, nor opposed to, the net income tax
concept. The fact of the matter is still that various deductions, which are by
no means inconsequential, continue to be well provided under the new law.
RA 7496 does not contravene that constitutional requirement of uniform
taxation
(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of Profession. — A tax is
hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year from all sources, other
than income covered by paragraphs (b), (c), (d) and (e) of this section by every individual whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices his profession herein,
determined in accordance with the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
8
Sec. 29. Deductions from gross income. — In computing taxable income subject to tax under Sections 21(a), 24(a), (b) and (c);
and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this section:  Provided, however,
That in computing taxable income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice of
profession, only the following direct costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity stricken areas
declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which must be proven to
have been incurred in connection with the conduct of a taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent (40%) of their
gross receipts shall be allowed as deductions to answer for business or professional expenses as the case may be.
 1) The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the
tax power. No such transgression is pesent in this case.
2) Uniformity of taxation, like the concept of equal protection, merely requires
that all subjects or objects of taxation, similarly situated, are to be treated
alike both in privileges and liabilities.
3) Uniformity does not violate classification as long as:
a. the standards that are used therefor are substantial and not
arbitrary,
b. the categorization is germane to achieve the legislative purpose,
c. the law applies, all things being equal, to both present and future
conditions, and
d. the classification applies equally well to all those belonging to the
same class.
4) What is apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular approach in
the income taxation of individual taxpayers and to maintain, by and large,
the present global treatment on taxable corporations. The Court does not
view this classification to be arbitrary and inappropriate.

del Rosario and Ong have not exceeded their rule-making authority in applying
SNIT to general professional partnerships

1) General professional partnership, unlike an ordinary business partnership

(which is treated as a corporation for income tax purposes and so subject to
the corporate income tax), is not itself an income taxpayer. The income tax
is imposed not on the professional partnership, which is tax exempt, but on
the partners themselves in their individual capacity computed on their
distributive shares of partnership profits.
2) Section 6 of Revenue Regulation No. 2-93, thus, did not alter, but merely
confirmed, the standing rule as now so modified by RA No. 7496 on the
extent of allowable deductions applicable to all individual income
taxpayers on their non-compensation income.
3) There is no evident intention of the law, either before or after the
amendatory legislation, to place in an unequal footing or in significant
variance the income tax treatment of professionals who practice their
respective professions individually and of those who do it through a general
professional partnership.
 MARC DONELLY & ASSOCIATES v. AGREGADO (DANNAH)
May 31, 1954 | Paras, J. | Delegation Of Power To Tax To The President
PETITIONER: Marc Donnelly and Associates, Inc.
RESPONDENTS: Manuel Agregado et al.
SUMMARY: Commonwealth Act No. 728 was enacted making it unlawful for
any person or entity to export agricultural/indusrial products, merchandise,
articles materials and supplies without a permit rom the President. The same act
authorizes the President to regulate the exportation of such and to issue rules and
regulations as necessary.
Pursuant to this, the President promulgated EO3 prohibiting the exportation of
certain materials but allowing the exportation of scrap metals, provided an export
license is first obtained from the Phil Sugar Administration (PSA lol). The
Cabinet on October 1947 approved a resolution fixing the schedule of royalty
rates to be charged on metal exports.
Petitioner Marc Donnelly and Associates (Marc D) exported a lot of scrap metals
from Dec 1947 to Sep 1948. It paid royalty fees of P54,862.84. Marc D requested
for a refund of such which the Auditor General denied. It alleges that the
resolution of the Cabinet constitutes an undue delegation of legislative powers
because it creates and imposes an ad valorem tax.
The Court ruled against Marc D citing Article VI Sec. 22(2) of the 1935
Constitution. Congress approved CA 728 conferring upon the President authority
to regulate, curtail, control, and prohibit the exports of scrap metals and to issue
such rules and regulations as may be necessary to carry out its provisions. To
implement this authority, the Cabinet approved the resolution in question
authorizing the levy and collection of certain royalty fees as a condition for the
exportation of scrap metals and other merchandise.
The Constitution authorizes the imposition because the royalty rates may take the
form of tariff rates.
DOCTRINE: Although it is contended that the royalty rates are not fees but are
in the nature of an ad valorem tax, it is wrong to think that the imposition of such
cannot be delegated to the President by Congress because the rule which forbids
delegation of legislative power admits of exceptions such as the Article VI, Sec.
22(2).
FACTS:
1. This case is a petition for review of a decision of the Auditor General. He
denied the claim of Marc Donnelly and Associates Inc. (Marc D) of the
refund of what it paid to the Sugar Quota Office (SQO) in the amount of
P54, 862.84.
2. Commonwealth Act No. 728 was enacted in 1946
a. Making it unlawful for any person, association or corporation to export
agricultural or industrial products, merchandise, articles, materials, and
supplies without a permit from the President of the Philippines.
b. This Act confers upon the President authority to "regulate, curtail, control,
and prohibit the exportation of materials abroad and to issue such rules
and regulations as may be necessary to carry out the provisions of this Act,
through such department or office as he may designate."
3. The then President promulgated EO 3, prohibiting the exporation of certain
materials aforementioned, allowing exportation of other merchandise (i.e.
scrap metals), provided an export license is first obtained from the
Philippine Sugar Administration (PSA lol).
4. The Chief of the Executive Office sent a communication to the PSA
authorizing the exportation of scrap metals upon payment by the applicants
of P10/ton of metals.
5. The Cabinet then on October 24, 1947 approved a resolution fixing the
schedule of royalty rates to be charged on metal exports (MOST
IMPORTANT).
6. Marc D exported lots of scrap iron, brass, copper and aluminum from
December 1947 – September 1948. It paid royalty fees of P54,862.84.
7. This was collected by the SQO, as authorized by the Chief of the Executive
Office and the resolution of the Cabinet.
8. Hence, this appeal from the Auditor General’s decision denying the request
for refund of said royalty fees.
9. Marc D contends that the aforementioned resolution of the Cabinet fixing
the schedule of royalty rates for metal exports constitutes an undue
delegation of legislative powers because it creates and imposes an ad
valorem tax.
ISSUE/s:
1. WoN the the imposition of license and royalty fees by the President was an
imposition of tax
RULING: Wherefore, petition is dismissed, without pronouncement as to costs.
RATIO:
1. Article VI, Sec. 22(2) of the [1935] Constitution states:
a. The Congress may by law authorize the President, subject to such
limitations and restrictions, as it may impose, to fix, within specified
limits, tariffs rates, import or export quotas, and tonnage and wharfage
dues.
2. Congress through this provision may by law authorize the President, subject
to certain limitations, to fix within specified limits tariff rates, import or
export quotas and tonnage and wharfage dues.
3. Pursuant to such, Congress approved CA 728 conferring upon the President
 authority to regulate, curtail, control, and prohibit the exports of scrap power to regulate the establishment and operation of schools, he may,
metals and to issue such rules and regulations as may be necessary to carry instead of regulating, just require the schools to pay taxes.
out its provisions. 5. Extreme examples indeed: but they illustrate the idea that the police power
4. To implement this authority, the Cabinet approved the resolution in to prohibit, or regulate, does not include the power to permit upon payment
question authorizing the levy and collection of certain royalty fees as a of taxes.
condition for the exportation of scrap metals and other merchandise.
5. The Court believes the resolution is legal because it was done by authority
of CA 728 and in pursuance of an express provision from the Constitution.
6. The fact that the resolution was approved by the Cabinet and the collection
of the royalty fees was not decreed by virtue of an order issued by the
President himself does not invalidate said resolution because it cannot be
disputed that the act of the Cabinet is deemed to be, and essentially is, the
act of the President.
7. Although it is contended that the royalty rates are not fees but are in the
nature of an ad valorem tax, it is wrong to think that the imposition of such
cannot be delegated to the President by Congress because the rule which
forbids delegation of legislative power admits of exceptions such as the
Article VI, Sec. 22(2).
8. The Constitution authorizes the imposition because the royalty rates may
take the form of tariff rates.
9. The core of CA 728 is that while common trades or industries, or the
exportation of merchandise in general cannot be prohibited but only
regulated, exportation of scrap metals may be completely banned.
10. CA 728 authorizes he President not merely to regulate but to prohibit
altogether the exportation of certain articles, among them scrap metals.
Hence, there is no absolute right on the part of any person or entity to
export such materials.
11. The payment of the royalty can be considered as the consideration for the
exercise of the privilege and one who avails of that privilege and pays the
consideration is guilty of estoppel.

Note: The other opinions are in pure Spanish

Bengzon, Dissenting:
1. The authority to regulate — and to require payment of fees on — exports
was entrusted to the President. That power was not expressly delegated by
the President to the Cabinet.
2. The conclusions of the Cabinet and its resolutions are not necessarily the
President's. We may not, therefore, hold that, in the eyes of the law, the
Cabinet's resolution of October 24, 1947 was the act of the President.
3. It was the act of the Cabinet, that had no statutory authority to require
payment of royalties or export fees. Not even Congress could
constitutionally delegate to the Cabinet its power to tax.
4. It is said that because the President had the power to regulate and prohibit
exportation of metals, he could permit exportation thereof upon payment of
taxes. This is tantamount to saying that, as the Secretary of Education has
 COMMISSIONER OF INTERNAL REVENUE v. CA (MICA)
October 14, 1998 | Panganiban, J. | Tax exemption
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Court of Appeals, Court of Tax Appeals, and Young Men’s
Christian Association of the Philippines, Inc. (YMCA)
SUMMARY: YMCA is a non-stock, non-profit institution, which conducts various
programs and activities beneficial to the public pursuant to its religious, educational
and charitable objectives. It then leased some of its properties to non-members. So,
CIR issued an assessment worth P415,615 for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. YMCA protested. The main issue in this case is WoN
the the income derived from rentals of real property owned by the YMCA subject
to income tax under the last paragraph of Section 27 of the NIRC and the
Constitution. The Court said yes. In the present case, the exemption claimed by the
YMCA is expressly disallowed by the very wording of the last par. of Sec. 27 of
the NIRC. Sec. 27 of the NIRC mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be subject to the
tax imposed by the same Code. Where the language of the law is clear and
unambiguous, its express terms must be applied. YMCA argued that the income
from the properties must aries from activities conducted for profit before it may be
taxable. But, the phrase “any of their activities conducted for profit” does not
qualify the word “properties.” This makes income from the property of the org
taxable, regardless of how the income is used.
DOCTRINE: Rental income was taxable and that constitutional grant of tax
exemption to charitable institutions pertain only to real property taxes on all lands,
buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes.
FACTS:
1. This is a petition for review on certiorari challenging the two resolutions
issued by the CA, which affirmed the decision of the CTA, allowing the
YMCA to claim tax exemption on the latter’s income from the lease of its
real property
2. YMCA is a non-stock, non-profit institution, which conducts various
programs and activities beneficial to the public, especially the young
people, pursuant to its religious, educational and charitable objectives
3. In 1980, YMCA earned P676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators, and
P44,259 from parking fees collected from non-members
4. 1984, CIR issued an assessment worth P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes
on rentals and professional fees and deficiency withholding tax on wages
5. YMCA protested but CIA denied the claims of YMCA.
6. It then filed a petition for review at the CTA.
7. CTA held that the leasing of the properties is reasonably incidental to and
reasonable necessary for the accomplishment of YMCA’s objectives.
1. Based on the testimony of Delote (former accountant of YMCA),
these were leased to members and the rentals were minimal. There
was also no lot devoted for parking. It was only the sides of the
building and they only charged P0.50 for non-members.
2. The rentals and fees were only for the costs of operation and
maintenance (the membership dues were insufficient)
3. It would be different if they bought lots and converted it to a
parking lot or construct a building to earn. It would then be profit-
oriented, making it faill under Sec. 27 of the Tax Code.
4. Hence, CIR’s petition was dismissed by the CTA
8. CIR elevated the case to the CA. CA first reversed the decision so YMCA
filed an MR. MR was approved. CA said that it cannot depart from the
CTA’s finding of fact and that the little income from small shops and
parking fees helps to keep its head above the water and allow it to continue
its work. CIR’s MR was denied
 Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit, regardless of the disposition made of such income,
ISSUE/s:
shall be subject to the tax imposed under this Code

3. WoN the CA departed from the findings of fact of CTA - No

4. WoN the income derived from rentals of real property owned by the YMCA
—established as “welfare, educational and charitable non-profit
corporation”—subject to income tax under the last paragraph of Section 27
of the NIRC and the Constitution - YES
RULING: The petition (of CIR) is meritorious.
RATIO:
First issue: Factual findings of the CTA
1. basic rule in taxation that the factual findings of the CTA, when supported
by substantial evidence, will not be disturbed on appeal unless it is shown
that the said court committed gross error in the appreciation of facts
2. CIR argues that the CA merely reversed the ruling of the CTA that the
leasing of the properties is reasonably incidental to and reasonable
necessary for the accomplishment of the objectives of YMCA and that the
income derived therefrom are tax exempt
3. So, in short, CIR’s argument is that the only thing CA reversed is the legal
conclusion, not the factual finding
4. SC held that the CA did not alter any fact or evidence. It merely applied the
law to the facts as found by the CTA and ruled on the issue raised by CIR.
This is a question of law.
Second issue: Is the resntal Income of the YMCA Taxable?
1. Section 27: Exemptions from tax on corporations:
(g) civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare
(h) club organized and operated exclusively for pleasure, recreation, and other non-profitable
purposes, no part of the net income of which inures to the benefit of any private stockholder or
member xxx
2. CIR argued that while the income received by the organizations enumerated
in Section 27 (now, 26) of the NIRC is, as a rule, exempted from the
payment of tax “in respect to income received by them as such,” the
exemption does not apply to income derived “from any of their properties,
real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income.”
3. CIR also argued that “rental income derived by a tax-exempt org from the
lease of its properties is not therefore, exempt from income taxation, even if
such is exclusively used for the accomplishment of its objectives.
4. Because taxes are the lifeblood of the nation, the Court has always applied
the doctrine of strict interpretation in construing tax exemptions
5. Also, a claim of statutory exemption from taxation should be manifest and
unmistakeable from the language of the law on which it is based. It must be
expressly granted.
6. In the present case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last par. of Sec. 27 of the NIRC.
7. Sec. 27 of the NIRC mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be
subject to the tax imposed by the same Code.
8. Where the language of the law is clear and unambiguous, its express
terms must be applied.
9. YMCA argued that the income from the properties must aries from
activities conducted for profit before it may be taxable. But, the phrase
“any of their activities conducted for profit” does not qualify the word
“properties.” This makes income from the property of the org taxable,
regardless of how the income is used.
10. Verbal egis non est recedendum. The law does not make a distinction.
11. Art. VI, Section 28 of par. 3 of the 1987 Consti exempts charitable
institutions from the payment non only of property taxes but also of income
tax from any source. So, YMCA compared the different constitutions
(including 1935). Its 3 points:
a. First, the present provision is divisible into two categories: (1) [c]haritable
institutions, churches and parsonages or convents appurtenant thereto,
mosques and non-profit cemeteries, the incomes of which are, from
whatever source, all tax-exempt; and (2) [a]ll lands, buildings and
improvements actually and directly used for religious, charitable or
educational purposes, which are exempt only from property taxes.
 b. Second, Lladoc v. Commissioner of Internal Revenue, which limited the
exemption only to the payment of property taxes, referred to the provision
of the 1935 Constitution and not to its counterparts in the 1973 and the
1987 Constitutions.
c. Third, the phrase actually, directly and exclusively used for religious,
charitable or educational purposes refers not only to all lands, buildings
and improvements, but also to the above-quoted first category which
includes charitable institutions like the private respondent.
12. The Court is not persuaded. The debates, interpellations and expressions of
opinion of the framers of the Consti reveal their intent.
a. Justice Hilario Davide, Jr.: what is exempted is not the institution
itself. Those exempted from real estate taxes are lands, buildings
and imporvements actually, directly and exclusively used for
religious, charitable or educational purposes.
b. Fr. Bernas: Exemption created by said provision pertained only to
property taxes.
c. Mr. Justice Jose C. Vitug: same with fr. B
d. Thus, YMCA’s claim finds no basis in Art. VI, Sec. 28, par. 3 of
the Consti.
13. Hence, for YMCA to be exempted, it must prove with substantial evidence
that:
a. It falls under the classification non-stock, non-profit educational
institution
b. The income it seeks to be exempted from taxation used actually,
directly, and exclusively for educational purposes.
c. YMCA wasn’t able to prove this
14. YMCA is also not an educational institution within the purview of Art.
XIV, Sec. 4, par. 3 of the Consti. It refers to schools or an educational
institution. N educational institution when used in laws granting tax
exemptions refers to a “school seminary, college or educational
establishment”. YMCA is neither as it did not also submit proof to show
that it is.
15. The cases that it cited are als inapplicable:
a. YMCA of Manila v. Collector of Internal Revenue, and Abra
Valley College, Inc. v. Aquino – exemption from the payment of
prop tax (not income tax)
b. Hospital de San Juan de Dios, Inc. v. Pasay City – a claim for
exemption from the payment of regulatory fees, specifically
electrical inspection fees, imposed by an ordinance (not at all
related)
c. Jesus Sacred Heart College v. Com. Of Internal Revenue- the
claimant submitted substantial evidence to show that it is an
educational institution
16. The Court cannot rule on the wisdom of the legislation
Bellosillo, J., Dissent
1. The basic rule is that the factual findings of the the CTA when supported by
substantial evidence will not be disturbed on appeal unless it is shown that
the court committed grave error in appreciation of facts
2. CTA found YMCA to be an association organized and operated exclusively
for the promotion of social welfare and other non-profitable purposes,
particularly the physical and character development of the youth
3. Bellosillo contents that majority of the court upheld the findings of the CTA
that the leasing of petitioner’s facilities to small shop owners and to
restaurants and canteen operators in addition to the operation of a parking
lot are reasonably necessary for and incidental to the accomplishment of the
objectives of YMCA
4. Same arguments with YMCA (#7 bullet points)
5. Thus, Bellosillo said that the CA committed grave abuse of error in
departing from the findings of the CTA by declaring that the leasing of
YMCA’s facilities to shop owners and restaurant operators and the
operation of a parking lot are used for commercial purposes or for profit,
which takes YMCA outside the coverage of tax exemption
6. YMCA is also exempt from income tax under Sec. 27 (g) and (h) of the
NIRC
7. YMCA is not engaged in any profit-making business and according to Sec.
27, only those profis arising from business and investments involving
property are taxable
8. The Court ruled in one case, the fact that tuition fees and other fees does not
make an educational institution a profit-making business that would not
make it exempt from tax
9. The mere realization of profits out of its operation does not automatically
result in the loss of an educational insitution’s exemption from income tax
as long as no part of its profits inures to the benefit of any individual
10. The test in order to make such income taxable is when it arises from purely
profit-making business. Otherwise, when the income derived from use of
property is reasonable and incidental to the charitable, benevolent,
educational or religious purpose for which the corp is created
11. Majority of the income of the orgs covered by the exemption under Sec. 27
are derived from their properties. If we interpret it to the effect that all
 income of whatever kind are taxable, even if not conducted for profit, Sec.
27 would be rendered ineffective and nugatory
12. It also found support in Art. XIV, Sec. 4, par. 3 of the Consti:
(3) all revenues and assets of non-stock, non-profit educ insittutions used
actually, directly, and exclusively for educational purposes shall be exempt
from taxes and duties. Upon the dissolution or cessation of the corp
existence of such institutions, their assets shall be disposed of in the manner
provided by law

13. YMCA cannot be said to be an institution used exclusively for religious purposes
or an institution devoted exclusively for charitable purposes or an intuition devoted
exclusively to educational purposes , but it can be truthfully said that it is an
institutional used exclusively for all three purposes
 ABRA VALLEY COLLEGE v. AQUINO (Casey)
June 15, 1988 | Paras, J. | property not directly, actually, and exclusively used for
educational purposes shall be liable for real property taxes
FACTS:
PETITIONER: Abra Valley College Inc. represented by Pedro Borgonia
RESPONDENTS: Judge Juan Aquino, Armin Cariaga (Prov Treasurer),
Gaspar V. Bosque (Municipal Treasurer), heirs of Paterno Millare
SUMMARY: Abra Valley College lot and bldg. was sold at a public auction for
failure to pay real estate taxes and penalties amounting to P5,140.31. A portion
of the school premises were used for residential purposes by the students as well
as the Director (Pedro Borgonia). In the public auction sale, Paterno Millare
(Mayor of Bangued, Abra where the school is located) won the bidding. Abra
filed a complaint to annul the Notice of Seizure and Notice of Sale which led to
the sale of the lot and bldg. of the school and argued that the school’s residential
areas are incidental to the educational purpose of the school and should thus be
exempt from tax based on jurisprudence and the laws.
Issue: WoN Abra is used exclusively for educational purposes - NO
The SC agreed that the residential purpose is indeed incidental to the
educational purpose (primary purpose) of the school. However, the 1st flr of the
main building of the school (NOTE: this was only raised for the first time in the
SC based on the origs) is leased by Northern Marketing Corporation; it is used
for commercial purposes which is NOT incidental to the educational purpose of
the school and should thus be taxed. In the end, the school was indeed taxed but
only for half of the assessed tax since the residential purpose in the school was
considered exempt.
DOCTRINE: Reasonable emphasis has always been made that exemption
extends to facilities which are incidental to and reasonably necessary for
the accomplishment of the main purposes. Property which are not directly,
actually and exclusively used for religious, educational, or charitable purposes
shall be liable to real property taxes.
1. Abra Valley College, Inc. (Abra) is an educational corporation and
institution of higher learning duly incorporated with the Securities and
Exchange Commission (SEC) in 1948. Pedro V. Borgonia is the Director
2. Abra filed a complaint on July 10, 1972 in the court to annul and declare
void the Notice of Seizure and Notice of Sale of its lot and bldg. located in
Bangued, Abra for non-payment of real estate taxes and penalties
amounting to P5,140.31
a. Notice of Seizure: was issued by the Municipal and Provincial
Treasurer for satisfaction of said taxes
b. Notice of Sale: was caused to be served upon Abra by the
Provincial and Municipal Treasurer for the sale at public auction of
the said lot and bldg. on July 8, 1972 (auction held on the same
date where Abra will be served notice)
3. Dr. Paterno Millare, then Municipal Mayor of Bangued, offered the highest
bid (P6,000) so it was sold to him and the certificate of sale was issued
4. Millare (note: deceased na siya when this case was resolved) filed a motion
to dismiss the complaint. The Provincial and Municipal Treasurer filed their
answer to the complaint
5. With the aforesaid sale of the school at public auction, Judge Juan P.
Aquino of the CFI of Abra (now defunct) ordered the Treasurers to deliver
to the Clerk of Court the proceeds of the auction sale. Director Borgonia
deposited with the trial court the sum of P6,000 evidenced by a PNB check
6. In addition to the Stipulation of Facts, the trial court found the following:
a. The school is recognized by the govt and is offering Primary, HS,
and College Courses and has a population of more than 1,000
students
 b. The school is located in the heart of the town of Bangued 2.
c. Elem students are housed in a 2-storey bldg. across the street
3.
d. HS and college students are housed in the main bldg.
e. Director with his family is in the second flr of the main bldg.
f. The annual gross income of the school reaches more than P100k
7. In order to determine whether the lot and bldg. was used exclusively for
educational purposes, Provincial Fiscal Solomon and Asst. Montero filed a
Memorandum for the Govt. and opined that the evidence, laws, court
4.
decisions and jurisprudence point out to the conclusion that the school bldg.
and lot of Abra which is used for educational purposes are exempt from the
payment of taxes
5.
8. But the trial court disagreed since Director Borgonia uses the 2nd flr of the
main bldg. for residential purposes. Judge Aquino ruled in favor of the govt.
9. Hence the Court resolved to give due course to the petition
6.
ISSUES:
1. WoN the Abra Valley College lot and bldg. is used exclusively for
educational purposes – NO (bc of 1st floor of Abra main bldg.; see Ratio #6)
RULING: Decision of the CFI Abra (Judge Aquino) is AFFIRMED subject to
modification that half of the assessed tax be returned to the petitioner.
In relation, Sec 54(c) of Commonwealth Act No. 470 as amended by RA
409 (Assessment Law) provides the same statement (Ratio #1)
Abra argues that the primary use of the school lot and bldg. is the basic and
controlling guide, norm and standard to determine tax exemption, and not
the mere incidental use thereof
a. A number of cases explained that the term “used exclusively”
considers incidental use as well. So, areas of the lot which are not
for religious, charitable or educational purposes but are incidental
to those purposes are included in the exemption
Reasonable emphasis has always been made that exemption extends to
facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes.
The use of the 2nd flr of the main building for residential purposes of the
Director and his family, may find justification under the concept of
incidental use, which is complimentary to the main or primary purpose
—educational. (exempted)
(IMPT) BUT, the lease of the 1st flr thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered
incidental to the purpose of education. (not exempt)
a. This was raised for the first time in the Court (not taken up in the
decision of Judge Aquino)
b. Nonetheless, this is considered as an exception to the rule that
facts not raised in the lower court cannot be taken up for the first
time on appeal because it is in the interest of substantial justice
(lifeblood theory). Abra will be taxed for the 1st flr use.

RATIO:

1. The Consti provision which applies to the case is Sec. 22 (3) of Art VI of
the then 1935 Consti which grants exemption from realty taxes of
“cemeteries, churches and parsonages or convents appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious,
charitable or educational purposes.
 007 Lung Center of the Philippines v. QC (Rayos)
June 29, 2004|Callejo Sr., J. | Various constitutional provisions on taxation Article 6
Section 28 (3)
PETITIONER: Lung Center of the Philippines
RESPONDENTS: Quezon city and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon City
SUMMARY: Petitioner Lung Center is a non-stock, non-profit entity
established by virtue of PD No. 1823, petitioner Lung Center seeks
exemption from real property taxes when the City Assessor issued Tax
Declarations for the land and the hospital building. Petitioner Lung Center
predicted on its claim that it is a charitable institution. The request was
denied, and a petition hereafter filed before the Local Board of Assessment
Appeals of Quezon City (QC-LBAA) for reversal of the resolution of the
City Assessor. Petitioner Lung Center alleged that as a charitable
institution, is exempted from real property taxes under Sec 28(3) Art VI of
the Constitution. QC-LBAA dismissed the petition and the decision was
likewise affirmed on appeal by the Central Board of Assessment Appeals
of Quezon City. The Court of Appeals affirmed the judgment of the
CBAA.
1.Whether or not petitioner Lung Center is a charitable institution
within the context of PD 1823 and the 1973 and 1987 Constitution and
Section 234(b) of RA 7160? Yes. The Court hold that the petitioner is a
charitable institution within the context of the 1973 and 1987 Constitution.
Under PD 1823, the petitioner is a non-profit and non-stock corporation
which, subject to the provisions of the decree, is to be administered by the
Office of the President with the Ministry of Health and the Ministry of
Human Settlements. The purpose for which it was created was to render
medical services to the public in general including those who are poor and
also the rich, and become a subject of charity. Under PD 1823, petitioner is
entitled to receive donations, even if the gift or donation is in the form of
subsidies granted by the government.
2. Whether or not petitioner Lung Center is exempted from real
property taxes? Partly No. Under PD 1823, the lung center does not
enjoy any property tax exemption privileges for its real properties as well
as the building constructed thereon. The property tax exemption under Sec.
28(3), Art. VI of the Constitution of the property taxes only. This provision
was implanted by Sec.243 (b) of RA 7160.which provides that in order to
be entitled to the exemption, the lung center must be able to prove that: it is
a charitable institution and; its real properties are actually, directly and
exclusively used for charitable purpose. Accordingly, the portions occupied
by the hospital used for its patients are exempt from real property taxes
while those leased to private entities are not exempt from such taxes.
DOCTRINE: Lung Center is liable for real property taxes on portions of
their property leased to private entities. In order to be entitled to the
exemption, the petitioner Lung Center is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution; and (b) its real
properties are ACTUALLY DIRECTLY AND EXCLUSIVELY used for
charitable purposes. Lung Center failed to discharge its burden to prove
that the entirety of its property is actually, directly and exclusively used for
charitable purposes.
FACTS:
1. Petitioner Lung Center is a non-stock, non-profit entity which owns a parcel
of land in Quezon city. Erected in the middle of the aforesaid lot is a
hospital known as the Lung Center of the Philippines.
2. The ground floor is being leased to a canteen, medical professionals who
use the same as their private clinics, as well as to other private parties.
3. The right portion of the lot is being leased for commercial purposes to the
Eliptical Orchids and Garden Center.
4. The petitioner Lung Center accepts paying and non-paying patients. It also
renders medical services to out-patients, both paying and non-paying. Aside
from its income from paying patients, the petitioner receives annual
subsidies from the government.
5. Petitioner Lung Center filed a claim for exemption on its averment that it is
a charitable institution with a minimum of 60% of its hospital beds
exclusively used for charity patients and that the major thrust of its hospital
operation is to serve charity patients.
6. The city assessor denied the claim. When appealed to the QC-local board of
assessment, the same was dismissed.
7. On appeal, the central board of assessment appeals affirmed the local
board’s decision, finding that lung center of the Philippines is not a
charitable institution and that its properties were not actually, directly and
 exclusively used for charitable purposes.
8. Hence, the present petition for review with averments that the Lung Center
of the Philippines is a charitable institution under section 28 (3), Article VI
of the Constitution.
a. Section 28 (3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes
shall be exempt from taxation.
ISSUES:
1. Whether the petitioner Lung Center is a charitable institution within the
context of Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No. 7160? Yes
2. Whether the real properties of the petitioner Lung Center are exempt from
real property taxes? Partly No.
RULING: Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private individuals are not
exempt from such taxes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or non-
paying, are exempt from real property taxes. IN LIGHT OF ALL THE
FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon
City Assessor is hereby DIRECTED to determine, after due hearing, the precise
portions of the land and the area thereof which are leased to private persons, and to
compute the real property taxes due thereon as provided for by law.
RATIO:
1. The court held that the petitioner Lung Center is indeed a charitable
institution based on its charter and articles of incorporation.
2. As a general principle, a charitable institution does not lose its character as
such and its exemption from taxes simply because it derives income from
paying patients, whether out-patient or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or operating
the institution it is a charitable institution.
3. In this case, the petitioner Lung Center adduced substantial evidence that it
spent its income, including the subsidies and from the government for 1991
and 1992 for its patients and for the operation of the hospital. It even
incurred a net loss in 1991 and 1992 from its operations.
4. Despite this, the court held that the portions of real property that are
leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable
purposes. While portions of the hospital are used for treatment of patients
and the dispensation of medical services to them whether paying or non-
paying, other portions thereof are being leased to private individuals and
enterprises.
5. Accordingly, the portions occupied by the hospital used for its patients
are exempt from real property taxes while those leased to private
entities are not exempt from such taxes. Under P.D. No. 1823, the
petitioner Lung Center is entitled to received donations. The petitioner
does not lose its character as a charitable institution simply because the
gift or donation is in the form of subsidies granted by the government.
6. Section 2 of PD 1823 states that the petitioner Lung Center “shall be
exempt from income and gift taxes, the same further deductible in full for
the purpose of determining the maximum deductible amount under Section
30, paragraph (h), of the national internal revenue code, as amended.
7. The Lung Center of the Philippines shall be exempt from the payment of
taxes, charges and fees imposed by the government or any political
subdivision or instrumentality thereof with respect to equipment purchases
made by, or for the Lung Center. It is clear that the petitioner Lung Center
is not exempted from any property tax for its real properties and buildings.
8. On the other hand, Section 28(3), Article 6 of the Constitution covers only
property taxes which means that the institution itself is not exempted rather,
only those lands, buildings and improvements actually, directly, and
exclusively used for charitable purposes.
9. The petitioner Lung Center failed to discharge its burden to prove that the
entirety of its real property is actually, directly and exclusively used for
charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them,
whether paying or non-paying, other portions thereof are being leased to
private individuals for their clinics and a canteen.
10. Further, a portion of the land is being leased to a private individual for her
business enterprise under the business name “Eliptical Orchids and Garden
Center.” Indeed, the petitioner’s evidence shows that it collected
P1,136,483,45 as rentals in 1991 and P1,679,999.28 for 1992 from the said
lessees.
 CIR v ST. LUKE’S (Clark)
September 26, 2012 | Carpio, J. |
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: St. Luke’s Medical Center, Inc.
SUMMARY: St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a
non-stock and non-profit corporation. St. Luke’s accepts both paying and non-paying
patients. The BIR assessed St. Luke’s deficiency taxes for 1998 comprised of deficiency
income tax, value-added tax, and withholding tax. The BIR claimed that St. Luke’s
should be liable for income tax at a preferential rate of 10% as provided for by Section
27(B). Further, the BIR claimed that St. Luke’s was operating for profit in 1998 because
only 13% of its revenues came from charitable purposes. Moreover, the hospital’s board
of trustees, officers and employees directly benefit from its profits and assets. On the
other hand, St. Luke’s maintained that it is a non-stock and non-profit institution for
charitable and social welfare purposes exempt from income tax under Section 30(E) and
(G) of the NIRC. It argued that the making of profit per se does not destroy its income tax
exemption. CTA ruled in favor of St. Luke’s. Issue is WoN St. Luke’s is liable for
deficiency income tax in 1998 under Section 27(B) of the NIRC, which imposes a
preferential tax rate on the income of proprietary non-profit hospitals? SC held that St.
Luke’s is liable. Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand,
and Section 30(E) and (G) on the other hand, can be construed together without the
removal of such tax exemption. To be exempt from real property taxes, Section 28(3),
Article VI of the Constitution requires that a charitable institution use the property
“actually, directly and exclusively” for charitable purposes. To be exempt from income
taxes, Section 30(E) of the NIRC requires that a charitable institution must be “organized
and operated exclusively” for charitable purposes. Likewise, to be exempt from income
taxes, Section 30(G) of the NIRC requires that the institution be “operated exclusively”
for social welfare. The Court finds that St. Luke’s is a corporation that is not “operated
exclusively” for charitable or social welfare purposes insofar as its revenues from paying
patients are concerned. This ruling is based not only on a strict interpretation of a
provision granting tax exemption, but also on the clear and plain text of Section 30(E) and
(G). St. Luke’s fails to meet the requirements under Section 30(E) and (G) of the NIRC to
be completely tax exempt from all its income.
DOCTRINE: The Constitution exempts charitable institutions only from real property
taxes. In the NIRC, Congress decided to extend the exemption to income taxes. However,
the way Congress crafted Section 30(E) of the NIRC is materially different from Section
28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the corporation
or association that is exempt from income tax. On the other hand, Section 28(3), Article
VI of the Constitution does not define a charitable institution, but requires that the
institution “actually, directly and exclusively" use the property for a charitable purpose.
FACTS:
1. The Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes
amounting to ₱76,063,116.06 for 1998, comprised of deficiency income
tax, value-added tax, withholding tax on compensation and expanded
withholding tax. The BIR reduced the amount to ₱63,935,351.57 during
trial in the First Division of the CTA.
2. St. Luke's filed an administrative protest with the BIR against the deficiency
tax assessments. The BIR did not act on the protest within the 180-day
period under Section 228 of the NIRC. Thus, St. Luke's appealed to the
CTA.
3. The BIR argued before the CTA that Section 27(B) of the NIRC, which
imposes a 10% preferential tax rate on the income of proprietary non-profit
hospitals, should be applicable to St. Luke's.
a. According to the BIR, Section 27(B), introduced in 1997, is a new
provision intended to amend the exemption on non-profit hospitals
that were previously categorized as non-stock, non-profit
corporations under Section 26 of the 1997 Tax Code.
b. It is a specific provision which prevails over the general exemption
on income tax granted under Section 30(E) and (G) for non-stock,
non-profit charitable institutions and civic organizations promoting
social welfare.
4. The BIR claimed that St. Luke's was operating for profit in 1998 because
only 13% of its revenues came from charitable purposes. Moreover, the
hospital's board of trustees, officers and employees directly benefit from its
profits and assets.
5. St. Luke's contended that the BIR should not consider its total revenues,
because its free services to patients was ₱218,187,498 or 65.20% of its 1998
operating income (i.e., total revenues less operating expenses) of
₱334,642,615. St. Luke's also claimed that its income does not inure to the
benefit of any individual.
6. St. Luke's maintained that it is a non-stock and non-profit institution for
charitable and social welfare purposes under Section 30(E) and (G) of the
NIRC. It argued that the making of profit per se does not destroy its income
tax exemption.
7. There are two petitions filed but the first petition was dismissed because the
petition raises factual issues. Under Section 1, Rule 45 of the Rules of
Court, "the petition shall raise only questions of law which must be
distinctly set forth."
8. CTA En Banc decision affirmed the CTA First Division Decision (nothing
said about the CTA First Division’s decision in the case). The deficiency
income tax of ₱5,496,963.54, ordered by the CTA En Banc to be paid, arose
from the failure of St. Luke's to prove that part of its income in 1998 came
from charitable activities. The CTA cancelled the remainder of the
₱63,113,952.79 deficiency assessed by the BIR based on the 10% tax rate
under Section 27(B) of the NIRC, which the CTA En Banc held was not
applicable to St. Luke's.
 9. The CTA ruled that St. Luke's is a non-stock and non-profit charitable
institution covered by Section 30(E) and (G) of the NIRC. This ruling
would exempt all income derived by St. Luke's from services to its patients,
whether paying or non-paying.
a. The primary purposes of St. Luke's under its articles of
incorporation and various documents identifying St. Luke's as a
charitable institution.
b. A charitable institution does not lose its charitable character and its
consequent exemption from taxation merely because recipients of
its benefits who are able to pay are required to do so, where funds
derived in this manner are devoted to the charitable purposes of the
institution. The generation of income from paying patients does not
per se destroy the charitable nature of St. Luke's.
10. The CTA held that Section 27(B) of the present NIRC does not apply to St.
Luke's. The CTA explained that to apply the 10% preferential rate, Section
27(B) requires a hospital to be "non-profit." On the other hand, Congress
specifically used the word "non-stock" to qualify a charitable "corporation
or association" in Section 30(E) of the NIRC.
a. According to the CTA, this is unique in the present tax code,
indicating an intent to exempt this type of charitable organization
from income tax. Section 27(B) does not require that the hospital
be "non-stock."
b. The CTA stated, "non-stock, non-profit hospitals operated
exclusively for charitable purpose are exempt from income tax on
income received by them as such, applying the provision of
Section 30(E) of the NIRC of 1997, as amended."
ISSUE:
1. WoN St. Luke’s is liable for deficiency income tax in 1998 under Section
27(B) of the NIRC, which imposes a preferential tax rate on the income of
proprietary non-profit hospitals – YES
RULING: WHEREFORE, the petition of the Commissioner of Internal Revenue in
G.R. No. 195909 is PARTLY GRANTED. The Decision of the Court of Tax
Appeals En Banc dated 19 November 2010 and its Resolution dated 1 March 2011 in
CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center, Inc. is ORDERED
TO PAY the deficiency income tax in 1998 based on the 10% preferential income
tax rate under Section 27(B) of the National Internal Revenue Code. However, it is
not liable for surcharges and interest on such deficiency income tax under Sections
248 and 249 of the National Internal Revenue Code. All other parts of the Decision
and Resolution of the Court of Tax Appeals are AFFIRMED. The petition of St.
Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating Section 1,
Rule 45 of the Rules of Court.
RATIO:
1. The issue raised by the BIR involves the effect of the introduction of
Section 27(B) in the NIRC of 1997 vis-à-vis Section 30(E) and (G) on the
income tax exemption of charitable and social welfare institutions. The 10%
income tax rate under Section 27(B) specifically pertains to proprietary
educational institutions and proprietary non-profit hospitals.
2. The BIR argues that Congress intended to remove the exemption that non-
profit hospitals previously enjoyed under Section 27(E) of the NIRC of
1977, which is now substantially reproduced in Section 30(E) of the NIRC
of 1997. (see end of digest for specific provisions cited)
3. The arguments of St. Luke's focus on the wording of Section 30(E)
exempting from income tax non-stock, non-profit charitable institutions. St.
Luke's asserts that the legislative intent of introducing Section 27(B) was
only to remove the exemption for "proprietary non-profit" hospitals.
4. The Court partly grants the petition of the BIR but on a different ground.
Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B)
on one hand, and Section 30(E) and (G) on the other hand, can be construed
together without the removal of such tax exemption.
5. The effect of the introduction of Section 27(B) is to subject the taxable
income of two specific institutions, namely, proprietary non-profit
educational institutions and proprietary non-profit hospitals, among the
institutions covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate under the last
paragraph of Section 30 in relation to Section 27(A)(1).
6. "Non-profit" does not necessarily mean "charitable."  The Court defined
"charity" in Lung Center of the Philippines v. Quezon City as "a gift, to be
applied consistently with existing laws, for the benefit of an indefinite
number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves
in life or by otherwise lessening the burden of government."
7. Charitable institutions provide for free goods and services to the public
which would otherwise fall on the shoulders of government. Thus, as a
matter of efficiency, the government forgoes taxes which should have been
spent to address public needs, because certain private entities already
assume a part of the burden. This is the rationale for the tax exemption of
charitable institutions. The loss of taxes by the government is compensated
by its relief from doing public works which would have been funded by
appropriations from the Treasury.
8. Charitable institutions are not ipso facto entitled to a tax exemption. The
requirements for a tax exemption are specified by the law granting it. The
requirements for a tax exemption are strictly construed against the
taxpayer because an exemption restricts the collection of taxes necessary for
the existence of the government.
9. As a general principle, a charitable institution does not lose its character as
such and its exemption from taxes simply because it derives income from
paying patients or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which
 it is intended to achieve; and no money inures to the private benefit of the
persons managing or operating the institution.
10. For real property taxes, the incidental generation of income is permissible
because the test of exemption is the use of the property. The test of
exemption is not strictly a requirement on the intrinsic nature or character of
the institution. The test requires that the institution use the property in a
certain way, i.e. for a charitable purpose. The effect of failing to meet the
use requirement is simply to remove from the tax exemption that portion of
the property not devoted to charity.
11. The Constitution exempts charitable institutions only from real property
taxes. In the NIRC, Congress decided to extend the exemption to income
taxes. However, the way Congress crafted Section 30(E) of the NIRC is
materially different from Section 28(3), Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation or association that is
exempt from income tax. On the other hand, Section 28(3), Article VI of the
Constitution does not define a charitable institution, but requires that the
institution “actually, directly and exclusively" use the property for a
charitable purpose.
12. Both the organization and operations of the charitable institution must be
devoted "exclusively" for charitable purposes. The organization of the
institution refers to its corporate form, as shown by its articles of
incorporation, by-laws and other constitutive documents.
13. Section 30(E) of the NIRC specifically requires that the corporation or
association be non-stock wherein any profit "obtained as an incident to its
operations shall, whenever necessary or proper, be used for the furtherance
of the purpose which the corporation was organized." On the other hand,
any profit by a charitable institution must not only be plowed back
"whenever necessary or proper," but must be "devoted or used altogether to
the charitable object which it is intended to achieve." The operations of the
charitable institution generally refer to its regular activities.
14. There is no dispute that St. Luke's is organized as a non-stock and non-
profit charitable institution. However, this does not automatically exempt
St. Luke's from paying taxes. This only refers to the organization of St.
Luke's.
15. It cannot be disputed that a hospital which receives approximately ₱1.73
billion from paying patients is not an institution "operated exclusively" for
charitable purposes. "Exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively." The words "dominant use" or "principal
use" cannot be substituted for the words "used exclusively" without doing
violence to the Constitution and the law. Clearly, revenues from paying
patients are income received from "activities conducted for profit." Services
to paying patients are activities conducted for profit. The ₱1.73 billion total
revenues from paying patients is not even incidental to St. Luke's charity
expenditure of ₱218,187,498 for non-paying patients.
16. St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20% of
its operating income in 1998. However, if a part of the remaining 34.80% of
the operating income is reinvested in property, equipment or facilities used
for services to paying and non-paying patients, then it cannot be said that
the income is "devoted or used altogether to the charitable object which it is
intended to achieve." The income is plowed back to the corporation not
entirely for charitable purposes, but for profit as well.
17. The Court finds that St. Luke's is a corporation that is not "operated
exclusively" for charitable or social welfare purposes insofar as its revenues
from paying patients are concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also on the clear
and plain text of Section 30(E) and (G).
18. St. Luke's fails to meet the requirements under Section 30(E) and (G) of the
NIRC to be completely tax exempt from all its income. However, it remains
a proprietary non-profit hospital under Section 27(B) of the NIRC as long
as it does not distribute any of its profits to its members and such profits are
reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary
non-profit hospital, is entitled to the preferential tax rate of 10% on its net
income from its for-profit activities.
Relevant Provisions:
SEC. 27. Rates of Income Tax on Domestic Corporations. -
xxxx
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions
and hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income
except those covered by Subsection (D) hereof: Provided, That if the gross income from
unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income
derived by such educational institutions or hospitals from all sources, the tax prescribed in
Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this
Subsection, the term 'unrelated trade, business or other activity' means any trade, business or
other activity, the conduct of which is not substantially related to the exercise or performance
by such educational institution or hospital of its primary purpose or function. A 'proprietary
educational institution' is any private school maintained and administered by private
individuals or groups with an issued permit to operate from the Department of Education,
Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the
Technical Education and Skills Development Authority (TESDA), as the case may be, in
accordance with existing laws and regulations.
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be
taxed under this Title in respect to income received by them as such:
xxxx
(E) Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part
of its net income or asset shall belong to or inure to the benefit of any member, organizer,
officer or any specific person;
xxxx
(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code. 
 9. CIR v. DE LA SALLE UNIVERSITY (Liezel)
November 9, 2016 | Brion, J. | Article XIV, Section 4(3) of Consti (tax exemption)
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: De La Salle University, Inc.
SUMMARY: BIR assessed DLSU for deficiency taxes: income tax on rental
earnings form restaurant/canteens and bookstores operating within the campus,
value-added tax (VAT) on business income, and documentary stamp tax (DST) on
loans and lease contracts amounting to 17.3 million. DLSU protested and claimed
tax exemption based on Article 14, Section 4(3) of the Constitution which exempts
all revenues and assets of non-profit, non-stock educational institutions used
actually, directly, and exclusively for educational purposes from taxes and duties.
DLSU submitted documentary evidence proving that the rental income earnings
were used to pay off the loan obtained for the construction of the university’s
Physical Education – Sports Complex. The CTA En Banc reduced the tax liability
of DLSU by granting tax exemption to that portion of the rental earnings proven to
have been used actually, directly, and exclusively for educational purposes. The
Commissioner of Internal Revenue assailed this ruling on the ground that Section
30 (H) of the Tax Code (Fact 10a) qualified the constitutionally-granted tax
exemption to non-stock, non-profit educational institutions. The issue is whether
DLSU’s income and revenues proved to have been used actually, directly, and
exclusively for educational purposes are exempt from duties and taxes. The Court
ruled in the affirmative and stated that Section 30(H) of the Tax Code did not
qualify the constitutionally-granted tax exemptions to non-profit, non-stock,
educational institutions. The exemption under this provision is conditioned only
on the actual, direct, and exclusive use of their assets, revenues and income for
educational purposes. The requisites needed to avail of the tax exemption under
Article 14, Section 4(3) of the Constitution are: (i) it falls under the classification
non-stock, non-profit education institution; and (ii) the income it seeks to be
exempted from taxation is used actually, directly, and exclusively for
education purposes. DLSU satisfied both of these requirements. The Court
adopted the YMCA case as precedent and definitively ruled that the last
paragraph of Section 30 of the Tax Code is without force and effect with
respect to non-stock, non-profit educational institutions, provided, that the
non-stock, non-profit educational institutions prove that its assets and
revenues are used actually, directly, and exclusively for educational purposes.
Furthermore, the tax-exemption constitutionally-granted to non-stock, non-
profit educational institutions, is NOT subject to limitations imposed by law.
The Court also differentiated tax on revenues and tax on assets (see Ratio 9-12).
DOCTRINE: The crucial point of inquiry is on the use of the assets or on the use
of the revenues. As long as the assets or revenues are used actually, directly, and
exclusively for educational purposes, they are exempt from duties and taxes.
Note: The case mentioned in the book is the one decided by CTA En Banc. This case
is the one already decided by the Supreme Court in November 2016.
FACTS:
9. The case involves consolidated petitions for review assailing CTA En Banc
decisions and resolutions.
10. The BIR assessed DLSU for deficiency taxes: (1) income tax on rental
earnings from restaurants/canteens and bookstores operating within the
campus; (2) value-added tax (VAT) on business income; and (3)
documentary stamp tax (DST) on loans and lease contracts. BIR
demanded payment of 17.3 million.
11. DLSU protested the assessment and filed a petition for review with the
CTA Division. DLSU principally anchored its petition on Article XIV,
Section 4(3) of the Constitution, which reads: (3) All revenues and assets of
non-stock, non-profit, educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties.
x x x.
12. The CTA Division partially granted DLSU’s petition by cancelling the DST
assessment in the loan transactions of DLSU.
13. The Commissioner appealed to the CTA En Banc arguing that DLSU’s use
of its revenues and assets for non-educational or commercial purposes
removed these items from the exemption coverage under the Constitution.
14. DLSU formally offered supplementary documentary evidence to prove that
its rental income was used actually, directly, and exclusively for educational
purposes.
15. In view of the documentary evidence submitted, the CTA Division further
reduced the payable amount. DLSU was still dissatisfied with the partial
reduction of its tax liabilities and filed a separate petition with the CTA En
Banc on the following grounds: (a) the entire assessment should have been
cancelled because it was based on an invalid Letter of Authority (LOA); (b)
assuming the LOA was valid, the CTA division should still have cancelled
the entire assessment because DLSU submitted evidence similar to those
submitted by ADMU in a separate case where the CTA cancelled Ateneo’s
tax assessment; and (3) the CTA Division erred in finding that a portion of
DLSU’s rental income was not proved to have been actually, directly, and
exclusively for educational purposes.
16. The CTA En Banc sustained the findings of the CTA Division. CTA En
Banc found that DLSU was able to prove that a portion of the assessed
rental income was used actually, directly, and exclusively for educational
purposes, hence, exempt from tax. DLSU was able to prove that part of its
rental income had indeed been used to pay the loan it obtained to build the
university’s Physical Education – Sports Complex. The portion of the rental
income which was not proved to have been used for educational purposes is
subject to tax. The CTA En Banc also ruled that DLSU was able to prove its
remittance of the DST due on its loan and mortgage documents.
17. Furthermore, CTA En Banc held that the LOA issued to DLSU for Fiscal
Year Ending 2003 and Unverified Prior Years did not fully comply with the
prohibition in Revenue Memorandum Order (RMO) which provides that if
the audit includes more than one taxable period, the other periods or years
shall be specifically indicated in the LOA. Hence, the assessment for
deficiency income tax, VAT and DST for taxable years 2001 and 2002 are
void, but the assessment for taxable year 2003 is valid.
18. The CTA En Banc decisions are assailed in this case. In the case before the
Supreme Court, the Commissioner contends that:
1. Article XIV, Section 4(3) of the Constitution must be harmonized
with Section 30(H) of the Tax Code which states that the income
of whatever kind and character of a non-stock and non-profit
educational institution from any of its properties, real or
personal, or from any of its activities conducted for profit
regardless of the disposition made of such income shall be
subject to tax imposed by the Tax Code. Hence, DLSU’s
operations of canteens and bookstores within its campus even
though exclusively serving the university community do not negate
income tax liability.
2. DLSU did not prove the fact of DST payment.
3. The CTA should not have admitted DLSU’s supplemental offer of
evidence.
19. On the other hand, DLSU asserts that:
1. Article XIV, Section 4(3) of the Constitution is clear that all assets
and revenues of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes are
exempt from taxes and duties. DLSU explains that the tax
exemption of non-stock, non-profit educational institutions is novel
to the 1987 Constitution and the Section 30 (H) of the 1997 Tax
Code cannot amend the Constitution. In short, DLSU invokes the
doctrine of constitutional supremacy which renders any subsequent
law that is contrary to the Constitution void and without force and
effect.
2. The requisites laid down in the YMCA case for an exemption
to be granted under Article XIV, Section 4(3) of the
Constitution which are: (i) it falls under the classification non-
stock, non-profit education institution; and (ii) the income it
seeks to be exempted from taxation is used actually, directly,
and exclusively for education purposes, are satisfied this case.
DLSU is undoubtedly a non-stock, non-profit educational
institution and it had also submitted evidence to prove that it
actually, directly, and exclusively used its income for educational
purposes.
ISSUE/s:
Main issue
5. Whether DLSU’s income and revenues proved to have been used actually,
directly, and exclusively for educational purposes are exempt from duties
and taxes. YES.
Secondary issues
6. Whether the entire assessment should be voided because of the defective
LOA. NO.
 7. Whether the CTA correctly admitted DLSU’s supplemental pieces of
evidence. YES.
8. Whether the CTA’s appreciation of the sufficiency of DLSU’s evidence
may be disturbed by the Court.
RULING: The SC DENIED the petition of the CIR and AFFIRMED the decision of
the Court of Tax Appeals En Banc with the modification that the base for the
deficiency income tax and VAT for taxable year 2003 is 343,576.70.
RATIO:
6. The Supreme Court ruled that the income, revenues, assets of non-stock,
non-profit educational institutions proved to have been used actually,
directly, and exclusively for educational purposes are exempt from duties
and taxes as provided for in Article XIV, Section 4(3) of the 1987
Constitution which reads:
(3) All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in
the manner provided by law.
Propriety educational institutions, including those cooperatively owned,
may likewise be entitled to such exemptions subject to the limitations
provided by law including restrictions on dividends and provisions for
reinvestment.
7. This Constitutional provision refers to two kinds of educational institutions:
non-stock, non-profit educational institutions and proprietary educational
institutions. The Court ruled that DLSU falls under the first category.
8. The Court stressed the marked distinction between these two kinds of
educational institutions. The tax exemption granted to non-stock, non-profit
educational institutions is conditioned only on the actual, direct, and
exclusive use of their revenues and assets for educational purposes why tax
exemption granted to proprietary educational institutions are subject to
limitations imposed by Congress.
9. The Commissioner opposes DLSU’s claim for tax exemption on the basis of
Section 30 (H) of the Tax Code (Fact 10a). On this point, the Court ruled
that the 1997 Tax Code did not qualify the tax exemption
constitutionally-granted to non-stock, non-profit educational
institutions.
10. The Court referred to the doctrine laid down in the YMCA case. In that
case, YMCA claimed for tax exemption on the ground that as a charitable
institution falling under Article 6, Section 28(3) of the Constitution. The
Court denied YMCA’s claim and ruled that YMCA is not tax-exempt per
se. What is exempted is not the institution itself. Those exempted from real
estate taxes are lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable, or educational purposes. The
Court ruled in the case that the last paragraph of Section 30 of the Tax Code
unequivocally subjects to tax the rent income of the YMCA from its
property. In short, YMCA is exempt only from property but not from
income tax. Also, the Court defined educational institutions as used in las
granting tax exemptions refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal
school system. The Court then laid down the requisites for availing the tax
exemption under Article XIV, Section 4(3) of the Constitution (Fact 11b).
11. The Court adopted the YMCA as precedent and held that:
1. The last paragraph of Section 30 of the Tax Code is without
force and effect with respect to non-stock, non—profit
educational institutions, provided, that the non-stock, non-
profit educational institutions prove that its assets and
revenues are used actually, directly, and exclusively for
educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non-
profit educational institutions, is NOT subject to limitations
imposed by law.
12. Furthermore, the Court ruled that the tax exemption granted by the
Constitution to non-stock, non-profit educational institutions is
conditioned only on the actual, direct, and exclusive use of their assets,
revenues and income for educational purposes. Unlike Article 6, Section
28 (3) of the Constitution pertaining to charitable institutions, churches,
etc., which exempts from tax only the assets, Article 14, Section 4(3)
categorically states that “all revenues and assets used actually, directly, and
 exclusively for educational purposes shall be exempt from taxes and duties. exclusively for educational purposes, they are exempt from duties and
The tax exemption provided to non-stock, non-profit educational taxes.
institutions was seen as beneficial to students who may otherwise be
charged unreasonable tuition fees if not for the tax exemption extended to
all revenues and assets of non-stock, non-profit institutions. On the secondary issues:
13. A plain reading of the Constitutional provision would show that it does not
A. Validity of LOA
require that the revenues and income must have also been sourced from
19. The Court ruled that the LOA issued to DLSU is not entirely void. The
educational activities or activities related to the purposes of an educational
assessment for taxable year 2003 is valid. The purpose of the LOA is to
institution. The phrase all revenues is unqualified by any reference to the
give the CIR the power to obtain information, to summon/examine, and take
source of the revenues. Thus, as long as the revenues and income are used
testimony of persons and to inform the taxpayer that it is under audit for
actually, directly, and exclusively for educational purposes, then said
possible tax deficiency assessment.
revenues and income shall be exempt from taxes and duties.
20. The relevant provision of RMO reads that “A LOA should cover a taxable
14. Revenues consist of the amount earned by a person or entity from the
period not exceeding on taxable year. The practice of issuing LOAs
conduct of business operations (e.g. sale of goods or rendition of services).
covering audit of unverified prior years is hereby prohibited. If the audit of
Assets are the tangible and intangible properties owned by a person or
a taxpayer shall include ore than one taxable period, the other periods of
entity.
years shall e specifically indicate in the LOA.
15. Thus, when a non-stock, non-profit educational institution proves that it
21. What the provision prohibits is the practice of issuing LOAs covering audit
uses its revenues actually, directly, and exclusively for educational
of unverified prior years. The requirement to specify the taxable period
purposes, it shall be exempted from income tax VAT and local business tax
covered by the LOA is simply to inform the taxpayer of the extent f the
(LBT). On the other hand, when it also shows that it uses its assets in the
audit and the scope of the revenue officer’s authority.
form of real property for educational purposes, it shall be exempted from
22. In this case, the LOA issued does not strictly comply with the RMO
real property tax (RPT).
because it includes unverified prior years. However, as correctly held by the
16. Proving the actual use of the taxable item will result in an exemption, but
CTA, the assessment for taxable year 2003 is valid because this taxable
the specific tax from which the entity shall be exempted from shall depend
period is specified in the LOA. DLSU was fully apprised that it was being
on whether the item is an item of revenue or asset.
audited for taxable year 2003.
17. To illustrate:
1. If a university leases a portion of its school building to a bookstore
or cafeteria, the leased portion is not actually, directly, and B. Admissibility of the supplemental evidence
exclusively use for educational purposes. The leased portion of the 23. DLSU offered its supplemental evidence upon filing its MR with the CTA
building may be subject to real property tax. The lease of a portion Division. The CTA Division admitted the supplemental evidence, which
of a school building for commercial purposes, removes such asset proved that a portion of DLSU’s rental income was used actually, directly,
from the property tax exemption granted under the Constitution. and exclusively for educational purposes leading to the reduction of tax
2. If the university actually, directly, and exclusively uses for liabilities.
educational purposes the revenues earned form the lease of its 24. The Court upheld the admission of the supplemental evidence on two
school building, such school revenues shall be exempt from taxes grounds:
and duties the tax exemption no longer hinges on the use of the 1. The Commissioner failed to timely object to the formal offer of
asset from which the revenues were earned, but on the actual, supplemental evidence
direct, and exclusive use of the revenues for educational purposes. 2. The CTA is not governed strictly by technical rules of evidence.
18. The crucial point of inquiry is on the use of the assets or on the use of the
revenues. As long as the assets or revenues are used actually, directly, and C. Appreciation of DLSU’s evidence binding on the Court
25. It is doctrinal that the Court will not lightly set aside the conclusions
reached by the CTA which, by the very nature of its function of being
dedicated exclusively to the resolution of tax problems, has developed an
expertise on the subject, unless there has been an abuse or improvident
exercise of authority.
 CALTEX v. COMMISSION ON AUDIT (ELLA)

May 8, 1992 | Davide Jr., J. | Implications of Transfer of Special Funds to General DOCTRINE: OPSF, as a special fund, benefitted the general public through the
Funds regulation of oil and crude prices.

PETITIONER: B. Van Zuiden Bros., Ltd FACTS:

RESPONDENTS: GTVL Manufacturing  20. On 2 Feb. 1989, COA sent a letter to Caltex Philippines (Caltex) directing
the latter to remit to the OPSF (Oil Price Stabilization Fund) its collection,
excluding that unremitted for the years 1986 and 1988, of the additional tax
on petroleum products authorized under PD 195 which amounted to PHP
SUMMARY: This case is about the Oil Price Stabilization Fund (OPSF). OPSF is
335,037,649.00 and informing Caltex that pending such remittance, all of
sourced from any increase in the: 1) tax collection from ad valorem tax or customs
its claims for reimbursement from the OPSF shall be held in abeyance.
duty imposed on petroleum products; 2) as a result of the lifting of tax exemptions
of government corporations; 3) any additional amount to be imposed on petroleum
21. On 9 March 1989, the COA sent another letter to Caltex informing it that
products to augment the resources of the Fund through an appropriate Order that
partial verification with the OEA (Office of Energy Affairs) showed that the
may be issued by the Board of Energy; and 4) Any resulting peso cost differentials
grand total of its unremitted collections of the said tax is PHP
in case the actual peso costs paid by oil companies in the importation of crude oil
1,287,668,820.00. Again, COA directed Caltex to remit it, and that COA
and petroleum products is less than the peso costs computed using the reference
will hold in abeyance the audit of all its claims for reimbursement from the
foreign exchange rate. OPSF is created for the purpose of 1) reimbursing oil
OPSF, and desisting Caltex from further offsetting the taxes collected
companies for cost increases in crude oil and imported petroleum products
against outstanding claims in 1989 and subsequent periods.
resulting from exchange rate adjustment and/or increase in world market prices of
crude oil; and 2) reimbursing oil companies for possible cost under-recovery
incurred as a result of the reduction of domestic prices of petroleum products. 22. Caltex requested COA for an early release of its reimbursement certificates
from the OPSF covering claims with the OEA since June 1987 up to March
1989. But COA denied this and repeated its earlier directive. Then, Caltex
COA is making Caltex to submit to the OPSF its collection of the additional tax on submitted to COA a proposal for the payment of the collections and the
petroleum products, and pending such, all of Caltex’s claim for reimbursement recovery of claims which COA accepted, but still prohibiting Caltex from
from OPSF is suspended. Caltex is petitioning to the court so that COA may allow further offsetting remittances and reimbursements for the current and
Caltex to the offsetting of the amounts due to the OPSF against Caltex’s ensuing years.
outstanding claims for reimbursement from said fund. SC held that such offsetting
has no legal basis. Just because OPSF contributions go to a special gov’t fund
23. Caltex filed an Omnibus Request for the Reconsideration of the decision,
doesn’t mean it’s not for public purpose. Taxation is no longer seen as a measure
but COA affirmed the disallowance for recovery of financing charges,
merely to raise revenue to support the existence of the government. Taxes may be
inventory losses, and sales to MARCOPPER and ATLAS, while allowing
levied with a regulatory purpose to provide means for the rehabilitation and
the recovery of product sales or those arising from export sales.
stabilization of a threatened industry which is affected with public interest as to be
within the police power of the state. 
24. What Caltex wants is that the amount that Caltex must remit to the OPSF
be compensated/offset against the amount of its claims for reimbursement
 from the OPSF.
25. Unsatisfied with the decision, petitioner filed on 28 March 1990 the present
petition.
ISSUE/s:
Many issues cited in the case but this is the one connected w/ the doctrine in the
book
9. WON the amounts due to the OPSF from Caltex may be offset against
Caltex’s outstanding claims for reimbursement from said fund = NO.
RULING: WHEREFORE, in view of the foregoing, judgment is hereby rendered
AFFIRMING the challenged decision of the Commission on Audit, except that
portion thereof disallowing petitioner's claim for reimbursement of underrecovery
arising from sales to the National Power Corporation, which is hereby allowed. With
costs against petitioner. SO ORDERED.
RATIO:
1. Offsetting of the amount that Caltex must remit to the OPSF against the
amount of Caltex’s outstanding claims for reimbursement from OPSF
cannot take place, hence it has no legal basis.
2. First, SC said Caltex is wrong in its position that that the OPSF
contributions are not for a public purpose because they go to a special fund
of the government. Taxation is no longer envisioned as a measure merely
to raise revenue to support the existence of the government; taxes may
be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is
affected with public interest as to be within the police power of the
state. 9
3. The oil industry is greatly imbued with public interest as it vitally
affects the general welfare. Any unregulated increase in oil prices could
hurt the lives of a majority of the people and cause economic crisis of
9
Cited in the book
untold proportions. It would have a chain reaction in terms of, among
others, demands for wage increases and upward spiralling of the cost of
basic commodities. The stabilization then of oil prices is of prime
concern which the state, via its police power, may properly address.
4. Second, it is settled that a taxpayer may not offset taxes due from the
claims that he may have against the government. Taxes cannot be the
subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is
not such a debt, demand, contract or judgment as is allowed to be set-
off.
5. In respect to the taxes for the OPSF, the oil companies merely act as agents
for the Government in the latter's collection since the taxes are, in reality,
passed unto the end-users –– the consuming public. In that capacity, the
Caltex, as one of such companies, has the primary obligation to account for
and remit the taxes collected to the administrator of the OPSF. This duty
stems from the fiduciary relationship between the two; petitioner
certainly cannot be considered merely as a debtor.
6. In respect, therefore, to its collection for the OPSF vis-a-vis its claims for
reimbursement, no compensation is likewise legally feasible. Firstly, the
Government and the petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that petitioner's claim is
already due and liquidated.
7. That compensation had been the practice in the past can set no valid
precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 (which
established the Petroleum Price Standby Fund to support the OPSF) does
not authorize oil companies to offset their claims against their OPSF
contributions. Instead, it prohibits the government from paying any
amount from the Petroleum Price Standby Fund to oil companies
which have outstanding obligations with the government, without said
obligation being offset first subject to the rules on compensation in the Civil
Code.
 011 OSMEÑA V. ORBOS (EMAR) released from the National Treasury to the Ministry of Energy and (3) authorized
the investment of the fund in government securities, with the earnings from
March 31, 1993 | Narvasa, C.J. | Special Fund – Art.VI, §29(3), Const.10 such placements accruing to the fund.
3. Osmeña alleges that creation of the trust fund violates §29(3), Art VI, Const:
PETITIONER: John Osmeña (3) All money collected on any tax levied for a special purpose shall be treated
as a special fund & paid out for such purposes only. If the purpose for which a
RESPONDENTS: Executive Secretary Oscar Orbos; Finance Secretary Jesus
special fund was created has been fulfilled/abandoned, the balance, if any, shall
Estanilao; Head of Office of Energy Affairs Rex Tantiongco, Energy Regulatory Board
be transferred to the general funds of the Gov’t.
SUMMARY: Marcos created thru PD1956 a Special Account in the General Fund: the
4. Osmeña argues that:
Oil Price Stabilization Fund (OPSF) designed to reimburse oil companies for cost
a. Monies collected pursuant to PD 1956 must be treated as a 'SPECIAL FUND,'
increases in crude oil and imported petroleum products resulting from exchange rate
not as a 'trust account'/'trust fund,'
adjustments and from increases in the world market prices of crude oil. Osmeña alleges
b. If a special tax is collected for a specific purpose, the revenue generated
that creation of the trust fund violates §29(3), Art VI, Const which states that, “All
therefrom shall 'be treated as a special fund' to be used only for the purpose
money collected on any tax levied for a special purpose shall be treated as a special
indicated, and not channeled to another gov’t objective."
fund & paid out for such purposes only. If the purpose for which a special fund was
c. Since "a 'special fund' consists of monies collected thru taxing power of a
created has been fulfilled/abandoned, the balance, if any, shall be transferred to the
State, such amounts belong to the State, although the use thereof is limited to
general funds of the Gov’t.” The issue is WON the creation of "Trust Account" in the
the special purpose/objective for which it was created."
books of account of the Ministry of Energy is invalid for being contrary to PH Const.
d. Monies collected forming part of the OPSF, should be maintained in a special
Art.6, §29 (3) and the SC ruled that it is VALID. It cited a case which states that
account of the general fund for the reason that the Consti provides, and because
Stabilization fees collected are in the nature of a tax, which is withinin the power of the
they are taxes levied for a special purpose.
State to impose for the promotion of [an] industry (Lutz v. Araneta). . . . The tax
e. Fund is formed from a tax undoubtedly because a portion thereof is taken
collected is NOT in a pure exercise of the taxing power. It is levied with a regulatory
from collections of ad valorem taxes and the increases thereon.
purpose. The levy is primarily in the exercise of the police power of the State.
5. Osmeña’s premise: Powers granted to the ERB partake of the nature of the
(continue to doctrine)
taxation power of the State. He assumes that the OPSF is a form of revenue measure
DOCTRINE: While the funds collected may be referred to as taxes, they are exacted in
drawing from a special tax to be expended for a special purpose.
the exercise of the police power of the State. The OPSF is segregated from the general
fund; and while it is placed in what the law refers to as ‘trust liability account,’ the fund
nonetheless remains subject to the scrutiny and review of the CoA. This measures
ISSUE: WON the creation of "Trust Account" in the books of account of the
comply with the constitutional description of a “special fund”.
Ministry of Energy is INVALID for being contrary to PH Const. Art.6, §29 (3) - NO
FACTS:

1. Marcos created thru PD1956 a Special Account in the General Fund: the Oil Price RULING: Prayer for the nullification of the reimbursement of financing charges,
Stabilization Fund (OPSF) designed to reimburse oil companies for cost increases paid pursuant to EO 137 is GRANTED, and DISMISSED in all other respects.
in crude oil and imported petroleum products resulting from exchange rate
adjustments and from increases in the world market prices of crude oil.
2. EO 1024 (1) re-classified OPSF into a “trust liability account” (2) ordered its
RATIO:
10
All money collected on any tax levied for a special purpose shall be treated as a special fund and paid
out for such purposes only. If the purpose for which a special fund was created has been fulfilled or 1. Valmonte v. Energy Regulatory Board: OPSF is a "Trust Account" established "to
abandoned, the balance, if any, shall be transferred to the general funds of the Government.
minimize the frequent price changes brought by exchange rate adjustment and
changes in world market prices of crude oil and imported petroleum products."

2. OPSF was established to protect local consumers from adverse consequences that
such frequent oil price adjustments may have upon the economy.

3. OPSF serves as a pocket, as it were, into which a portion of the purchase price of
oil and petroleum products paid by consumers as well as some tax revenues are
inputted and from which amounts are drawn from time to time to reimburse oil
companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation.

4. OPSF is a buffer mechanism to stabilize the domestic consumer prices of oil and
petroleum products, and prevent it from fluctuating every so often. Oil companies
are allowed to recover those portions of their costs which they would not otherwise
recover given the level of domestic prices existing at any given time.

5. To the extent that some tax revenues are also put into it, OPSF is in effect a device
thru which the domestic prices of petroleum products are subsidized in part.

6. The establishment and maintenance of the OPSF is within that pervasive and non-
waivable power and responsibility of the gov’t to secure the physical and
economic survival and well-being of the community, that comprehensive
sovereign authority we designate as the police power of the State.

7. The stabilization, and subsidy of domestic prices of petroleum products and fuel
oil — clearly critical in importance considering, among other things, the continuing
high level of dependence of the country on imported crude oil — are appropriately
regarded as public purposes.

8. Gaston v. Republic Planters Bank: Court upheld the legality of the sugar
stabilization fees and explained their nature and character stating: Stabilization fees
collected are in the nature of a tax, which is w/in the power of the State to impose
for the promotion of the sugar industry (Lutz v. Araneta). . . . The tax collected is
NOT in a pure exercise of the taxing power. It is levied with a regulatory
purpose, to provide a means for the stabilization of the sugar industry. The levy is
primarily in the exercise of the police power of the State
 BASCO v. PAGCOR (SARMIENTO)
May 14, 1991 | Paras, J. | Tax and LGU
PETITIONER: ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE,
SOCRATES MARANAN AND LORENZO SANCHEZ,  recognized by law;
RESPONDENTS:  PHILIPPINE AMUSEMENTS AND GAMING
CORPORATION (PAGCOR)
SUMMARY: The constitutionality of the charter of PAGCOR, PD 1869 is being
questioned on the ground that the law has intruded into the local government's right
to impose local taxes and license fees.  This, in contravention of the constitutionally
enshrined principle of local autonomy. The SC said that gambling, unless allowed
by law, is prohibited. But the prohibition of gambling does not mean that the
Government cannot regulate it in the exercise of its police power. P.D. 1869 was
enacted pursuant to the policy of the government to “regulate and centralize thru an
appropriate institution all games of chance authorized by existing franchise or
permitted by law" Petitioners contend that P.D. 1869 constitutes a waiver of the
right of the City of Manila to impose taxes and legal fees; that the exemption clause
in P.D. 1869 is violative of the principle of local autonomy. SC said that a mere
Municipal corporation has no inherent right to impose taxes. It should be stressed
that "municipal corporations are mere creatures of Congress" which has the power
to "create and abolish municipal corporations" due to its "general legislative
powers.”  Congress, therefore, has the power of control over Local
governments. Furthermore, City of Manila’s power to impose license fees on
gambling, has long been revoked. The power of local government to "impose taxes
and fees" is always subject to "limitations" which Congress may provide by law. 
DOCTRINE: The power of local government to "impose taxes and fees" is always
subject to "limitations" which Congress may provide by law. 
FACTS:
1. Petitioners filed the instant petition seeking to annul the Philippine
Amusement and Gaming Corporation (PAGCOR) Charter - PD 1869,
because it is allegedly contrary to morals, public policy and order, and
because
a. A. It constitutes a waiver of a right prejudicial to a third person
with a right recognized by law.  It waived the Manila City
government's right to impose taxes and license fees, which is
b. For the same reason stated in the immediately preceding
paragraph, the law has intruded into the local government's right to
impose local taxes and license fees.  This, in contravention of the
constitutionally enshrined principle of local autonomy;
c. It violates the equal protection clause of the constitution in that it
legalizes PAGCOR - conducted gambling, while most other forms
of gambling are outlawed, together with prostitution, drug
trafficking and other vices;
2. Petitioners also claim that PD 1869 that the decree is said to have a
"gambling objective" and therefore is contrary to Sections 11, 12 and 13 of
Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the
present Constitution.
3. The Philippine Amusements and Gaming Corporation (PAGCOR) was
created by virtue of P.D. 1067-A and granted a franchise to operate.
a. PAGCOR was created under P.D. 1869 to enable the Government
to regulate and centralize all games of chance authorized by
existing franchise or permitted by law.
b. It is reported that PAGCOR is the third largest source of
government revenue, next to the Bureau of Internal Revenue and
the Bureau of Customs. 
ISSUE/s:
Whether or not the power granted to PAGCOR to impose license fees
on gambling infringes on local autonomy—NO.
RULING: WHEREFORE, the petition is DISMISSED for lack of merit.
RATIO:
1. Gambling in all its forms, unless allowed by law, is generally prohibited.  inherent right to impose taxes. Thus, "the Charter or statute must
But the prohibition of gambling does not mean that the Government cannot
regulate it in the exercise of its police power.
2. The concept of police power is well-established in this jurisdiction.  state itself which has the "inherent power to tax"
Its scope, ever-expanding to meet the exigencies of the times, even to
anticipate the future where it could be done, provides enough room for an
efficient and flexible response to conditions and circumstances thus
assuming the greatest benefits.  abolish municipal corporations" due to its "general legislative
a. It finds no specific Constitutional grant for the plain reason that it
does not owe its origin to the charter.  Along with the taxing power
and eminent domain, it is inborn in the very fact of statehood and
sovereignty.  It is a fundamental attribute of government that has
enabled it to perform the most vital functions of governance
3. P.D. 1869 was enacted pursuant to the policy of the government to
“regulate and centralize thru an appropriate institution all games of chance
authorized by existing franchise or permitted by law"
a. As was subsequently proved, regulating and centralizing gambling
operations in one corporate entity - the PAGCOR, was beneficial
not just to the Government but to society in general.  It is a reliable
source of much needed revenue for the cash strapped Government.  Government, PAGCOR should be and actually is exempt from local taxes.
It provided funds for social impact projects and subjected
gambling to "close scrutiny, regulation, supervision and control of
the Government"
4. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the
City of Manila to impose taxes and legal fees; that the exemption clause in
P.D. 1869 is violative of the principle of local autonomy.  They must be
referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as
the franchise holder from paying any “tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local.”
5. Their contention stated hereinabove is without merit for the following
reasons:
a. The City of Manila, being a mere Municipal corporation has no
plainly show an intent to confer that power or the municipality
cannot assume it". Its "power to tax" therefore must always yield to
a legislative act which is superior having been passed upon by the
b. The Charter of the City of Manila is subject to control by
Congress.  It should be stressed that "municipal corporations are
mere creatures of Congress" which has the power to "create and
powers.”  Congress, therefore, has the power of control over Local
governments.  And if Congress can grant the City of Manila the
power to tax certain matters, it can also provide for exemptions or
even take back the power.
c. The City of Manila's power to impose license fees on gambling,
has long been revoked.  As early as 1975, the power of local
governments to regulate gambling thru the grant of "franchise,
licenses or permits" was withdrawn by P.D. No. 771 and was
vested exclusively on the National Government
6. PAGCOR has a dual role, to operate and to regulate gambling casinos.  The
latter role is governmental, which places it in the category of an agency or
instrumentality of the Government.  Being an instrumentality of the
 
7. The power to tax as a "power to destroy" cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power
to wield it.
a. Petitioners also argue that the Local Autonomy Clause of the
Constitution will be violated by P.D. 1869.  This is a pointless
argument.  Article X of the 1987 Constitution (on Local
Autonomy) provides:
i. "Sec. 5. Each local government unit shall have the power
to create its own source of revenue and to levy taxes, fees,
and other charges subject to such guidelines and
limitation as the congress may provide, consistent with
the basic policy on local autonomy.  Such taxes, fees and
charges shall accrue exclusively to the local government."
8. The power of local government to "impose taxes and fees" is always subject
to "limitations" which Congress may provide by law. 
 a. Since PD 1869 remains an "operative" law until "amended,
repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its
"exemption clause" remains as an exception to the exercise of the
power of local governments to impose taxes and fees.  It cannot
therefore be violative but rather is consistent with the principle of
local autonomy.
b. What is settled is that the matter of regulating, taxing or otherwise
dealing with gambling is a State concern and hence, it is the sole
prerogative of the State to retain it or delegate it to local
governments.
c. "As gambling is usually an offense against the State, legislative
grant or express charter power is generally necessary to empower
the local corporation to deal with the subject.  In the absence of
express grant of power to enact, ordinance provisions on this
subject which are inconsistent with the state laws are void."
9. Petitioners next contend that P.D. 1869 violates the equal protection clause
of the Constitution, because "it legalized PAGCOR - conducted gambling,
while most gambling are outlawed together with prostitution, drug
trafficking and other vices"
a. The "equal protection clause" does not prohibit the Legislature
from establishing classes of individuals or objects upon which
different rules shall operate. The Constitution does not require
situations which are different in fact or opinion to be treated in law
as though they were the same
b. Just how P.D. 1869 in legalizing gambling conducted by PAGCOR
is violative of the equal protection is not clearly explained in the
petition.  The mere fact that some gambling activities like
cockfighting (P.D. 449) horse racing (R.A. 306 as amended by RA
983), sweepstakes, lotteries and races (RA 1169 as amended by
B.P. 42) are legalized under certain conditions, while others are
prohibited, does not render the applicable laws, P.D. 1869 for one,
unconstitutional.
013 MERALCO vs. PROVINCE OF LAGUNA (SEE)
May 5, 1999 | Vitug, J. | LGUs have the delegated power to tax
PETITIONER: Manila Electric Company
RESPONDENTS: Province of Laguna and Benito R. Balazo, in his capacity as
provincial treasurer of Laguna
SUMMARY: Different municipalities of Laguna issued resolutions through their
municipal councils granting a franchise in favor of Manila Electric Company
(MERALCO) for the supply of electric light, heat and power within their areas.
MERALCO was also granted a franchise by the National Electrification
Administration to operate an electric light and power service in Calamba, Laguna.
The Local Government Code of 1991 (LGC) was then enacted enjoining the LGUs
to create their own sources of revenue. So the province of Laguna made an
ordinance based on which the provincial treasurer sent a demand letter to
MERALCO for the corresponding tax payment. MERALCO paid in protest and
later on filed for a refund which was denied. It then went to the RTC but its petition
was also dismissed. The issue in this case is WoN the LGUs can create the said
ordinance which imposed franchise tax.-YES. LGUS now have the power to tax as
delegated to them under Article X of the 1987 Constitution. This is to ensure that
the self-sufficiency of LGUs. Also, MERALCO’s exemption from paying franchise
tax is in the nature of a grant which did not amount to a contractual tax exemption,
therefore, the imposition by the LGU of the franchise tax did not violate the non-
impairment clause.
DOCTRINE: Prefatorily, it might be well to recall that local governments do not
have the inherent power to tax except to the extent that such power might
be delegated to them either by the basic law or by statute. Presently, under
Article X of the 1987 Constitution, a general delegation of that power has been
given in favor of local government units.
(NOTE: Ratio is copied from p.61 of the book)
FACTS:
5. On various dates, different municipalities of Laguna, by virtue of existing
laws, issued resolutions through their municipal councils granting a
franchise in favor of Manila Electric Company (MERALCO) for the supply
of electric light, heat and power within their areas.
6. MERALCO was also granted a franchise by the National Electrification
Administration to operate an electric light and power service in Calamba,
Laguna.
7. The Local Government Code of 1991 (LGC) was then enacted enjoining the
LGUs to create their own sources of revenue and to levy taxes, fees, and
charges, subject to the limitations in the LGC, consistent with the policy of
local autonomy.
8. So the province of Laguna made Ordinance 01-9211 based on which the
provincial treasurer sent a demand letter to MERALCO for the
corresponding tax payment amounting to around P19.52M which
MERALCO paid under protest.
9. MERALCO then filed a formal claim for refund with the provincial
treasurer claiming that the franchise tax it had paid and continued to pay to
the National Government pursuant to PD 551 already included the franchise
tax imposed by the provincial ordinance.
10. The claim for refund was denied. The denial was based on the LGC instead
of PD 551 invoked by MERALCO.
11. MERALCO then filed with the RTC a complaint for a refund. Aside from
the P19.52M, it had also paid under protest an additional P27.67M. This
complaint was dismissed.
12. Hence this petition.
ISSUE/s:
3. WoN the imposition of franchise tax under the provincial ordinance is
11
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of
fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales
and sales on account realized during the preceding calendar year within this province, including the
territorial limits on any city located in the province.
violative of the non-impairment clause of the Constitution and PD 551.-NO
because a franchise partakes the nature of a grant.
4. WoN imposition of franchise tax by the province is valid.-YES because the
LGU has been given the power to tax for self-sufficiency.
RULING: WHEREFORE, the instant petition is hereby DISMISSED. No costs.
RATIO:
26. Prefatorily, it might be well to recall that local governments do not have
the inherent power to tax except to the extent that such power might
be delegated to them either by the basic law or by statute. Presently, under
Article X12 of the 1987 Constitution, a general delegation of that power
has been given in favor of local government units.
27. In the 1987 Constitution, there is neither a grant nor a prohibition
by statute, the tax power must be deemed to exist although Congress may
provide statutory limitations and guidelines. The basic rationale for the
current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation to
be absolute and unconditional; the constitutional objective obviously is to
ensure that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will be fair, uniform,
and just.
28. The Local Government Code of 1991 has incorporated and adopted, by and
large the provisions of the now repealed Local Tax Code. The 1991 Code
12
Same as footnote 1
 explicitly authorizes provincial governments, notwithstanding any
exemption granted by any law or other special law, x x x (to) impose a tax
on businesses enjoying a franchise.
29. Indicative of the legislative intent to carry out the Constitutional mandate of
vesting broad tax powers to local government units, the Local Government
Code has effectively withdrawn under Section 193 thereof, tax exemptions
or incentives theretofore enjoyed by certain entities.13
30. While the Court has, not too infrequently, referred to tax exemptions
contained in special franchises as being in the nature of contracts and a part
of the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature. Contractual
tax exemptions, in the real sense of the term and where the non-impairment
clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds
or debentures, lawfully entered into by them under enabling laws in which
the government, acting in its private capacity, sheds its cloak of authority
and waives its governmental immunity. Truly, tax exemptions of this kind
may not be revoked without impairing the obligations of contracts.
31. These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a
grant which is beyond the purview of the non-impairment clause of the
Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like
its precursor provisions in the 1935 and the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall be granted except
under the condition that such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the common good so
requires.

13
Section 193 Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.
PEPSI-COLA COTTLING CO. v. MUNICIPALITY OF TANAUAN, LEYTE
(Frances)
Feb. 27, 1976 | Martin, J. | Due Process
PETITIONERS: PEPSI-COLA COTTLING CO..
RESPONDENTS: MUNICIPALITY OF TANAUAN, LEYTE
SUMMARY: Pepsi-Cola filed a complaint with preliminary injunction to
declare Sec 2 of RA 2264 (Local Autonomy Act), unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27
denominated as "municipal production tax" of the Municipality of Tanauan,
Leyte, null and void. Ordinance 23 levies and collects from soft drinks producers
and manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle of
soft drink corked, and Ordinance 27 levies and collects on soft drinks produced
or manufactured within the territorial jurisdiction of this municipality a tax of
P0.01 on each gallon of volume capacity. Issue is WoN Section 2, Republic Act
No. 2264 (Local Autonomy Act) constitutional? SC said YES. LGUs have the
authority to impose municipal license taxes or fees as conferred by the
Constitution and that the municipal production tax of the Municipality of
Tanauan complied with due process of law.
DOCTRINE: Due process does not require that the property subject to the tax
or the amount of tax to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and the manner in which it shall be
apportioned are generally not necessary to due process of law.
FACTS:
1. Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In
September 1962, the Municipality approved Ordinance No. 23 ("municipal
production tax") which levies and collects “from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of
soft drink corked.”
2. In December 1962, the Municipality also approved Ordinance No. 27
("municipal production tax") which levies and collects “on soft drinks
produced or manufactured within the territorial jurisdiction of this
municipality a tax of one centavo P0.01) on each gallon of volume
capacity.”
3. Pepsi Cola assailed the validity of the ordinances as it alleged that they
constitute double taxation in two instances: a) double taxation because
Ordinance No. 27 covers the same subject matter and impose practically the
same tax rate as with Ordinance No. 23, b) double taxation because the two
ordinances impose percentage or specific taxes.
4. (This was the relevant topic in the book) Pepsi Cola also questions the
constitutionality of Republic Act 2264 which allows for the delegation of
taxing powers to local government units; that allowing local governments to
tax companies like Pepsi Cola is confiscatory and oppressive.The
Municipality assailed the arguments presented by Pepsi Cola. It argued,
among others, that only Ordinance No. 27 is being enforced and that the
latter law is an amendment of Ordinance No. 23, hence there is no double
taxation.
ISSUE:
1. WoN Section 2, Republic Act No. 2264 (Local Autonomy Act) constitutional?
YES
2. WoN Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes? NO
3. WoN the ordinances are unjust or unfair? NO
HELD: ACCORDINGLY, the constitutionality of Section 2 of Republic Act No.
2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld
and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of
1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of
valid and legal effect. Costs against petitioner-appellant.
RATIO:
Section 2 of the Local Autonomy Act is constitutional (RELEVANT)
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people.
2. The exception to the general rule that the power of taxation that is purely
legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the
theory of separation of powers, lies in the case of municipal corporations.
 Legislative powers may be delegated to local governments in respect of matters
of local concern. This is sanctioned by immemorial practice.  unconstitutional on the theory of double taxation. It must be observed that the
3. By necessary implication, the legislative power to create political corporations
for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.
4. Under the Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy taxes. Section
5, Article XI provides: "Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to such limitations as
may be provided by law."
5. The plenary nature of the taxing power thus delegated, contrary to Pepsi-Cola’s
pretense, would not suffice to invalidate the said law as confiscatory and
oppressive. When it is said that the taxing power may be delegated to
municipalities and the like, it is meant that there may be delegated such
measure of power to impose and collect taxes as the legislature may deem
expedient.
6. Thus, municipalities may be permitted to tax subjects which for reasons of
public policy the State has not deemed wise to tax for more general
purposes. This is not to say though that the constitutional injunction against
deprivation of property without due process of law may be passed over under
the guise of the taxing power, except when the taking of the property is in
the lawful exercise of the taxing power, as when (1) the tax is for a public
purpose; (2) the rule on uniformity of taxation is observed; (3) either the person
or property taxed is within the jurisdiction of the government levying the tax;
and (4) in the assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided.  corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid
7. (what was highlighted in the book) Due process is usually violated where the
tax imposed is for a private as distinguished from a public purpose; a tax is
imposed on property outside the State, i.e., extraterritorial taxation; and
arbitrary or oppressive methods are used in assessing and collecting taxes. But,
a tax does not violate the due process clause, as applied to a particular
taxpayer, although the purpose of the tax will result in an injury rather than a
benefit to such taxpayer. Due process does not require that the property
subject to the tax or the amount of tax to be raised should be determined
by judicial inquiry, and a notice and hearing as to the amount of the tax
and the manner in which it shall be apportioned are generally not necessary to
due process of law.
No Double Taxation
1. There is no validity to the assertion that the delegated authority can be declared
delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised.
2. The reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction
against double taxation found in the Constitution of the United States and some
states of the Union.
3. Double taxation becomes obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity or by the same jurisdiction for the
same purpose, but not in a case where one tax is imposed by the State and
the other by the city or municipality.
4. Pepsi-Cola submits that Ordinance No. 23 and 27 constitute double taxation,
because these two ordinances cover the same subject matter and impose
practically the same tax rate. However, Ordinance No. 23, which was approved
on September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked,
irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the
bottle and still pay the same tax rate, the Municipality of Tanauan enacted
Ordinance No. 27, approved on October 28, 1962, imposing a tax of one
centavo on each gallon of volume capacity.
5. The difference between the two ordinances clearly lies in the tax rate of the soft
drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle
ounces, U.S.) of volume capacity. The intention of the Municipal Council of
Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain
substitute for the prior Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect. Pepsi-Cola even admits that defendants-
appellees are only seeking to enforce Ordinance No. 27.
6. The ordinances do not partake of the nature of a percentage tax on sales, or
other taxes in any form based thereon. The tax is levied on the produce
(whether sold or not) and not on the sales. The volume capacity of the
taxpayer's production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is not set ratio between the
volume of sales and the amount of the tax.
Tax is just and fair
1. The tax of P0.01 on each gallon of volume capacity on all softdrinks, produced
or manufactured, or an equivalent of 1-½ centavos per case, cannot be
considered unjust and unfair. An increase in the tax alone would not support the
claim that the tax is oppressive, unjust and confiscatory.
2. Municipal corporations are allowed much discretion in determining the reates
of imposable taxes. This is in line with the constutional policy of according the
widest possible autonomy to local governments in matters of local taxation, an
aspect that is given expression in the Local Tax Code.
3. Unless the amount is so excessive as to be prohibitive, courts will go slow in
writing off an ordinance as unreasonable. Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the purpose of the
law to further strengthen local autonomy were to be realized.
Fernando, J. Concurring
1. The present Constitution is quite explicit as to the power of taxation vested in local and
municipal corporations. It is therein specifically provided: "Each local government unit
shall have the power to create its own sources to revenue and to levy taxes, subject to such
limitations as may be provided by law."
2. The only limitation on the authority to tax under the 1935 Constitution was that while the
President of the Philippines was vested with the power of control over all executive
departments, bureaus, or offices, he could only "exercise general supervision over all local
governments as may be provided by law." As far as legislative power over local
government was concerned, no restriction whatsoever was placed in the Congress of the
Philippines. It would appear therefore that the extent of the taxing power was solely for
the legislative body to decide.
3. The rule is well-settled that municipal corporations, unlike sovereign states, are clothed
with no power of taxation; that its charter or a statute must clearly show an intent to confer
that power of the municipal corporation cannot assume and exercise it, and that any such
power granted must be construed strictly, any doubt or ambiguity arising from the terms of
the grant to be resolved against the municipality."
4. The objection to the taxation as double may be laid down on one side. The 14th
Amendment (the due process clause) no more forbids double taxation than it does
doubling the amount of a tax, short of confiscation or proceedings unconstitutional on
other grounds.
COMMISSIONER OF CUSTOMS V. HYPERMIX FEEDS CORP. (Hanna)
February, 1, 2012 | 664 SCRA 666 | Constitutional Limitations of Taxation
PETITIONER: COMMISSIONER OF CUSTOMS and the DISTRICT
COLLECTOR OF THE PORT OF SUBIC
RESPONDENTS: HYPERMIX FEEDS CORPORATION
SUMMARY:
Commissioner of Customs issued a memorandum (CMO27-2003) stating tgat the
wheat shal be classified according to the ff: a) Importer or consignee, b) Country of
origin, c) Port of discharge. The corresponding tariff for food grade wheat was 3%,
for feed grade, 7%. A month after the issuance of the memorandum respondent
filed a petition for declaratory relief with the RTC of Las Pinas City. It contended
that the memorandum was issued without following the mandate of the Revised
Administrative Code on public participation, prior notice, and publication or
registration with the University of the Philippines Law Center. It also contended
that
that the regulation summarily adjudged it to be a feed grade supplier without the
benefit of prior assessment and examination, despite having imported food grade
wheat, it would be subjected to the 7% tariff upon the arrival of the shipment,
forcing them to pay 133%, thus violating the equal protection clause when the
regulation treated non-flour millers differently from flour millers for no reason at
all.
Issue: W/N CMO27-003 is constitutional [No]
Held: The Revised Adninistrative Code provides that in the fixing of rates, no rule
or final order shall be valid unless the proposed rates shall have been published in a
newspaper of general circulation at least two (2) weeks before the first hearing
thereon. Petitioners failed to follow the requirements enumerated by the Revised
Administrative Code, therefore the assailed regulation must be struck down.
Moreover, CMO 27-2003 violates the equal protection clause. The Court does not
see how the quality of wheat is affected by who imports it, where it is discharged,
or which country it came from.
DOCTRINE:
When an administrative rule is merely interpretative in nature, its applicability
needs nothing further than its bare issuance, for it gives no real consequence more
than what the law itself has already prescribed. When, on the other hand, the
administrative rule goes beyond merely providing for the means that can facilitate
or render least cumbersome the implementation of the law but substantially
increases the burden of those governed, it behooves the agency to accord at least to
those directly affected a chance to be heard, and thereafter to be duly informed,
before that new issuance is given the force and effect of law.
FACTS:
1. On Nov. 7, 2003, petitioner Commissioner of Customs issued a
memorandum (CMO27-003). Under the memorandum, for tariff purposes,
wheat was classified according to the ff:
a. Importer or consignee
b. Country of origin
c. Port of discharge
2. The regulation provided an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of origin. Depending on
these factors, wheat would be classified either as food grade or feed grade.
The corresponding tariff for food grade wheat was 3%, for feed grade, 7%.
3. A month after the issuance of the memorandum respondent filed a petition
for declaratory relief with the RTC of Las Pinas City. It contended that the
memorandum was issued without following the mandate of the Revised
Administrative Code on public participation, prior notice, and publication or
registration with the University of the Philippines Law Center.
4. Respondent also alleged that the regulation summarily adjudged it to be a
feed grade supplier without the benefit of prior assessment and examination,
despite having imported food grade wheat, it would be subjected to the 7%
tariff upon the arrival of the shipment, forcing them to pay 133%.
5. Respondent claimed that the equal protection clause of the Constitution was
violated when the regulation treated non-flour millers differently from flour
millers for no reason at all, and that the retroactive application of the
regulation was confiscatory in nature.
6. RTC issued a TRO.
7. Petitioners thereafter filed a Motion to Dismiss.They alleged that:
(1) the RTC did not have jurisdiction over the subject matter of the case,
because respondent was asking for a judicial determination of the
classification of wheat;
(2) an action for declaratory relief was improper;
(3) CMO 27-2003 was an internal administrative rule and not legislative in
nature; and
(4) the claims of respondent were speculative and premature, because the
Bureau of Customs (BOC) had yet to examine respondents products.
8. RTC ruled in favor of the respondent. RTC held that it had jurisdiction over
the subject matter, given that the issue raised by respondent concerned the
quasi-legislative powers of petitioners. It likewise stated that a petition for
declaratory relief was the proper remedy, and that respondent was the
proper party to file it. The court considered that respondent was a regular
importer, and that the latter would be subjected to the application of the
regulation in future transactions.
9. With regard to the validity of the regulation, the trial court found that
petitioners had not followed the basic requirements of hearing and
publication in the issuance of CMO 27-2003. It likewise held that
petitioners had substituted the quasi-judicial determination of the
commodity by a quasi-legislative predetermination. The lower court pointed
out that a classification based on importers and ports of discharge were
violative of the due process rights of respondent.
10. Petitioners appealed to the CA. CA dismissed the appeal. It held that, since
the regulation affected substantial rights of petitioners and other importers,
petitioners should have observed the requirements of notice, hearing and
publication.
ISSUE: W/N the issuance of CMO27-003 was constitutional - No
RULING: WHEREFORE, in view of the foregoing, the Petition is DENIED.
RATIO:
32. Considering that the questioned regulation would affect the substantive
rights of respondent as explained above, it therefore follows that petitioners
should have applied the pertinent provisions of Book VII, Chapter 2 of the
Revised Administrative Code, to wit:
 Section 3. Filing. (1) Every agency shall file with the University of the
Philippines Law Center three (3) certified copies of every rule adopted by
it. Rules in force on the date of effectivity of this Code which are not filed
within three (3) months from that date shall not thereafter be the bases of
any sanction against any party of persons.
xxx xxx xxx
Section 9. Public Participation. - (1) If not otherwise required by law, an
agency shall, as far as practicable, publish or circulate notices of proposed
rules and afford interested parties the opportunity to submit their views
prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general
circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
33. When an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance, for it gives
no real consequence more than what the law itself has already
prescribed. When, on the other hand, the administrative rule goes
beyond merely providing for the means that can facilitate or render
least cumbersome the implementation of the law but substantially
increases the burden of those governed, it behooves the agency to
accord at least to those directly affected a chance to be heard, and
thereafter to be duly informed, before that new issuance is given the
force and effect of law.
34. Because petitioners failed to follow the requirements enumerated by the
Revised Administrative Code, the assailed regulation must be struck
down.
35. Going now to the content of CMO 27-3003, we likewise hold that it is
unconstitutional for being violative of the equal protection clause of the
Constitution.
36. The equal protection clause means that no person or class of persons shall
be deprived of the same protection of laws enjoyed by other persons or
other classes in the same place in like circumstances. Thus, the guarantee of
the equal protection of laws is not violated if there is a reasonable
classification. For a classification to be reasonable, it must be shown that
(1) it rests on substantial distinctions; (2) it is germane to the purpose of the
law; (3) it is not limited to existing conditions only; and (4) it applies
equally to all members of the same class.
37. Unfortunately, CMO 27-2003 does not meet these requirements. The Court
does not see how the quality of wheat is affected by who imports it, where it
is discharged, or which country it came from.
38. The provision in the Tariffs and Customs law (Section 1403. Duties of
Customs Officer Tasked to Examine, Classify, and Appraise Imported
Article) mandates that the customs officer must first assess and determine
the classification of the imported article before tariff may be imposed.
Unfortunately, CMO 23-2007 has already classified the article even before
the customs officer had the chance to examine it. In effect, petitioner
Commissioner of Customs diminished the powers granted by the Tariff and
Customs Code with regard to wheat importation when it no longer required
the customs officers prior examination and assessment of the proper
classification of the wheat.
39. It is well-settled that rules and regulations, which are the product of a
delegated power to create new and additional legal provisions that have the
effect of law, should be within the scope of the statutory authority granted
by the legislature to the administrative agency. It is required that the
regulation be germane to the objects and purposes of the law; and that it be
not in contradiction to, but in conformity with, the standards prescribed by
law.
40. In summary, petitioners violated respondents right to due process in the
issuance of CMO 27-2003 when they failed to observe the requirements
under the Revised Administrative Code. Petitioners likewise violated
respondents right to equal protection of laws when they provided for an
unreasonable classification in the application of the regulation. Finally,
petitioner Commissioner of Customs went beyond his powers of delegated
authority when the regulation limited the powers of the customs officer to
examine and assess imported articles.
 SISON, JR vs ANCHETA (MEL)
July 25, 1984 | Fernando, C.J. | The General Constitutional Limitations on Taxation –
Due Process & Equal Protection
PETITIONER: Antero M. Sison, Jr.
RESPONDENTS: Ruben B. Ancheta, Acting Commissioner, Bureau of Internal
Revenu; Romulo Villa, Deputy Commissioner, Bureau of Internal Revenue; Tomas
Toledo Deputy Commissionery, BIR; Manuel Alba, Minister of Budget, Franscisco
Tantuico, Chairman, Commissioner on Audit, and Cesar E. A. Virata, Minister of
Finance.
SUMMARY: The petitioner assails the constitutionality of Section 1 of
BP 135 which amended the old tax Code on the ground that he would be
unduly discriminated against with the imposition of higher tax rates upon
his income arising from the exercise of his profession as a lawyer vis-à-
vis those which were imposed upon fixed income or salaried individual
taxpayers. For the petitioner, there was a transgression of the due process
clause and the equal protection clause. The issues are 1) w WON Section
1 of BP 135 transgressed the due process clause? – NO. The SC held that
the petitioner alleges arbitrariness but a mere allegation does not suffice.
There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void
or its face, he has not made out a case. 2) WON Section 1 of BP 135
violated the equal protection clause? – NO. There was no undue
classification among different sources of income. Taxpayers may be
classified into different categories. It is enough that the classification
must rest upon substantial distinctions that make real differences.
Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e
not entitled to make deductions for income tax purposes because they are
in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income
DOCTRINE:
On due process: It is undoubted that the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That would
be a clear abuse of power. It then becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. That properly calls
for the application of the Holmes dictum (The power to tax is not the power to destroy
while this Court sits.)
On equal protection clause: It suffices then that the laws operate equally and uniformly
on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the
liabilities imposed. Taxpayers may be classified into different categories. To repeat, it is
enough that the classification must rest upon substantial distinctions that make real
differences.
FACTS:
1. The success of the challenge posed in this suit for declaratory relief
or prohibition proceeding on the validity of Section I of Batas
Pambansa Blg. 135 depends upon a showing of its constitutional
infirmity. The assailed provision further amends Section 21 of the
National Internal Revenue Code of 1977, which provides for rates of
tax on citizens or residents on (a) taxable compensation income, (b)
taxable net income, (c) royalties, prizes, and other winnings, (d)
interest from bank deposits and yield or any other monetary benefit
from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in the net
profits of taxable partnership, (f) adjusted gross income.
2. Petitioner as taxpayer alleges that by virtue thereof, "he would be
unduly discriminated against by the imposition of higher rates of tax
upon his income arising from the exercise of his profession visavis
those which are imposed upon fixed income or salaried individual
taxpayers.
3. He characterizes the above section as arbitrary amounting to class
legislation, oppressive and capricious in character. For petitioner,
there is a transgression of both the equal protection and due process
clauses of the Constitution as well as of the rule requiring uniformity
in taxation.
4. The Court required respondents to file an answer within 10 days
from notice. Such an answer, after two extensions were granted the
Office of the Solicitor General, was filed.
5. The facts as alleged were admitted but not the allegations which to
respondents’ mind are "mere arguments, opinions or conclusions on
the part of the petitioner”. They said that "Batas Pambansa Big. 135
is a valid exercise of the State's power to tax.
6. The respondents prayed for the dismissal of the petition for lack of
merit.
ISSUE:
1. WON Section 1 of BP 135 transgressed the due process clause? – NO.
2. WON Section 1 of BP 135 violated the equal protection clause? – NO.
RULING:
WHEREFORE, the petition is dismissed. Costs against petitioner.
RATIO:
Section 1 of PB 135 complied with the due process clause.
1. The Constitution as the fundamental law overrides any legislative or
executive, act that runs counter to it. In any case where it can be
demonstrated that the challenged statutory provision — as petitioner
here alleges — fails to abide by its command, then this Court must
so declare and adjudge it null.
2. The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here does not suffice. There
must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a
provision as void or its face, he has not made out a case.
3. This is merely to adhere to the authoritative doctrine that where the
due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad
standards, there is a need for of such persuasive character as
would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.
4. It is undoubted that the due process clause may be invoked where
a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to the confiscation of property. That would be a clear
abuse of power. It then becomes the duty of this Court to say that
such an arbitrary act amounted to the exercise of an authority
not conferred. That properly calls for the application of the
Holmes dictum (The power to tax is not the power to destroy while this Court
sits.) It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or,
in case of a retroactive statute is so harsh and unreasonable, it is
subject to attack on due process grounds.
Sec 1 of BP 135 did not violate the equal protection clause. There is no
undue classification among different sources of income.
1. The applicable standard to avoid the charge that there is a denial of
this constitutional mandate whether the assailed act is in the exercise
of police power or the power of eminent domain is to demonstrate
that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of
hostility, or at the very least, discrimination that finds no support in
reason.
2. It suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different,
both in the privileges conferred and the liabilities imposed.
Favoritism and undue preference cannot be allowed. For the
principle is that equal protection and security shall be given to every
person under circumstances which if not identical are analogous. If
law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest."
3. That same formulation applies as well to taxation measures. The
equal protection clause is, of course, inspired by the noble concept of
approximating the Ideal of the laws benefits being available to all
and the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the Idea of law. There is,
however, wisdom, as well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims
is not a disembodied equality. The Fourteenth Amendment enjoins
'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are
expressions of policy arising out of specific difficulties, address to
the attainment of specific ends by the use of specific remedies. The
Constitution does not require things which are different in fact or
opinion to be treated in law as though they were the same."
4. Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading
case of Lutz V. Araneta, this Court, through Justice J.B.L. Reyes,
went so far as to hold "at any rate, it is inherent in the power to
tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or exemption
infringe no constitutional limitation.'"
5. Petitioner likewise invoked the kindred concept of uniformity.
According to the Constitution: "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. "
6. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base.
There is no legal objection to a broader tax base or taxable income
 by eliminating all deductible items and at the same time reducing the
applicable tax rate.
7. Taxpayers may be classified into different categories. To repeat, it is
enough that the classification must rest upon substantial
distinctions that make real differences.
8. In the case of the gross income taxation embodied in BP 135, the
discernible basis of classification is the susceptibility of the
income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set
of reduced tax rates to be applied to all of them.
9. Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense, these
taxpayers are e not entitled to make deductions for income tax
purposes because they are in the same situation more or less.
10. On the other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the costs
or expenses necessary to produce their income. It would not be
just then to disregard the disparities by giving all of them zero
deduction and indiscriminately impose on all alike the same tax rates
on the basis of gross income.
11. There is ample justification then for BP 135 to adopt the gross
system of income taxation to compensation income, while
continuing the system of net income taxation as regards
professional and business income.

AQUINO, J., concurring opinion

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

ABAD SANTOS, J., dissenting: s

This is a frivolous suit. While the tax rates for compensation income are lower than those for
net income such circumtance does not necessarily result in lower tax payments for these
receiving compensation income. In fact, the reverse will most likely be the case; those who
file returns on the basis of net income will pay less taxes because they claim all sort of
deduction justified or not I vote for dismissal.
 17 TAN V. DEL ROSARIO, JR. (PAUL) 1. Petitioners are assailing the constitutionality of R.A. 7496 – the Simplified
Net Income Taxation Scheme (SNITS) which amended some provisions
Oct. 3, 1994 | Vitug, J. | SNITS not violative of due process clause of the NIRC.
2. They argue that the law violates certain provisions of the Constitution:
a. Art. VI, Sec. 26(1): Every bill passed by the Congress shall embrace
PETITIONERS: Rufino R. Tan, et al. only one subject which shall be expressed in the title thereof.
b. Art. VI, Sec. 28(1): The rule of taxation shall be uniform and equitable.
RESPONDENTS: Ramon Del. Rosario (Secretary of Finance) The Congress shall evolve a progressive system of taxation.
c. Art. III, Sec. 1: No person shall be deprived of… property without
due process of law, no shall any person be denied of the equal
protection of the laws.
SUMMARY: Here, petitioners are assailing the Constitutionality of R.A. 7469
3. The petitioners also argue that the DoF has exceeded its authority in making
– the Simplified Net Income Taxation Scheme (SNITS) which amends the
the IRR of the SNIT – Revenue Regulations No. 2-93
provisions on the income taxation when it comes to self-employed individuals
4. The pertinent provisions which are assailed talk about the Simplified Net
and the professionals engaged in the practice of their profession (see table
Income Tax (SNIT) for individuals who are self-employed and/or
below for rates). One of their main arguments is that the law would apparently
professionals engaged in the practice of a profession.
tax single proprietorships and professionals differently from corporations and
5. Their tax schedule are as follows:
partnerships. Therefore, it would be violating the Constitutional rule that
taxation should be uniform, equitable, and must by abide by the rules of due
process. This argument is confusing because that system has always been used Net Income (Php) Rate
since before. The Court also held that the Constitution does not prohibit all
x ≤ 10,000 3%
kinds of classification. It merely requires that all subjects of taxation which are
similarly situated are to be treated alike in privileges and liabilities. A 10,000  x ≤ 30,000 Php 300 + 9% of excess of Php 10,000
classification is valid as long as it satisfies the following requirements: (a) the
standards are substantial, and not arbitrary; (b) the classification is germane to 30,000  x ≤ 120,000 Php 2,100 + 15% of excess of Php 30,000
the purpose of the law; (c) the law applies, all things being equal, to both
present and future conditions; and that the classification applies equally to all 120,000  x ≤ 350,000 Php 15,600 + 20% of excess of Php 120,000
those belonging to the same class.
350,000  x Php 61, 600 + 30% of excess over Php 350,000

DOCTRINE: Again, the discretion is with legislature to determine the nature

(kind), object (purpose), extent (rate), coverage (subjects), and situes (place) of
taxation. The courts cannot question the wisdom of the legislature unless the tax
becomes so unconscionable and unjust which already amounts to confiscation 6. There is also a provision which allows deductions of cost of goods sold and
of property. Therefore, there is no violation of due process because it can only directs costs.
be invoked if there is a clear contravention of inherent or constitutional
limitations in the exercise of tax power.
ISSUE/s:

1. W/N SNITS violated the due process clause? NO

FACTS:
RULING: WHEREFORE, the petitions are DISMISSED. No special
pronouncement on costs.
RATIO:
The law still uses the Net income, not the gross income (bigla lang lumitaw)
1. The allowance for deductible items have been reduced by the SNIT law but
this doesn’t mean that the law already uses gross income as the basis for its
taxation.
There is no log-rolling legislation here
1. The provision against log-rolling intended to:
a. Unite the members of the legislature who favor any one of the unrelated
subjects in support of the whole act;
b. To avoid surprises and fraud;
c. To properly apprise the people of the subjects of the law.
2. Based on these standards, the law has not violated the provision against log-
rolling (the court didn’t explain further).
The law is uniform, equitable, and does not violate due process (TOPIC!)
1. Petitioner also tried to argue that it violates the constitutional requirement
that taxation shall be uniform and equitable because the law would now tax
single proprietorships and professionals differently from how corporations
and partnerships will be taxed.
2. The thing is, this system of taxing them differently has always been used.
3. Uniformity of taxation, like equal protection, merely requires that all
subject or objects of taxation, similarly situated, are to be treated alike
in privileges and liabilities.
4. Uniformity does not prohibit all types of classification as long as (same reqs
as due process and equal protection:
a. The standards are substantial, and not arbitrary;
b. The classification is germane to the purpose of the law
c. The law applies, all things being equal, to both present and future
conditions; and
d. The classification applies equally to all those belonging to the same
class.
5. The shift now to the schedular approach (Court did not explain what this
really means) in the income of taxpayers is not arbitrary and inappropriate.
(Bullet points 6-11 are cited by Dean in the book)
6. The petitioner tries to argue that there is an imbalance between the tax
liabilities of those who are covered and those who are not.
7. Again, the discretion is with legislature to determine the nature (kind),
object (purpose), extent (rate), coverage (subjects), and situes (place) of
taxation.
8. The courts cannot question the wisdom of the legislature unless the tax
becomes so unconscionable and unjust which already amounts to
confiscation of property.
9. The courts can interfere in such a situation because the power to tax cannot
override its Constitutional limits.
10. Therefore, there is no violation of due process because it can only be
invoked if there is a clear contravention of inherent or constitutional
limitations in the exercise of tax power.
11. Such an abuse is not shown here.
Secretary of Finance did go beyond their power
1. Sec. 6 of the regulation states that only direct costs are to be deducted from
partnership income. Moreover, expenses paid or incurred by partners in the
practice of their profession which are not reimbursed or paid by the
partnership but are not considered as direct costs, are not deductible from
gross income.
2. Petitioners try to argue that general professional partnerships are subject to
the payment of income tax or that there is a difference in the tax treatment
between individuals engaged in business, or in the practice of their
professions, and partners in general professional partnerships.
3. The Court says that a general professional partnership, unlike an ordinary
business partnership, is not itself an income tax payer.
4. Here, the income tax is NOT imposed on the partnership itself, but on the
partners individually based on their distributive shares in the partnership
profits.
5. With this, there is no distinction in income tax liability between a person
who practices his profession alone and one who does it via a
partnership.
6. Petitioners’ arguments may have merit if you are to consider the SNIT law
as an independent one, and not one that merely amends the current law.
7. Here, the SNIT is only a part of the NIRC – the law in levying the tax,
adopts the most comprehensive tax situs of nationality and residence.
8. General rule: partnerships are subject to income tax, and are by law,
assimilated to be within the context of corporations aka they’re almost the
same when it comes to taxation.
9. The SNIT law does not talk about the ordinary business type of partnership
– taxable partnerships.
10. What are covered are the exempt partnerships like a general professional
partnership (e.g. law firm) which are not considered as independent
taxable entities for income tax purposes.
11. As mentioned, the partners individually are taxed, not the partnership itself.
12. Here, Sec. 6 of the regulation did not alter, but only confirmed this rule as
now modified by R.A. 7469 in relation to the allowable deductions.
13. There is no effect of unequal footing between the professionals practicing
individually, or practicing through a general professional partnership.
 18 SISON v. ANCHETA (Eliel)
July 25, 1984 | Fernando, J. | Equal Protection
PETITIONER: Antero M. Sison, Jr.
RESPONDENTS: Ruben B. Ancheta, et al.
SUMMARY: Sison is assailing the constitutionality of Section 1 of BP 135,
which amended Section 21 of NIRC regarding the rates of tax on citizens or
residents as to their income. Sison is questioning such because he belives that
the imposition is violative of the equal protection clause. Since, by virtue of his
profession (lawyer), he is subject to higher tax rates as compared to those
taxpayers that have fixed income.
The SC held that Section 1 of BP 135 is valid. Equal protection in taxation does
not require that every individual be subject to the same tax rates. It only requires
that the same tax rates shall apply as to those taxpayers in the same class, under
the same conditions. And in this case, there is a substantial distinction between
taxpayers who practice their profession, and those who are compensated
through a fixed income.
DOCTRINE: Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purpose of taxation.
RATIO 1 – 4 is the doctrine cited in the book, but this basically is the point.
FACTS:
1. The success of the challenge posed in this suit for declaratory relief or
prohibition proceeding on the validity of Section 1 of Batas Pambansa
Blg. 135, depends upon a showing of its constitutional infirmity.
2. The assailed provision further amends Section 21 of the National Internal
Revenue Code of 1977, which provides for rates of tax on citizens or
residents on (a) taxable compensation income, (b) taxable net income, (c)
royalties, prizes, and other winnings, (d) interest from bank deposits
and yield or any other monetary benefit from deposit substitutes and
from trust fund and similar arrangements, (e) dividends and share of
individual partner in the net profits of taxable partnership, (f) adjusted
gross income.
3. Sison, as taxpayer alleges that by virtue thereof, “he would be unduly
discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-à-vis those which
are imposed upon fixed income or salaried individual taxpayers. He
characterizes the above section as arbitrary amounting to class legislation,
oppressive and capricious in character. For him, therefore, there is a
transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation.
ISSUES:
1. WoN BP 135 violates the equal protection clause – NO
RULING: WHEREFORE, the petition is dismissed. Costs against petitioner.
RATIO:
1. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the
police power or the power of eminent domain is to be demonstrated that the
governmental act assailed, far from being inspired by the attainment o fthe
common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason.
2. It suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be related
in the same manner, the conditions not being different, both in the
privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed.
3. For the principle is that equal protection and security shall be given to
every person under circumstances which if not identical are analogous.
If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest.
4. That same formulation applies as well to taxation measures. The equal
protection clause is, of course, inspired by the noble concept of
approximating the ideal of the laws benefits being available to all and
the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the idea of law.
5. Justice Frankfurter: The Constitution does not require things which are
different in fact or opinion to be treated in law as though they were the
same. Hence the constant reiteration of the view that classification if
rational in character is allowable.
6. Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate. The
taxing power has the authority to make reasonable and natural
classifications for purpose of taxation.
7. There is no legal objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories.
To repeat, it is enough that the classification must rest upon substantial
distinctions that make real differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the
 class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as
a class. As there is practically no overhead expense, these taxpayers are not
entitled to make deductions for income tax purposes because they are in the
same situation more or less.
8. On the other hand, in the case of professionals in the practice of their calling
and businessmen, there is no uniformity in the costs or expenses necessary
to produce their income. It would not be just then to disregard the
disparities by giving all of them zero deduction and indiscriminately impose
on all alike the same tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the gross system of
income taxation to compensation income, while continuing the system of
net income taxation as regards professional and business income.
 019 BRITISH AMERICAN TOBACCO v. CAMACHO (CHIQUI)
April 15, 2009 | Ynares-Santiago, J. | Classification Freeze Provision
PETITIONER: British American Tobacco
RESPONDENTS: John Isidro N. Camacho (Secretary of Finance) and Guillermo L.
Parayno, Jr. (Commissioner of BIR), and Philip Morris Philippines Manufacturing,
Inc., Fortune Tobacco, Corp.
SUMMARY: BAT assailed the legality of the classification freeze in the provision
of RA 9334. The classification freeze states that new brands of cigarettes shall be
taxed according to their current net retail price while existing or old brands shall be
taxed based on their net retail price as of October 1, 1996. The assailed feature of the
law refers to the mechanism where after a brand is classified based on its current net
retail price, the classification is frozen and only Congress can only reclassify the
same. BAT argued that if the current net retail price of a certain brand would make it
fall under a high tax bracket, the previously classified brand would continue to be
subject to the excise tax rates under the lower tax bracket, thereby creating undue
classification. W/N it violated the equal protection clauses? NO, it has been held that
in the areas of social and economic policy, a statutory classification that neither
proceeds along suspect lines nor infringes constitutional rights must be upheld
against equal protection challenge if there is any reasonably conceivable state of
facts that could provide a rational basis for the classification. Under the rational
basis test, it is sufficient that the legislative classification is rationally related to
achieving some legitimate State interest. A legislative classification that is
reasonable does not offend the constitutional guaranty of the equal protection of the
laws. The classification is considered valid and reasonable provided that: (1) it rests
on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies,
all things being equal, to both present and future conditions; and (4) it applies
equally to all those belonging to the same class.
DOCTRINE: The classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3)
it applies, all things being equal, to both present and future conditions; and (4) it
applies equally to all those belonging to the same class.
FACTS:
26. After the SC’s decision rendering RA No. 9334 as constitutional, British
American Tobacco (BAT) filed a motion for reconsideration, assailing that
the provisions of RA No. 9334 are unconstitutional and that it should be
entitled to a downward reclassification of Lucky Strike from the premium-
priced to the high-priced tax bracket. (Since this case is a motion for
reconsideration, it did not delve into the facts so I included the ones in the
book.)
27. The law created a four-tiered system among low-priced, medium-priced,
and premium-priced tax brackets of cigars and cigarettes. The challenged
laws imposed a classification of cigars and cigarettes according to current
net retail price to determine the excise tax rates applicable. New brands of
cigarettes shall be taxed according to their current net retail price while
existing or old brands shall be taxed based on their net retail price as
of October 1, 1996.
28. The assailed feature of the laws refer to the mechanism where after a brand
is classified based on its current net retail price, the classification is frozen
and only Congress can only reclassify the same. Specifically, BAT assails
Annex “D” brands which are classified as of Oct. 1, 1996, or prior to the
effectivity of the law.
29. BAT argues that as a consequence of the classification freeze provision,
even if the current net retail price of a certain brand would make it fall
under a high tax bracket, the previously classified brand would continue to
be subject to the excise tax rates under the lower tax bracket. As a result,
undue classification is created among the brands of cigars and cigarettes.
ISSUE/s:
10. W/N RA No. 9334 violates the equal protection and uniformity of taxation
clauses and the constitutional prohibition on unfair competition, and the
constitutional provisions on regressive and inequitable taxation? NO
RULING: WHEREFORE, the motion for reconsideration is DENIED.
RATIO:
The assailed law does not violate the equal protection and uniformity of taxation
clauses. (Issue that is in the book)
1. BAT argues that the classification freeze provision violates the equal
protection and uniformity of taxation clauses because Annex D brands are
taxed based on their 1996 net retail prices while new brands are taxed based
on their present day net retail prices.
a. These contentions are without merit and a rehash of BAT’s
previous arguments before this Court. As held in the assailed
Decision, the instant case neither involves a suspect classification
nor impinges on a fundamental right.
b. Consequently, the rational basis test was properly applied to
gauge the constitutionality of the assailed law in the face of an
equal protection challenge. It has been held that in the areas of
social and economic policy, a statutory classification that
neither proceeds along suspect lines nor infringes
constitutional rights must be upheld against equal protection
challenge if there is any reasonably conceivable state of facts
that could provide a rational basis for the classification Under
the rational basis test, it is sufficient that the legislative
classification is rationally related to achieving some legitimate
State interest.
c. As the Court ruled in the assailed Decision, viz: A legislative
classification that is reasonable does not offend the
constitutional guaranty of the equal protection of the laws. The
classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions; (2) it is germane to the
purpose of the law; (3) it applies, all things being equal, to both
present and future conditions; and (4) it applies equally to all
those belonging to the same class. The first, third and fourth
requisites are satisfied. The classification freeze provision was
inserted in the law for reasons of practicality and expediency.
That is, since a new brand was not yet in existence at the time
of the passage of RA 8240, then Congress needed a uniform
mechanism to fix the tax bracket of a new brand.
2. BAT’s contention that the assailed provisions violate the uniformity of
taxation clause is similarly unavailing. In Churchill v. Concepcion, we
explained that a tax is uniform when it operates with the same force and
effect in every place where the subject of it is found. It does not signify an
intrinsic but simply a geographical uniformity. A levy of tax is not
unconstitutional because it is not intrinsically equal and uniform in its
operation.
a. In the instant case, there is no question that the classification
freeze provision meets the geographical uniformity requirement
because the assailed law applies to all cigarette brands in the
Philippines. And, for reasons already adverted to in our August 20,
2008 Decision, the above fourfold test has been met in the present
case.
The assailed provisions do not violate the constitutional prohibition onunfair
competition.
1. BAT asserts that the Court erroneously applied the rational basis test
allegedly because this test does not apply in a constitutional challenge based
on a violation of Section 19, Article XII of the Constitution on unfair
competition.
a. It should be noted that during the trial below, BAT did not invoke
said constitutional provision as it relied solely on the alleged
violation of the equal protection and uniformity of taxation clauses.
Wellsettled is the rule that points of law, theories, issues and
arguments not adequately brought to the attention of the lower
court will not be ordinarily considered by a reviewing court as they
cannot be raised for the first time on appeal.
b. Furthermore, the totality of the evidence presented by BAT before
the trial court failed to convincingly establish the alleged violation
of the constitutional prohibition on unfair competition. It is a basic
postulate that the one who challenges the constitutionality of a law
carries the heavy burden of proof for laws enjoy a strong
presumption of constitutionality as it is an act of a coequal branch
of government.
The assailed law does not transgress the constitutional provisions on regressive and
inequitable taxation.
1. BAT argues that the classification freeze provision is a form of regressive
and inequitable tax system which is proscribed under Article VI, Section
28(1) of the Constitution. It claims that people in equal positions should be
treated alike. The use of different tax bases for brands under Annex D visa-
vis new brands is discriminatory, and thus, iniquitous.
a. As stated earlier, the assailed provisions do not infringe the equal
protection clause because the fourfold test is satisfied. In
 particular, the classification freeze provision has been found to
rationally further legitimate State interests consistent with
rationality review.
2. While there was an attempt to make the imposition of the excise tax more
equitable by creating a fourtiered taxation system where higher priced
cigarettes are taxed at a higher rate, still, every consumer, whether rich or
poor, of a cigarette brand within a specific tax bracket pays the same tax
rate. The Constitution does not prohibit the imposition of indirect taxes but
merely provides that Congress shall evolve a progressive system of
taxation.
BAT is not entitled to a downward reclassification of Lucky Strike.
1. BAT alleges that assuming the assailed law is constitutional, its Lucky
Strike brand should be reclassified from the premiumpriced to the high-
priced tax bracket.
a. First, BIR Ruling No. 0182001 was requested by BAT for the
purpose of fixing Lucky Strikes initial tax classification based
on its suggested gross retail price relative to its planned
introduction of Lucky Strike in the market sometime in 2001
and not for the conduct of the market survey within three
months from product launch. BAT acknowledged that the
initial tax classification of Lucky Strike may be modified
depending on the outcome of the survey which will determine
the actual current net retail price of Lucky Strike in the
market.
b. Second, there was no upward reclassification of Lucky Strike
because it was taxed based on its suggested gross retail price
from the time of its introduction in the market in 2001 until
the BIR market survey in 2003.
c. Third, the failure of the BIR to conduct the market survey
within the threemonth period under the revenue regulations
then in force can in no way make the initial tax classification
of Lucky Strike based on its suggested gross retail price
permanent.
d. Last, the issue of timeliness of the market survey was never
raised before the trial court because BAT’s theory of the case
was wholly anchored on the alleged unconstitutionality of the
classification freeze provision. As a consequence, no
documentary evidence as to the actual net retail price of Lucky
Strike in 2001, based on a market survey at least comparable
to the one mandated by law, was presented before the trial
court.
020 American Bible Society v. City of Manila (Rica)
30 April 1957|Felix, J| Religious Freedom
PETITIONER: American Bible Society
RESPONDENT: City of Manila
SUMMARY:
American Bible Society (ABS) does business in the Philippines by selling and
distributing bibles and/or gospel portions of the Bible throughout the Philippines and
they also translate the same into several Philippine dialects. The City of Manila (the
city) informed ABS that ABS was doing business without having obtained a business
permit and without paying for the proper license fees. The city wants ABS to pay
municipal tax because ABS (according to the city) was conducting business of
general merchandise which is taxable under the ordinance. ABS contends that the
ordinances are unconstitutional for they violate ABS’s right to free exercise of
religion clause in the Constitution.
WON the imposition of the municipal tax is valid.
The SC said that the price asked for the bibles and other religious pamphlets was in
some instances a little bit higher than the actual cost of the same but this cannot
mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason, the court believes that the provisions of
City of Manila Ordinance cannot be applied. If it were applied, ABS’s right to
free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs will be impaired.
DOCTRINE:
The price asked for the bibles and other religious pamphlets was in some instances a
little bit higher than the actual cost of the same but this cannot mean that appellant
was engaged in the business or occupation of selling said "merchandise" for
profit. For this reason, the court believes that the provisions of City of Manila
Ordinance cannot be applied. If it were applied, ABS’s right to free exercise and
enjoyment of its religious profession and worship as well as its rights of
dissemination of religious beliefs will be impaired.
FACTS:
1. American Bible Society (ABS) is a foreign, nonstock, nonprofit, religious,
missionary corporation duly registered and doing business in the Philippines
through its Philippine agency established in Manila. It has been distributing
and selling bibles and/or gospel portions thereof (except during the
Japanese occupation) throughout the Philippines and translating the same
into several Philippine dialects.
2. The treasurer of the city of Manila informed ABS that it was conducting
business of general merchandise without providing itself with the necessary
Mayor’s permit and municipal license. This is a violation of Ordinance No.
3000. The treasurer required ABS to secure within 3 days the permit and the
license fees, together with a compromise covering the period from the 4th
quarter of 1945 to the second quarter of 1953 in a sum of Php 5, 821.45.
3. ABS protested but the Treasurer demanded ABS to deposit and pay the sum
under protest. ABS paid the fines under protest to avoid its business getting
closed down. ABS also gave the Treasurer a notice that suit will be taken in
court to question the legality of the ordinance.
4. ABS claims that the Ordinance is illegal and unconstitutional and that the
City Treasurer be ordered to refund to ABS the sum of Php 5, 891.45
together with legal interest and costs.
5. The city treasurer maintained that the ordinances were enacted by virtue of
the power granted to it under the Revised Administrative Code. The city of
Manila (the city) prayed that the case be dismissed with costs against ABS.
6. ABS proved when the case was set for hearing that
a. it has been in existence in the Philippines since 1899,
b. that its parent society is in New York, United States of America;
c. that its, contiguous real properties located at Isaac Peral are exempt
from real estate taxes;
d. and that it was never required to pay any municipal license fee or
tax before the war, nor does the American Bible Society in the
United States pay any license fee or sales tax for the sale of bible
therein.
e. Also, that it never made any profits from the sale of bibles. And
in order to maintaine the operating costs it obtains substantial
remittances from its NY office and voluntary contributions/ gifts
from the US and in the Philippines.
7. The city retorts that bibles bearing the price of 70 cents each from ABS’s
New York office are sold here by ABS at P1.30 each; those bearing the
price of $4.50 each are sold here at P10 each; those bearing the price of $7
each are sold here at P15 each; and those bearing the price of $11 each are
sold here at P22 each, clearly show that ABS's contention that it never
makes any profit from the sale of its bible, is evidently untenable.
ISSUE: W/N the ordinances are unconstitutional – No.
RULING: WHEREFORE and on the strength of the foregoing considerations, We
hereby reverse the decision appealed from, sentencing defendant return to plaintiff
the sum of P5,891.45 unduly collected from it. Without pronouncement as to costs. It
is so ordered.
RATIO:
1. Section 1, subsection (7) of Article III of the Constitution of the Republic
of the Philippines, provides that:
a. (7) No law shall be made respecting an establishment of religion,
or prohibiting the free exercise thereof, and the free exercise and
enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No religion
test shall be required for the exercise of civil or political rights.
2. ABS contends that the Ordinances are unconstitutional and illegal because
the ordinances provide religious censorship and restrain the free
exercise and enjoyment of its religious profession.
3. The business, trade, or occupation of ABS is not particularly mentioned in
section 3 of the ordinance and records don’t show that a permit is required
under existing laws and ordinances for the proper supervision and
enforcement of their provisions governing sanitation, security and
welfare of the public and the health of the employees engaged in the
business of ABS. However, section 3 contains:
a. All other businesses, trades or occupations not mentioned in this
Ordinance, except those upon which the City is not empowered to
license or to tax P5.00
4. Therefore, the necessity of the permit is made to depend on the power of
the City to license or tax the business.
5. Section 1 of the ordinance does not impose directly upon any religious
institution but upon those engaged in any of the business enumerated such
as retail dealers in general merchandise which it is alleged, cover the
business or occupation of selling bibles, books, etc. (The city was
claiming that they weren’t taxing ABS because of the religion aspect of
ABS’s business but because it falls under general merchandise).
6. The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious
 information. Any restraints of such right can only be justified like other this cannot mean that appellant was engaged in the business or
restraints of freedom of expression on the grounds that there is a clear and occupation of selling said "merchandise" for profit. For this reason the
present danger of any substantive evil which the State has the right to court believes that the provisions of City of Manila Ordinance cannot be
prevent. applied. If it were applied, ABS’s right to free exercise and enjoyment of
7. In this case, the license fee involved is imposed on ABS for its distribution its religious profession and worship as well as its rights of dissemination of
and sale of bibles and other religious literature. religious beliefs will be impaired.
8. In the case of Murdock v. Pennsylvania: 10. As for the requirement that a Mayor’s permit is needed before any person
a. Supreme Court held that it could not be said that petitioners were can engage in any of the businesses enumerated, the Court does not find
engaged in commercial rather than a religious venture. that it imposes any charge upon the enjoyment of a right granted by the
b. We do not mean to say that religious groups and the press are Constitution, nor tax the exercise of religious practices.
free from all financial burdens of government. 11. The ordinance (the one that requires a Mayor’s permit), therefore cannot be
c. It is one thing to impose a tax on the income or property of a considered unconstitutional even if applied to ABS. But the ordinance that
preacher. It is quite another to exact a tax from him for the requires payment of license fees is not applicable to ABS and the City of
privilege of delivering a sermon. The tax imposed by the City of Manilla is powerless to license or tax ABS or else ABS’s rights will be
Jeannette is a flat license tax, payment of which is a condition of violated.
the exercise of these constitutional privileges. The power to tax
the exercise of a privilege is the power to control or suppress
its enjoyment. . . .
d. Those who can tax the privilege of engaging in this form of
missionary evangelism can close all its doors to all those who
do not have a full purse. Spreading religious beliefs in this
ancient and honorable manner would thus be denied the needy.
e. It is not a nominal fee imposed as a regulatory measure to
defray the expenses of policing the activities in question. It is
in no way apportioned. It is flat license tax levied and collected
as a condition to the pursuit of activities whose enjoyment is
guaranteed by the constitutional liberties of press and religion
and inevitably tends to suppress their exercise. That is almost
uniformly recognized as the inherent vice and evil of this flat
license tax.
f. Nor could dissemination of religious information be conditioned
upon the approval of an official or manager even if the town were
owned by a corporation as held in the case of Marsh vs. State of
Alabama or by the United States itself as held in the case of
Tucker vs. Texas. In the former case the Supreme Court expressed
the opinion that the right to enjoy freedom of the press and
religion occupies a preferred position as against the constitutional
right of property owners.
9. In this case, the price asked for the bibles and other religious pamphlets
was in some instances a little bit higher than the actual cost of the same but
 CIR vs. CENTRAL LUZON DRUG CORP (VARGAS)
April 15, 2005 | Panganiban, J. | Payment of Just Compensation
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Central Luzon Drug Corporation
SUMMARY: Central Luzon Drug Corp (CLDC) is a domestic corporation
operating under the business name and style Mercury Drug. Pursuant to RA
7432, CLDC granted 20% sales discount to qualified senior citizens on their
purchases of medicines which amount totaled Php900k. When CLDC filed its
annual Income Tax Return, it declared that it incurred losses from its operations
and filed a claim for tax refund/credit arising from the 20% discount grant. CIR
refused to grant said claim arguing that tax credit/refund is premised on the
existence of a tax liability on the part of the taxpayer. The issue in this case is
WON CLDC, despite incurring net loss, may still claim the discount grant as a
tax credit. The SC ruled in favor of CLDC and ordered CIR to issue a tax credit
certificate. 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 privilege enjoyed by senior citizens does not come directly from the
State but rather from the private establishments concerned. Accordingly,
the tax credit benefit granted to these establishments can be deemed as their
just compensation for private property taken by the State for public use.
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.
DOCTRINE: While social justice is a declared commitment under RA 7432, it
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 Constitution is not intended to take away rights from a person
and give them to another who is not entitled thereto. 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.
FACTS:
1. Central Luzon Drug Corp. [CLDC] is a domestic corporation primarily engaged
in retailing of medicines and other pharmaceutical products. It operated under
the business name and style Mercury Drug.
2. Pursuant to RA 743214 and its IRR, CLDC granted 20% sales discount to
qualified senior citizens on their purchases of medicines which amount totaled
Php900k.
3. When CLDC filed its annual Income Tax Return, it declared therein that it
incurred net losses from its operations and was claiming for tax refund/credit
allegedly arising from the discount granted by CLDC to senior citizens in
compliance with said law.
14
An Act to Minimize the Contribution of Senior Citizens to Nation Building, Grant
Benefits and Special Privileges and for other purposes.
4. CIR refused to grant said claim by CLDC stating that 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.
5. The assailed decision of the CA ordered CIR to issue a tax credit certificate in
favor of CLDC. It said that such credit is not tantamount to an unintended
benefit from the law but rather a just compensation for the taking of private
property.
ISSUE:
WON CLDC, despite incurring net loss, may still claim the 20% sales discount
as tax credit - YES. An establishment operating at a loss may avail of the tax
credit granted RA 7432.
RULING: WHEREFORE, the Petition is hereby DENIED. The assailed Decision
and Resolution of the Court of Appeals AFFIRMED. No pronouncement as to costs.
RATIO:
1. RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on
their purchase of medicine from any private establishment in the country. The
latter may then claim the cost of the discount as a tax credit. At issue in this case
is the availment of tax credit allowed to establishments operating at a loss as a
result of granting 20% discount to senior citizens.
2. The SC held that an establishment operating at a loss may avail of the tax credit
granted by RA 7432. The privilege enjoyed by the senior citizens does not come
directly from the State but rather from the private establishments concerned.
Accordingly, the tax credit benefit granted to these establishments can be deemed
as their just compensation for private property taken by the State for public use.
3. 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.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.
4. As a result of the 20 percent discount imposed by RA 7432, CLDC 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, CLDC 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.
5. Besides, the taxation power can also be used as an implement for the exercise of
the power of eminent domain. Tax measures are but enforced contributions
 exacted on pain of penal sanctions and clearly imposed for a public purpose.
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.
6. 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 Constitution is not intended to take away rights from a person
and give them to another who is not entitled thereto. 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.
7. To put it differently, a private establishment that merely breaks even-- without the
discounts yet -- will surely start to incur losses because of such discounts.
 022 CIR v. CENTRAL LUZON DRUG CORP. (VICENCIO)
June 12, 2008 | Carpio, J. | Payment of Just Compensation
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Central Luzon Drug Corporation
SUMMARY: Pursuant to RA 7432 and Revenue Regulations No. 2-94 issued by
the BIR, CLDG (Mercury Drug) granted 20% sales discount to qualified senior
citizens on their purchases of medicines covering calendar year 1997. After
incurring a net loss, CLDG filed its income tax return under protest and filed with
petitioner CIR for a refund for overpaid tax. They claim that the overpaid tax was
the result of the wrongful implementation of RA 7432. They claim they treated the
20% sales discount as a deduction from gross sales in compliance with RR 2-94
instead of treating it as a tax credit as provided under RA 7432, and that RR 2-94 is
inconsistent with law as a mere implementing administrative regulation, cannot
modify or alter RA 7432. The CTA ordered CIR to grant a tax credit certificate to
CLDG. CA affirmed in toto.
The SC affirmed the CA. RA 7432 explicitly allows private establishments to claim
the amount of discounts they grant to senior citizens as tax credit (in Sec. 4a). In a
2005 decision, the Court has already also ruled that CIR's definition in RR 2-94 of
a tax credit is erroneous. The Court in this case however acknowledged that RA
9257 has now amended RA 7432. RA 9257 now specifically provides that all
covered establishments may claim the senior citizens' discount as tax deduction.
However (again), this present case covers the calendar year of 1997 which is
governed by the old law. Hence, CLDG may still claim the senior citizens discount
as a tax credit and is entitled to a tax refund.
DOCTRINE: (From the book) RA 9257, the Expanded Senior Citizens Act of
2003, amended RA 7432. The current rule now only permits the taxpayer to claim
the 20% discount it grants to senior citizens as a tax deduction, not a tax credit.
FACTS:
30. Central Luzon Drug Corp. (CLDG) is a domestic corporation engaged in
the retail of medicines and other pharmaceutical products, operating under
the business name, Mercury Drug.
31. Pursuant to RA 7432 and Revenue Regulations (RR) No. 2-94 issued by the
BIR, CLDG granted 20% sales discount to qualified senior citizens on their
purchases of medicines covering the calendar year 1997.
32. CLDG filed its 1997 Corporate Annual Income Tax Return reflecting a nil
income tax liability due to net loss incurred from business operations of
P2.4m.
33. CLDG then filed its 1997 Income Tax Return under protest.
34. CLDG filed with petitioner CIR a claim for refund or credit of overpaid
income tax for taxable year 1997 in the amount of P2.6m.
35. CLDG alleged that the overpaid tax was the result of the wrongful
implementation of RA 7432.
36. CLDG treated the 20% sales discount as a deduction from gross sales in
compliance with RR 2-94 instead of treating it as a tax credit as provided
under Sec. 4a of RA 7432.
37. CLDG reasoned that RR 2094, which is a mere implementing
administrative regulation, cannot modify, alter or amend the clear mandate
of RA 7432. Consequently, Section 2(i) of RR 2-94 is without force and
effect for being inconsistent with the law it seeks to implement.
38. CIR answered that the construction given to a statute by a specialized
administrative agency like the BIR is entitled to great respect and should be
accorded great weight.
39. When RA 7432 allowed senior citizens discounts to be claimed as tax
credit, it was silent as to the mechanics of availing the same. For
clarification, the BIR issued RR 2-94 and defined the term tax credit as a
deduction from the establishment's gross income and not from its tax
liability in order to avoid an absurdity that is not intended by the law.
40. CTA ordered CIR to issue a tax credit certificate in the amount of P2.36m
in favor of CLDG. The CTA stated that:
 a. In a number of analogous cases, it has consistently ruled that the
20% senior citizens discount should be treated as tax credit instead
of a mere deduction from gross income.
b. In quoting its previous decisions, the CTA ruled that RR 2-94
engraved a new meaning to the phrase tax credit as deductible
from gross income which is a deviation from the plain intendment
of the law.
c. An administrative regulation must not contravene but should
conform to the standards that the law prescribes.
41. The CA affirmed the CTA’s decision in toto.
1. It distinguished tax credit as an amount subtracted from a
taxpayers total tax liability to arrive at the tax due while a tax
deduction reduces the taxpayers taxable income upon which the
tax liability is computed.
2. A credit differs from deduction in that the former is subtracted
from tax while the latter is subtracted from income before the tax is
computed.
ISSUE/s:
11. WoN CLDG may claim the 20% senior citizens sales discount as a tax
credit – YES. It is not a tax deduction (as per the old law) and CLDG is
entitled to a refund.
RULING: We DENY the petition. We AFFIRM the assailed Decision of the Court
of Appeals.
RATIO:
RA 7432 expressly allows private establishments to claim the amount of
discounts they grant to senior citizens as tax credit.
1. Section 4(a) of RA 7432 states: 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;
2. However, RR 2-94 interpreted the tax credit provision of RA 7432 in this
wise: Sec. 2. DEFINITIONS. - For purposes of these regulations:
a. Tax Credit - refers to the amount representing 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.
3. RR 2-94 treated the amount of senior citizens' discount as a tax deduction
which is only a subtraction from gross income resulting to a lower taxable
income. RR 2-94 affords merely a fractional reduction in the taxes payable
to the government depending on the applicable tax rate.
4. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation
(2005), the Court ruled that CIR's definition in RR 2-94 of a tax credit is
clearly erroneous.
5. In the petition now filed, CIR herein alleged that respondent CLDG
incurred a net loss from its business operations in 1997; hence, it did not
pay any income tax. Since no tax payment was made, it follows that no tax
credit can also be claimed because tax credits are usually applied against a
tax liability.
6. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation
(2005), the Court stressed that prior payment of tax liability is not a pre-
condition before a taxable entity can avail of the tax credit.
7. Therefore, neither a tax liability nor a prior tax payment is required for the
existence or grant of a tax credit. The applicable law on this point is clear
and without any qualifications.
8. Hence, respondent CLDG is entitled to claim the amount of
P2,376,805.63 as tax credit despite incurring net loss from business
operations for the taxable year 1997.
9. Section 4(a) of RA 7432 expressly provides that private establishments
may claim the cost as a tax credit. A tax credit can only be utilized as
payment for future internal revenue tax liabilities of the taxpayer while
 a tax refund, issued as a check or a warrant, can be encashed. A tax
refund can be availed of immediately while a tax credit can only be
utilized if the taxpayer has existing or future tax liabilities.
10. If the words of the law are clear, plain, and free of ambiguity, it must
be given its literal meaning and applied without any interpretation.
Hence, the senior citizens' discount may be claimed as a tax credit and
not as a refund.

RA 9257 now specifically provides that all covered establishments may claim
the senior citizens' discount as tax deduction.

1. On 26 February 2004, RA 9257, otherwise known as the "Expanded

Senior Citizens Act of 2003," was signed into law and became effective on
21 March 2004.
2. RA 9257 has amended RA 7432. Section 4(a) of RA 9257 reads: 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 medicinesin all establishments for the exclusive
use or enjoyment of senior citizens, including funeral and burial
services for the death of senior citizens;
xxx
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. 
3. Contrary to the provision in RA 7432 where the senior citizens'
discount granted by all covered establishments can be claimed as tax
credit, RA 9257 now specifically provides that this discount should be
treated as tax deduction.
4. With the effectivity of RA 9257 on 21 March 2004, there is now a new tax
treatment for senior citizens' discount granted by all covered establishments.
5. This discount should be considered as a deductible expense from gross
income and no longer as tax credit.
6. The present case, however, covers the taxable year 1997 and is thus
governed by the old law, RA 7432.
 TOLENTINO v. SECRETARY OF FINANCE (SALVE)
August 25, 1994| Mendoza, J. | Non-impairment of contracts
PETITIONER: Arturo M. Tolentino
RESPONDENTS: The Secretary of Finance and the Commissioner of Internal
Revenue
SUMMARY: Various petitioners challenged the constitutionality of RA 7716 which
seeks to widen the tax base of the existing VAT system. VAT is 10% of the gross
selling price of goods/properties sold, bartered/exchanged, or exchange of services.
CREBA, Chamber of Real Estate and Builders Association, contested that the
imposition of VAT on contracts entered into prior to the effectivity of RA 7716
violated the provision on “No law impairing the obligation of contracts shall be
passed.” WoN RA 7716 violated such provision. NO. SC held due to absence of facts
or evidence to prove that RA 7716 violated such provision, the issue if premature.
Moreso, SC held that parties in a contract cannot restrain the government in
exercising its taxing power.
DOCTRINE: It is enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of the State.
FACTS:
42. These are various suits for certiorari and prohibition, challenging the
constitutionality of Republic Act No. 7716 on various grounds.
43. Republic Act No. 7716 seeks to widen the tax base of the existing VAT
system and enhance its administration by amending the National Internal
Revenue Code.
44. The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services.
45. It is equivalent to 10% of the gross selling price or gross value in money of
goods or properties sold, bartered or exchanged or of the gross receipts from
the sale or exchange of services.
46. CREBA, Chamber of Real Estate and Builders Association, contested that
the imposition of VAT on contracts entered into prior to the effectivity of
RA 7716 violated the provision on “No law impairing the obligation of
contracts shall be passed.”
ISSUE/s:
1.
WoN the imposition of the VAT on the sales and leases of real estate by
virtue of contracts entered into prior to the effectivity of the law would
violate the constitutional provision that "No law impairing the obligation of
contracts shall be passed."- NO
RULING:
In the preceeding pages we have endeavored to discuss, within limits, the validity of
Republic Act No. 7716 in its formal and substantive aspects as this has been raised in
the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied with by
Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of
statutes — beyond those prescribed by the Constitution — have been observed is
precluded by the
principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor
interfere with the free exercise of religion, nor deny to any of the parties the right to
an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law
is regressive, oppressive and confiscatory and that it violates vested rights protected
under the Contract Clause are prematurely raised and do not justify the grant of
prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
RATIO:
41. It is enough to say that the parties to a contract cannot, through the exercise
 of prophetic discernment, fetter the exercise of the taxing power of the
State.
42. The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure the
peace and good order of society.
43. In truth, the Contract Clause has never been thought as a limitation on the
exercise of the State's power of taxation save only where a tax exemption
has been granted for a valid consideration.
MANILA ELECTRIC COMPANY v. PROVINCE OF LAGUNA
and BALAZO (YAP)
May 5, 1999 | Vitug, J. | Constitutional Limit: Delegated Power to Tax of LGU
PETITIONER: Manila Electric Company (MERALCO)
RESPONDENTS: Province of Laguna and Benito R. Balazo (Provincial
Treasurer)
SUMMARY: Certain municipalities of Laguna issued resolutions granting
MERALCO a franchise for te supply of electricity in their area. Thereafter, the
Local Government Code of 1991 (1991 Code) was enacted, allowing LGUs to
create their own sources of revenue – including the power to tax. Pursuant thereto,
the Province of Laguna enacted a Provincial Ordinance imposing TAX ON
BUSINESSES ENJOYING A FRANCHISE. MERALCO paid its taxes under
protest, and filed a claim for refund on the ground that it had already been paying
such “franchise tax” under PD 551. The governed denied the refund, thus
MERALCO filed a complaint for refund before the RTC on the grounds of 1)
violation of non-impairment clause; and 2) no repeal of PD 551 by the 1991 Code –
PD 551 stated that the franchise tax shall be paid “in lieu of all other assessments,
etc.” RTC dismissed the petition, hence this instant recourse to the SC.
The pertinent issues are whether 1) PD 551 was repealed by the 1991 Code (YES),
and 2) whether the non-impairment clause was violated (NO).
On the first issue, the SC ruled that PD 551 was repealed because the 1991 Code
contained provisions withdrawing all tax exemptions except those provided in the
Code, and a general repealing clause. On the second issue, the non-impairment
clause was not violated because contractual tax exemptions are not to be confused
with tax exemptions granted under franchises. A franchise partakes the nature of a
grant which is beyond the purview of the non-impairment clause of the
Constitution.
DOCTRINE: In the 1987 Constitution, the taxing power of LGUs is deemed to
exist, subject only to specific exceptions that the law may prescribe. In other words,
the taxing power of LGUs is a direct grant of the constitution, and is not a
delegated power of Congress – but is not a general delegation by the 1987
Constitution.
FACTS:
47. Certain municipalities of Laguna (Bian, Sta. Rosa, San Pedro, et. al.), by
virtue of existing laws, issued resolutions through the municipal councils –
granting franchise in favor of MERALCO (petitioner) for the supply of
electric light, heat and power.
48. Therafter, the Local Government Code of 1991 was enacted – it enjoined
LGUs to create their own sources of revenue and levy taxes, fees and
charges pursuant to local autonomy.
49. The Province of Laguna (respondent) enacted a Provincial Ordinance –
imposing TAX ON BUSINESSES ENJOYING A FRANCHISE at a rate of
50% of 1% of the gross annual receipts, which includes both cash sales and
sales on account.
50. The Provincial Treasurer (private respondent Balazo) sent a demand letter
to MERALCO for the payment of tax, which the latter paid under protest.
51. MERALCO filed a formal claim for refund on the ground that the franchise
tax it had already been paying, pursuant to PD 551, already included the
franchise tax imposed by the Provincial Ordinance.
52. MERALCO likewise assailed that the Provincial Ordinance violated PD
551 which states that “the tax shall be 2% of the gross receipts received
from the sale of electricity … Such franchise tax shall be … in lieu of all
taxes and assessments of whatever nature imposed by any national or local
authority on earnings, receipts, income and privilege of generation,
distribution and sale of electric current.”
53. The governor denied the claim for refund, thus MERALCO filed a
COMPLAINT FOR REFUND with the RTC, which dismissed the
 complaint. Hence, this instant petition.
ISSUE/s:
12. Whether the franchise tax under the Provincial Ordinance violates the non-
impairment clause of the Constitution – NO
13. Whether the Local Government Code of 1991 has repealed PD 551 – YES
RULING: WHEREFORE, petition DISMISSED.
RATIO:
I. The franchise tax does not violate the non-impairment clause –
44. First, the SC discussed that the LGUs do not have the inherent power to tax,
except to the extent that such power might be delegated to them either
by the basic law or by statute.
1. Presently, such general delegation is given in favor of LGUs by
virtue of §5, Art. X of the 1987 Constitution – each local
government shall have the power to creat its own sources of
revenues and to levy taxes, fees and charges…
2. Under the 1935 Constitution, the LGU had no similar delegation of
tax powers. Now, however, where there is neither a grant nor a
prohibition by a statute, the tax power must be deemed to exist
although Congress may provide statutory limitations and
guidelines.
3. The Legislature, when delegating the taxing power, must see to it
that:
1. Taxpayer will not be over-burdened;
2. Each LGU will have its fair share of available resources;
3. Resources of the national government will not be unduly
disturbed; and
4. Local taxation will be fair, uniform and just.
45. Second, the SC listed jurisprudence explaining the phrase “in lieu of all
taxes” – the phrase in lieu of all taxes have to give way to the peremptory
language of the Local Government Code specifically providing for the
withdrawal of such exemptions, privileges, and that upon the effectivity of
the Local Government Code all exemptions except only as provided therein
can no longer be invoked by MERALCO to disclaim liability for the local
tax.
1. In fine, the Court has viewed its previous rulings as laying stress
more on the legislative intent of the amendatory law whether the
tax exemption privilege is to be withdrawn or not rather than on
whether the law can withdraw, without violating the Constitution,
the tax exemption or not.
2. Contractual tax exemptions, in the real sense of the term and where
the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts,
such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of
authority and waives its governmental immunity.
3. These contractual tax exemptions, however, are not to be confused
with tax exemptions granted under franchises. A franchise partakes
the nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution.
4. The Constitution is explicit that no franchise for the operation of a
public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by
Congress as and when the common good so requires.
II. The Local Government Code of 1991 repealed PD 551 –
1. The Local Government Code of 1991 has incorporated and adopted, by and
large the provisions of the now repealed Local Tax Code.
2. The 1991 Code explicitly authorizes provincial governments,
notwithstanding any exemption granted by any law or other special law to
impose a tax on businesses enjoying a franchise (§137, Local Government
Code of 1991).
3. The Local Government Code has effectively withdrawn under Section 193
thereof, tax exemptions or incentives theretofore enjoyed by certain entities.
a. §193 – Withdrawal of Tax Exemption Privileges – Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical … are hereby withdrawn upon the effectivity of this
Code.
4. The 1991 Code contains a general repealing clause.
a. §534 – All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations, or
part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified
accordingly.
 Planters Products, Inc. v. Fertiphil Corp (CELAJE)
G.R. No. 166006 | March 14, 2008 | Reyes, R.T., J.
PETITIONER: PLANTERS PRODUCTS, INC
RESPONDENTS: FERTIPHIL CORPORATION
SUMMARY: Petitioner PPI and private respondent Fertiphil are private
corporations incorporated under Philippine laws.[3] They are both engaged in the
importation and distribution of fertilizers, pesticides and agricultural chemicals.
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the
domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then
remitted the amount collected to the Far East Bank and Trust Company, the
depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to
January 24, 1986. Issue: W/N the tax was for a public purpose. No.
It is clear that the levy was imposed precisely to pay the corporate debts of PPI.
We cannot agree with PPI that the levy was imposed to ensure the stability of
the fertilizer industry in the country. The letter of understanding and the plain
text of the LOI clearly indicate that the levy was exacted for the benefit of a
private corporation. The framers of the LOI did not even hide the insidious
purpose of the law. They were cavalier enough to name PPI as the ultimate
beneficiary of the taxes levied under the LOI. Also the fact that the levies paid
under the LOI were directly remitted and deposited by FPA to Far East Bank
and Trust Company, the depositary bank of PPI proves that PPI benefited from
the LOI. It is also proves that the main purpose of the law was to give undue
benefit and advantage to PPI.
DOCTRINE: An inherent limitation on the power of taxation is public purpose.
Taxes are exacted only for a public purpose. They cannot be used for purely
private purposes or for the exclusive benefit of private persons.[46] The reason
for this is simple. The power to tax exists for the general welfare; hence,
implicit in its power is the limitation that it should be used only for a public
purpose. It would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose.
FACTS:
1. Petitioner PPI and private respondent Fertiphil are private corporations
incorporated under Philippine laws.[3] They are both engaged in the
importation and distribution of fertilizers, pesticides and agricultural
chemicals.
2. On June 3, 1985, then President Ferdinand Marcos, exercising his
legislative powers, issued LOI No. 1465 which provided, among others, for
the imposition of a capital recovery component (CRC) on the domestic sale
of all grades of fertilizers in the Philippines.[4] 
3. Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in
the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA
then remitted the amount collected to the Far East Bank and Trust
Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA
from July 8, 1985 to January 24, 1986.[6]
4. After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of
the P10 levy. With the return of democracy, Fertiphil demanded from PPI a
refund of the amounts it paid under LOI No. 1465, but PPI refused to
accede to the demand.[7]
5. Fertiphil filed a complaint for collection and damages[8] against FPA and
PPI with the RTC in Makati. It questioned the constitutionality of LOI No.
1465 for being unjust, unreasonable, oppressive, invalid and an unlawful
imposition that amounted to a denial of due process of law.[9] Fertiphil
alleged that the LOI solely favored PPI, a privately owned corporation,
which used the proceeds to maintain its monopoly of the fertilizer industry.
6. In its Answer,[10] FPA, through the Solicitor General, countered that the
issuance of LOI No. 1465 was a valid exercise of the police power of the
State in ensuring the stability of the fertilizer industry in the country. It also
averred that Fertiphil did not sustain any damage from the LOI because the
burden imposed by the levy fell on the ultimate consumer, not the seller.
7. On November 20, 1991, the RTC rendered judgment in favor of Fertiphil.
8. Ruling that the imposition of the P10 CRC was an exercise of the State’s
inherent power of taxation, the RTC invalidated the levy for violating the
basic principle that taxes can only be levied for public purpose. The tax was
levied for Planters Products benefits.
9. On November 28, 2003, the CA handed down its decision affirming with
modification that of the RTC. The CA held that even on the assumption that
 LOI No. 1465 was issued under the police power of the state, it is still
unconstitutional because it did not promote public welfare. Hence this
petition.
ISSUES:
1. (1) W/N the P10 levy is unconstitutional because it was not for a public
purpose. Yes.
RULING: WHEREFORE, the petition is DENIED. The Court of Appeals
Decision dated November 28, 2003 is AFFIRMED.
RATIO:
1. The P10 levy under LOI No. 1465 is an exercise of the power of taxation.
2. At any rate, the Court holds that the RTC and the CA did not err in ruling
against the constitutionality of the LOI.
3. PPI insists that LOI No. 1465 is a valid exercise either of the police power
or the power of taxation. It claims that the LOI was implemented for the
purpose of assuring the fertilizer supply and distribution in the country and
for benefiting a foundation created by law to hold in trust for millions of
farmers their stock ownership in PPI.
4. Fertiphil counters that the LOI is unconstitutional because it was enacted to
give benefit to a private company. The levy was imposed to pay the
corporate debt of PPI. Fertiphil also argues that, even if the LOI is enacted
under the police power, it is still unconstitutional because it did not promote
the general welfare of the people or public interest.
5. We agree with the RTC that the imposition of the levy was an exercise by
the State of its taxation power. While it is true that the power of taxation
can be used as an implement of police power,[41] the primary purpose of the
levy is revenue generation. If the purpose is primarily revenue, or if revenue
is, at least, one of the real and substantial purposes, then the exaction is
properly called a tax.[42]
6. The P10 levy under LOI No. 1465 is too excessive to serve a mere
regulatory purpose. The levy, no doubt, was a big burden on the seller or the
ultimate consumer. It increased the price of a bag of fertilizer by as much as
five percent.[45] A plain reading of the LOI also supports the conclusion that
the levy was for revenue generation. The LOI expressly provided that the
levy was imposed “until adequate capital is raised to make PPI viable.”
7. Taxes are exacted only for a public purpose. The P10 levy is 
unconstitutional because it was not  for a public purpose. The levy was
imposed to give undue benefit to PPI.
8. An inherent limitation on the power of taxation is public purpose. Taxes are
exacted only for a public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.[46] The reason for
this is simple. The power to tax exists for the general welfare; hence,
implicit in its power is the limitation that it should be used only for a public
purpose. It would be a robbery for the State to tax its citizens and use the
funds generated for a private purpose.
9. As an old United States case bluntly put it: “To lay with one hand, the
power of the government on the property of the citizen, and with the other
to bestow it upon favored individuals to aid private enterprises and build up
private fortunes, is nonetheless a robbery because it is done under the forms
of law and is called taxation.”[47]
10. The term “public purpose” is not defined. It is an elastic concept that can be
hammered to fit modern standards. Jurisprudence states that “public
purpose” should be given a broad interpretation. It does not only pertain to
those purposes which are traditionally viewed as essentially government
functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public
money may now be used for the relocation of illegal settlers, low-cost
housing and urban or agrarian reform.
11. While the categories of what may constitute a public purpose are
continually expanding in light of the expansion of government functions,
the inherent requirement that taxes can only be exacted for a public purpose
still stands. Public purpose is the heart of a tax law. When a tax law is only
a mask to exact funds from the public when its true intent is to give undue
benefit and advantage to a private enterprise, that law will not satisfy the
requirement of “public purpose.”
12. The purpose of a law is evident from its text or inferable from other
secondary sources. Here, We agree with the RTC and that CA that the levy
imposed under LOI No. 1465 was not for a public purpose.
13. First, the LOI expressly provided that the levy be imposed to benefit PPI, a
private company.
14. It is a basic rule of statutory construction that the text of a statute should be
given a literal meaning. In this case, the text of the LOI is plain that the levy
was imposed in order to raise capital for PPI. The framers of the LOI did
not even hide the insidious purpose of the law. They were cavalier enough
to name PPI as the ultimate beneficiary of the taxes levied under the LOI.
We find it utterly repulsive that a tax law would expressly name a private
company as the ultimate beneficiary of the taxes to be levied from the
public. This is a clear case of crony capitalism.
15. Second, the LOI provides that the imposition of the P10 levy was
conditional and dependent upon PPI becoming financially “viable.” This
suggests that the levy was actually imposed to benefit PPI. The LOI notably
does not fix a maximum amount when PPI is deemed financially “viable.”
Worse, the liability of Fertiphil and other domestic sellers of fertilizer to
pay the levy is made indefinite. They are required to continuously pay the
levy until adequate capital is raised for PPI.
16. Third, the RTC and the CA held that the levies paid under the LOI were
directly remitted and deposited by FPA to Far East Bank and Trust
Company, the depositary bank of PPI.[49] This proves that PPI benefited
from the LOI. It is also proves that the main purpose of the law was to give
undue benefit and advantage to PPI.
17. Fourth, the levy was used to pay the corporate debts of PPI. A reading of
the Letter of Understanding[50] dated May 18, 1985 signed by then Prime
Minister Cesar Virata reveals that PPI was in deep financial problem
because of its huge corporate debts. The government guaranteed payment of
PPI’s debts to its foreign creditors. To fund the payment, President Marcos
issued LOI No. 1465.
18. It is clear from the Letter of Understanding that the levy was imposed
precisely to pay the corporate debts of PPI. We cannot agree with PPI that
the levy was imposed to ensure the stability of the fertilizer industry in the
country. The letter of understanding and the plain text of the LOI clearly
indicate that the levy was exacted for the benefit of a private corporation.
19. All told, the RTC and the CA did not err in holding that the levy imposed
under LOI No. 1465 was not for a public purpose. LOI No. 1465 failed to
comply with the public purpose requirement for tax laws.
20. The LOI is still unconstitutional even if enacted under the police power;
it 
did not promote public interest.
21. Even if We consider LOI No. 1695 enacted under the police power of the
State, it would still be invalid for failing to comply with the test of “lawful
subjects” and “lawful means.” Jurisprudence states the test as follows: (1)
the interest of the public generally, as distinguished from those of particular
class, requires its exercise; and (2) the means employed are reasonably
necessary for the accomplishment of the purpose and not unduly oppressive
upon individuals.[52]
22. For the same reasons as discussed, LOI No. 1695 is invalid because it did
not promote public interest. The law was enacted to give undue advantage
to a private corporation. We quote with approval the CA ratiocination on
this point, thus:
a. It is upon applying this established tests that We sustain the trial
court’s holding LOI 1465 unconstitutional. To be sure, ensuring
the continued supply and distribution of fertilizer in the country is
an undertaking imbued with public interest. However, the method
by which LOI 1465 sought to achieve this is by no means a
measure that will promote the public welfare. The government’s
commitment to support the successful rehabilitation and continued
viability of PPI, a private corporation, is an unmistakable attempt
to mask the subject statute’s impartiality. There is no way to treat
the self-interest of a favored entity, like PPI, as identical with the
general interest of the country’s farmers or even the Filipino
people in general. Well to stress, substantive due process exacts
fairness and equal protection disallows distinction where none is
needed. When a statute’s public purpose is spoiled by private
interest, the use of police power becomes a travesty which must be
struck down for being an arbitrary exercise of government
power. To rule in favor of appellant would contravene the general
principle that revenues derived from taxes cannot be used for
purely private purposes or for the exclusive benefit of private
individuals. (Underscoring supplied)
 WALTER LUTZ v. J ANTONIO ARANETA (RACHEL)
December 33, 1955 | REYES, J.B L, J. | The Inherent Limitations on the Power of
Taxation – Public Purpose
PETITIONER: WALTER LUTZ, as Judicial Administrator of the Intestate Estate
of the deceased Ledesma (Lutz)
RESPONDENTS: J. ANTONIO ARANETA, as the Collector of Internal Revenue
(CIR)
SUMMARY: Lutz sought to recover from the CIR paid by the estate as taxes
under the Sugar Adjustment Act. He assails the constitutionality of the law it
provided for an increase of the existing tax on the manufacture of sugar, alleging
that such enactment is not being levied for a public purpose but solely and
exclusively for the aid and support of the sugar industry thus making it void and
unconstitutional. The sugar industry situation at the time of the enactment was in an
imminent threat of loss and needed to be stabilized by imposition of emergency
measures. The issue is whether the law is unconstitutional. SC held in the negative
stating that the tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In short, the act is
primarily an exercise of the police power.
DOCTRINE: 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 fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in the law 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.
FACTS:
1. This case was initiated in the Court of First Instance of Negros Occidental
to test the legality of the taxes imposed by CA No. 567, otherwise known as
the Sugar Adjustment Act.
2. The law in question with a declaration of emergency, due to the threat to
our industry by the imminent imposition of export taxes upon sugar as
provided in the TydingsMcDuffe Act, and the eventual loss of its
preferential position in the United States market. Thus, the national policy
was expressed to obtain a readjustment of the benefits derived from the
sugar industry by the component elements thereof and to stabilize the sugar
industry so as to prepare it for the eventuality of the loss of its preferential
position in the United States market and the imposition of the export taxes.
3. Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate
of Ledesma, seeks to recover from the Collector of Internal Revenue the
sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act 15,
for the crop years 19481949 and 19491950.
4. He alleges that such tax is unconstitutional and void, being levied for the
aid and support of the sugar industry exclusively, which in plaintiff's
opinion is not a public purpose for which a tax may be constitutioally
levied.
5. CFI dismissed the case. Hence, Lutz appealed directly the case to the SC.
ISSUE: W/N the law is unconstitutional - NO
RULING: The decision appealed from is affirmed.
RATIO:
1. The basic defect in the plaintiff's position is his assumption that the tax
provided for in the law is a pure exercise of the taxing power. Analysis of
the Act 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.
15
Section 3 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.
2. 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 of 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 lawmaking
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.
3. The protection of a large industry constituting one of the great sources 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.
4. 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 fully play, subject only to
the test of reasonableness; and it is not contended that the means provided
in the law 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.
5. Furthermore, it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the
sugar industry, since it is that very enterprise that is being protected.
 TIO vs. Videogram Regulatory Board (RAM)
June 18, 1987 | Melencio-Herrera, J. | Power of Taxation is for a public purpose
PETITIONER: Valentin Tio doing business under the name and style of OMI
ENTERPRISES
RESPONDENTS: VIDEOGRAM REGULATORY BOARD, MINISTER OF
FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA
SUMMARY: Pursuant to the enactment of PD 1987, videogram operators were
made to pay 30% tax similar to the 30% amusement tax imposed on the theater
owners. The petitioners question this impositions, arguing that it was not levied
for a public purpose. The issue in this case is WoN the levy was made for a
public purpose? YES. It was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of pronographic
video tapes. And even if the obejctive of the decree is to protect the movie
industry, the tax remains a valid impositions. The public purpose of a tax may
legally exist evne if the motive, which impelled the legislature to impose the tax
was to favor one industry over another.
DOCTRINE: The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one industry over
another.
FACTS:
10. On September 1, 1986, petitioner, on behalf of other videogram operators,
assailed the constitutionality of PD 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry.
11. Section 10. Tax on Sale, Lease or Disposition of Videograms. —
Notwithstanding any provision of law to the contrary, the province shall collect
a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual program. Fifty percent (50%)
of the proceeds of the tax collected shall accrue to the province, and the other
fifty percent (50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by
the City/Municipality and the Metropolitan Manila Commission.
12. Petitioner’s Petitioner's attack on the constitutionality of the DECREE rests on
the following grounds:
a. Section 10 thereof, which imposes a tax of 30% on the gross receipts
payable to the local government is a RIDER and the same is not
germane to the subject matter thereof;
b. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of the
Constitution; (MAIN CONTENTION RELATED TO TAX)
c. There is undue delegation of power and authority;
ISSUE/s:
2. WoN the levy was made for a public purpose?– YES
3. WoN Section 10 is a rider as it is not germane to the subject matter thereof – NO
4. WoN there was undue delegation of power and authority - NO
RULING: WHEREFORE, the instant petition is hereby DISMISSED.
RATIO:
1. Tax imposed does not cease to be valid merely because it discourages or
regulates or deters the activities taxed. The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it.
2. In imposing a tax, the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation.
3. The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram establishments
of around P600 million per annum have not been subjected to tax.
4. It is an end-user tax, imposed on retailers for every videogram they make
available for public viewing. It is similar to the 30% amusement tax imposed or
borne by the movie industry which the theater-owners pay to the government,
but which is passed on to the entire cost of the admission ticket.
5. The levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of
the DECREE to protect the movie industry, the tax remains a valid imposition.
Other Issues (but related to Consti na and not tax)
 Rider Issue: The tax provision is not inconsistent with, nor foreign to that general
subject and title. As a tool for regulation it is simply one of the regulatory and
control mechanisms scattered throughout the DECREE. Its preambles explain the
 motives of the lawmaker in presenting the measure. The title of the DECREE, which
is the creation of the Videogram Regulatory Board, is comprehensive enough to
include the purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the title or that the
latter be an index to the body of the DECREE.
 Delegation of Power and Authority Issue: The true distinction is between the
delegation of power to make the law, which necessarily involves a discretion as to
what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. In the very language of the decree, the
authority of the BOARD to solicit such assistance is for a "fixed and limited period"
with the deputized agencies concerned being "subject to the direction and control of
the BOARD."
CITIZENS’ ALLIANCE FOR CONSUMER PROTECTION v. ENERGY
REGULATORY BOARD (JOSEF)
June, 23, 1988 | Feliciano, J. | Inherent Limitation of Power of Taxation: Must be for
Public Purpose
PETITIONER: Citizens’ Alliance for Consumer Protection, Ricardo C. Valmonte,
Kilusang Mayo Uno Labor Center
RESPONDENTS: Energy Regulatory Board, Caltex Philippines, Inc., Petrophil
Corporation and Pilipinas Shell Petroleum Corporation
SUMMARY: Caltex Philippines, Inc., Petrophil Corporation and Pilipinas Shell
Petroleum Corporation filed with the Energy Regulatory Board an application
seeking a provisional increase in the places of its petroleum products. Petitioner
Valmonte sued in his capacity as taxpayer and assailed the validity of the Oil Price
Stabilization Fund (OPSF) and the laws establishing said law principally on the
ground that it was not intended for public purpose (the case did not mention any
particular tax in this case. Petitioner only ALLEGED that it is a tax imposed on
customer. However, I also think that this case involves an exercise of police power
and the tax is merely incidental since the OPSF was intended to regulate the
economy of the state in terms of oil and petroleum products. Police power was also
mentioned in ratio no. 4). The issue in this case is WoN the OPSF is intended for
public purpose and therefore valid. The SC held that it is valid and it was for public
purpose because was established precisely to protect local consumers from the
adverse consequences that such frequent oil price adjustments may have upon the
economy.
DOCTRINE: Taxation must be for public purpose which is present in this case
because OPSF was established precisely to protect local consumers from the
adverse consequences that such frequent oil price adjustments may have upon the
economy
FACTS: (there were 3 petitioners in this case but the issue that was raised
petitioner Valmonte was the one particularly related in our topic)
1. Caltex Philippines, Inc., Petrophil Corporation and Pilipinas Shell
Petroleum Corporation (private respondents) filed with the public
respondent Energy Regulatory Board (ERB) an Application formally
seeking a provisional increase in the places of its petroleum products.
2. (This is the related petition in our topic) Petitioner Ricardo C. Valmonte,
suing in his capacity as taxpayer and citizen of the Republic, filed with the
Supreme Court a Petition with Preliminary Injunction seeking to enjoin
enforcement of that portion of public respondent Board's order directing the
private respondent oil companies to pay the amount of thirty-one point one
centavos (P0.311) per liter out of the price increases granted to the Oil Price
Stabilization Fund (OPSF). Petitioner Valmonte in essence assailed as
unconstitutional both the OPSF and the laws establishing said Fund — i. e.,
Presidential Decree No. 1956, as amended by Executive Order No. 137
dated 27 February 1987 — and moved that private respondents be ordered
to remit back to the government amounts withdrawn therefrom since
January of 1987.
OTHER PETITIONS (not relevant for tax purposes; please see ratio 5 and 6 for
this)
3. Petitioner CACP filed with the SC a Petition for certiorari with Preliminary
Injunction and/or Restraining Order seeking to enjoin public respondent
Board from hearing the applications cases primarily on the ground of
denial of due process. Petitioner CACP alleged that oppositors in the three
(3) ERB cases had not been promptly served with copies of the applications
for price increases filed by the private respondent oil companies; that
 oppositors had not been afforded sufficient time to submit their respective
oppositions/answers; that public respondent Board "acted arbitrarily,
whimsically and despotically in refusing petitioner's repeated requests for
deferment" of the hearing scheduled on 6 July 1987; and that public
respondent Board had been "acting with indecent haste" on matters
regarding the disputed applications.
4. Petitioner KMU additionally alleged, among other things, that the order
granting the applications for provisional price increases was not supported
by the evidence and was based merely on the results of "secret studies"
conducted by public respondent Board. KMU also questioned the
constitutionality of (1) the laws establishing and creating the OPSF, and
(2) the President's August 1987 directive ordering a partial cut-back in the
prices of petroleum products and "appropriating" (i.e., releasing) the amount
of P300,000.000.00 from PAGCOR revenues to replenish the OPSF.
ISSUE:
14. WoN the imposition of a levy for the benefit of the Oil Price Stabilization
Fund is for public purpose and therefore valid – Yes, the OPSF was
established precisely to protect local consumers from the adverse
consequences that such frequent oil price adjustments may have upon the
economy
RULING: Petitions were DISMISSED.
RATIO:
1. Petitioner Valmonte argues that the Oil Price Stabilization Fund (OPSF) is a
Upon the other hand, funds may be drawn from said Trust Account only for the
tax imposed on consumers which is "not intended for public purpose or for
following purposes:
government operations but to answer for the losses of oil companies.
Petitioner Valmonte not only condemns the OPSF as "arbitrary and
oppressive" but claims also that through said Fund, "all oil consumers are
being made to pay not only for their present oil consumption but also for a
portion of future consumption which may or may not come." Finally, it is
alleged that the OPSF provides "a fertile ground for unchecked graft and
corruption" and "triggers the rise not only of the prices of petroleum
products but also of the prime commodities sic."
2. The foregoing arguments suggest the presence of misconceptions about the
nature and functions of the OPSF. The OPSF is a trust Account which
was established for the purpose of minimizing frequent price changes
brought about by exchange rate adjustment and/or changes in World
market prices of crude oil and imported petroleum products. Under
P.D. No. 1956, as amended by Executive Order No. 137 dated 27 February
1987, this Trust Account may be funded from any of the following sources:
a) Any increase in the tax collection from ad valorem tax or
customs duty imposed on petroleum products subject to tax
under this Decree arising from exchange rate adjustment,
as may be determined by the Minister of Finance in
consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting
of tax exemptions of government corporations, as may be
determined by the Minister of Finance in consultation with
the Board of Energy;
c) Any additional amount to be imposed on petroleum
products to augment the resources of the Fund through an
appropriate Order that may be issued by the Board of
Energy requiring payment of persons or companies engaged
in the business of importing, manufacturing and/or
marketing petroleum products;
d) Any resulting peso costs differentials in case the actual
peso costs paid by oil companies in the importation of crude
oil and petroleum products is less than the peso costs
computed using the reference foreign exchange rate as fixed
by the Board of Energy.
l) To reimburse the oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate adjustment
and/or increase in world market prices of crude oil;
2) To reimburse the oil companies for possible cost underrecovery
 incurred as a result of the reduction of domestic prices of petroleum are appropriately regarded as public purposes.
products 4. Presidential Decree No. 1956, as amended by Executive Order No. 137 has,
in any case, in its favor the presumption of validity and
constitutionality which petitioners Valmonte and the KMU have not
overturned. Petitioners have not undertaken to Identify the provisions in the
3. (Exactly what is written in our book at page 78) The fact that the world
Constitution which they claim to have been violated by that statute. This
market prices of oil, measured by the spot market in Rotterdam, vary from
Court, however, is not compelled to speculate and to imagine how the
day to day is of judicial notice. Freight rates for hauling crude oil and
assailed legislation may possibly offend some provision of the
petroleum products from sources of supply to the Philippines may also vary
Constitution. The Court notes, further, in this respect that petitioners
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar
have in the main put in question the wisdom, justice and expediency of
and other convertible foreign currencies also changes from day to day.
the establishment of the OPSF, issues which are not properly addressed
These fluctuations in world market prices and in tanker rates and foreign
to this Court and which this Court may not constitutionally pass upon.
exchange rates would in a completely free market translate into
Those issues should be addressed rather to the political departments of
corresponding adjustments in domestic prices of oil and petroleum products
government: the President and the Congress.
with sympathetic frequency. But domestic prices which vary from day to
day or even only from week to week would result in a chaotic market with
unpredictable effects upon the country's economy in general. The OPSF
was established precisely to protect local consumers from the adverse
consequences that such frequent oil price adjustments may have upon
the economy (public purpose). Thus, OPSF serves as a pocket into which a
portion of the purchase price of oil and petroleum products paid by
consumers as well as some tax revenues are inputted and from which
RESPONSE OF SC WITH REGARD THE CONTENTIONS OF OTHER
amounts are drawn from time to time to reimburse oil companies, when
PETITIONERS :
appropriate situations arise, for increases in, as well as underrecovery of,
costs of crude importation. The OPSF is thus a buffer mechanism through
which the domestic consumer prices of oil and petroleum products are
stabilized, instead of fluctuating every so often, and oil companies are 5. Petitioner CACP: Contrary to the allegations of petitioners, the assailed
allowed to recover those portions of their costs which they would not order of ERB provided merely for provisional, not final relief; The
otherwise recover given the level of domestic prices existing at any given relief granted by the Board was provisional and well within the lawful
time. To the extent that some tax revenues are also put into it, the OPSF scope of its authority to grant. Consequently, there was no violation of this
is in effect a device through which the domestic prices of petroleum due process of the petitioner.
products are subsidized in part. It appears to the Court that the
establishment and maintenance of the OPSF is well within that 6. Petitioner KMU: Presidential Decree No. 1956, as amended by Executive
pervasive and non-waivable power and responsibility of the Order No. 137 has, in any case, in its favor the presumption of validity
government to secure the physical and economic survival and well- and constitutionality which petitioners Valmonte and the KMU have
being of the community, that comprehensive sovereign authority we not overturned. Petitioners have not undertaken to Identify the
designate as the police power of the state (take note of this guys in case provisions in the Constitution which they claim to have been violated
ma’am asks if there is police power mentioned in the case). The by that statute. This Court, however, is not compelled to speculate and to
stabilization and subsidy of domestic prices of petroleum products and fuel imagine how the assailed legislation may possibly offend some provision of
oil — clearly critical in importance considering, among other things, the the Constitution. The Court notes, further, in this respect that petitioners
continuing high level of dependence of the country on imported crude oil — have in the main put in question the wisdom, justice and expediency of the
establishment of the OPSF, issues which are not properly addressed to this
Court and which this Court may not constitutionally pass upon. Those
issues should be addressed rather to the political departments of
government: the President and the Congress
 BASCO v PAGCOR (Nicolin)
May 14, 1991 | Paras, J. | Non-delegability of the Power of Tax
PETITIONERS: Attorney’s Humberto Basco, Edilberto Balce, Socrates Maranan
and Lorenzo Sanchez
RESPONDENT: Philippine Amusements and Gaming Corporation (PAGCOR)
SUMMARY: Basco et al are seeking the annulment of the PAGCOR charter for
being unconstitutional. They contend that the PAGCOR charter exempts them from
payment of taxes because it constitutes a waiver of Manila City government’s right
to impose taxes and license fees on PAGCOR in contravention to the principle of
local autonomy of the City of Manila. The SC ruled that the City of Manila being a
mere Municipal corporation has no inherent right to impose taxes. Then, "the
Charter or statute must plainly show an intent to confer that power or the
municipality cannot assume it". Its "power to tax" therefore must always yield to a
legislative act which is superior having been passed upon by the state itself which
has the "inherent power to tax.” Thus, if Congress can grant the City of Manila the
power to tax certain matters, it can also provide for exemptions or even take back
the power.
DOCTRINE: A mere Municipal corporation has no inherent right to impose
taxes. Thus, "the Charter or statute must plainly show an intent to confer that
power or the municipality cannot assume it.” Its "power to tax" therefore must
always yield to a legislative act which is superior having been passed upon by the
state itself which has the "inherent power to tax"
*related to topic
FACTS:
1. Basco et al are filing the instant petition seeking to annul the PAGCOR
charter – PD 1869
2. Background: PAGCOR was created by virtue of PD 1067-A and granted a
franchise under PD 1067-B to establish, operation and maintain gambling
casinos on land or water within territorial jurisdiction of the Philippines. PD
1869 created PAGCOR to enable the government to regulate and centralize all
games of chance authorized by existing franchise or permitted by law. To
achieve this, PAGCOR was given territorial jurisdiction all over th PH.
3. Basco et al are questing the validity of PD 1869; it is allegedly contrary to
morals, public policy and order and because:
a. it constitutes a waiver of a right prejudicial to a 3rd person with a
right recognized by law (*waived Manila City’s government’s
right to impose taxes and license fees on PAGCOR)
b. The law has intruded into the LGU’s right to impose local taxes and
license fees (*in contravention to principle of local autonomy)
c. Violates the equal protection clause (EPC) in legalizing PAGCOR –
conducted gambling, with prostitution, drug trafficking and other
vices
d. (second amended petition) contrary to national policy of “new
restored democracy” and people’s will under the 1987 Constitution
e. PAGCOR’s “gambling objective” is contrary to Sections 11,12 and
13 of Article II, Sec 1of Article VIII and Section 3(2) of Article
XIV of the constitution
ISSUE/s: W/N PD 1869 is unconstitutional – NO
RULING: WHEREFORE, the petition is DISMISSED for lack of merit.
RATIO:
1. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the
City of Manila to impose taxes and legal fees; that the exemption clause in
P.D. 1869 is violative of the principle of local autonomy. They must be
referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as
the franchise holder from paying any "tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local."
2. SC held that the petition is without merit
a. *The City of Manila, being a mere Municipal corporation has no
inherent right to impose taxes (Icard v. City of Baguio, 83 Phil.
870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v.
Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or
statute must plainly show an intent to confer that power or the
 municipality cannot assume it.” Its "power to tax" therefore must
always yield to a legislative act which is superior having been
passed upon by the state itself which has the "inherent power to
tax"
b. The Charter of the City of Manila is subject to control by
Congress. It should be stressed that "municipal corporations are
mere creatures of Congress" which has the power to "create and
abolish municipal corporations" due to its "general legislative
powers" Congress, therefore, has the power of control over Local
governments
c. And if Congress can grant the City of Manila the power to tax
certain matters, it can also provide for exemptions or even take
back the power.
d. The City of Manila's power to impose license fees on gambling,
has long been revoked. As early as 1975, the power of local
governments to regulate gambling thru the grant of "franchise,
licenses or permits" was withdrawn by P.D. No. 771 and was
vested exclusively on the National Government,

PADILlA, J, concurring:

1. I agree with the decision insofar as it holds that the prohibition, control, and
regulation of the entire activity known as gambling properly pertain to
"state policy." It is, therefore, the political departments of government,
namely, the legislative and the executive that should decide on what
government should do in the entire area of gambling, and assume full
responsibility to the people for such policy.
2. The courts, as the decision states, cannot inquire into the wisdom, morality
or expediency of policies adopted by the political departments of
government in areas which fall within their authority, except only when
such policies pose a clear and present danger to the life, liberty or property
of the individual. This case does not involve such a factual situation.
 Manila Electric v. Laguna (Lindon) Bian, Sta Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing
laws then in effect, issued resolutions through their respective municipal councils
May 5, 1999 | Vitug, J. | Franchises granting franchise in favor of petitioner Manila Electric Company (MERALCO) for
the supply of electric light, heat and power within their concerned areas. 

2. Republic Act No. 7160, otherwise known as the Local Government Code of 1991,
PETITIONER: Manila Electric Company was enacted to take effect on 01 January 1992 enjoining local government units to
create their own sources of revenue and to levy taxes, fees and charges, subject to the
RESPONDENTS: Province of Laguna and Ernesto Balazo limitations expressed therein, consistent with the basic policy of local autonomy. 

3. Pursuant to the provisions of the Code, respondent province enacted Laguna

Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part, as
SUMMARY: MERALCO was granted a franchise by several municipal councils follows:
and the National Electrification Administration to operate an electric light and
power service in the Laguna. Upon enactment of Local Government Code, the
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a
provincial government issued ordinance imposing franchise tax. MERALCO paid
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
under protest and later claims for refund because of the duplicity with Section 1 of
receipts, which shall include both cash sales and sales on account realized during the
P.D. No. 551. This was denied by the governor (Joey Lina) relying on a more
preceding calendar year within this province, including the territorial limits on any
recent law (LGC). MERALCO filed with the RTC a complaint for refund, but was
city located in the province
dismissed. Hence, this petition. The issue before the court is Whether the
imposition of franchise tax under the provincial ordinance is violative of the non-
3. On the basis of the above ordinance, respondent Provincial Treasurer sent a
impairment clause of the Constitution and of P.D. 551. No, the Local Government
demand letter to MERALCO for the corresponding tax payment. Petitioner
Code of 1991 has incorporated and adopted, by and large, the provisions of the now
MERALCO paid the tax, which then amounted to P19,520,628.42, under protest.
repealed Local Tax Code. The 1991 Code explicitly authorizes provincial
governments, notwithstanding “any exemption granted by any law or other special
4.  The claim for refund of petitioner was denied in a letter signed by Governor Jose
law (to) impose a tax on businesses enjoying a franchise.” A franchise partakes the
D. Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic
nature of a grant which is beyond the purview of the non-impairment clause of the
Act No. 7160 or the Local Government Code of 1991, than the old decree invoked
Constitution. Article XII, Section 11, of the 1987 Constitution, like its precursor
by petitioner.
provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for
the operation of a public utility shall be granted except under the condition that
5. MERALCO filed with the RTC a complaint for refund and injunction. The trial
such privilege shall be subject to amendment, alteration or repeal by Congress as
court dismissed the same for lack of merit.
and when the common good so requires.

ISSUE/s:

DOCTRINE: A franchise partakes the nature of a grant which is beyond the 15. Whether the ordinance is violative of the Constitution. NO.
purview of the non-impairment clause of the Constitution.

RULING: WHEREFORE, the instant petition is hereby DISMISSED. No costs.

FACTS:

1. On various dates, certain municipalities of the Province of Laguna including,

RATIO: however, are not to be confused with tax exemptions granted under
franchises. A franchise partakes the nature of a grant which is beyond the
46. Under the now prevailing Constitution, where there is neither a grant nor a purview of the non-impairment clause of the Constitution. Indeed, Article
prohibition by statute, the tax power must be deemed to exist although XII, Section 11, of the 1987 Constitution, like its precursor provisions in the
Congress may provide statutory limitations and guidelines. The 1935 and the 1973 Constitutions, is explicit that no franchise for the
basic rationale for the current rule is to safeguard the viability and self- operation of a public utility shall be granted except under the condition that
sufficiency of local government units by directly granting them general such privilege shall be subject to amendment, alteration or repeal by
and broad tax powers. Nevertheless, the fundamental law did not intend Congress as and when the common good so requires.
the delegation to be absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government units are being
strengthened and made more autonomous the legislature must still see to it
that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will be fair, uniform,
and just..

47. The Local Government Code of 1991 has incorporated and adopted, by and
large the provisions of the now repealed Local Tax Code, which had been in
effect since 01 July 1973, promulgated into law by Presidential Decree No.
231pursuant to the then provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly authorizes provincial governments,
notwithstanding any exemption granted by any law or other special law, x x
x (to) impose a tax on businesses enjoying a franchise. Indicative of the
legislative intent to carry out the Constitutional mandate of vesting
broad tax powers to local government units, the Local Government
Code has effectively withdrawn under Section 193 thereof, tax
exemptions or incentives theretofore enjoyed by certain entities.

48. While the Court has, not too infrequently, referred to tax exemptions
contained in special franchises as being in the nature of contracts and a part
of the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature. Contractual
tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those
agreed to by the taxing authority in contracts, such as those contained
in government bonds or debentures, lawfully entered into by them
under enabling laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be revoked without
impairing the obligations of contracts. These contractual tax exemptions,
 CITY OF PASIG v. REPUBLIC (PATRICK)
Aug. 24, 2011 | Carpio, J. | Taxation over patrimonial properties of the State
PETITIONER: City of Pasig, represented by the City Treasurer and City Assessor
RESPONDENTS: Republic of the Philippines, represented by the PCGG
SUMMARY: In 1986, Jose Y. Campos, owner of Mid-Pasig Land Development
Corporation (MPLDC) and a Marcos crony, voluntarily surrendered the Payanig
Properties to the Republic as being part of ill-gotten wealth. Portions of the
properties are leased to commercial establishments. In 2002, the City Government
of Pasig sent notices of tax delinquency amounting to P256M to MPLDC. MPLDC
through Independent Realty Corporation (IRC) claimed that the properties were
tax-exempt. In 2005, Pasig City sent a final demand for the payment of the total tax
delinquency of P389M, P2M of which was paid by MPLDC under protest. Later,
warrants of levy were sent, the properties were sold at a public auction, and bought
by Pasig City as highest bidder. The PCGG sought the injunction of the sale and
collection of taxes. The RTC held that the Payanig Properties were owned by the
State and are exempt from the payment of taxes. The CA initially reversed the
RTC, and ruled that because portions of the property were leased by non-tax-
exempt entities, they are subject to the payment of real property taxes. Upon MR,
the CA reversed itself and ruled that since the Payanig properties, being ill-gotten
wealth, is owned by the State, and therefore, tax exempt.
The SC partially reversed the CA saying that although the Republic of the
Philippines owns the Payanig Properties, they are not tax exempt, per se. Properties
owned by the State are exempt from taxes and sale, except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person. Here,
the Payanig properties are not properties of public dominin as defined by the Civil
Code. Since MPLDC, a taxable entity, leases portions of the property, those
protions thus leased are subject to real estate tax and can be sold at a public auction
to satisfy tax delinquency.
DOCTRINE: Portions of State propertoes not leased to taxable entities are exempt
from real estate taxes, while portions of the properties of the State leased to taxable
entities are subject to real estate tax.
FACTS:
54. Mid-Pasig Land Development Corporation (MPLDC) owned to parcels of
land, poritions of which are leased to commercial establishments. In 1986,
Jose Y. Campos, the registered owner of MPLDC and a Marcos crony,
voluntarily surrendered MPLDC to the Republic of the Philippines as part
of ill-gotten wealth.
55. In 2002, Pasig City sent notices of tax delinquency amounting to P256M to
MPLDC, MPLDC disclaimed responsibility, and claimed tax exemption.
The Pasig City Treasurer opined otherwise and sent notices of final demnd
to MPLDC for the payment of P398M. MPLDC paid P2M under protest.
Pasig City late sent warrants of levy on the properties. The PCGG filed a
petition for prohibition with praryer for the issuance of injunctive writs
against the tax delinquency sale and the collection of taxes. Pasig City sold
the properties at a public auction where it was the highest bidder.
56. The RTC ruled that the properties are exempt from taxes because they are
part of the recovered ill-gotten wealth of Marcos, thus owned by the State.
The CA reversed the RTC, saying that even if the government owns the
property, if the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person, the property is subject to tax. The CA
reversed itself on the premise that by its naure, ill-gotten wealth is property
of the State and, thus, tax exempt. Hence this petition.
ISSUE/s:
16. Whether the Payanig Properties are exempt from real estate taxes – NO
RULING: RTC is REVERSED. City of Pasig must issue new tax assessments only
for the portions leased to commercial establishments.
RATIO:
49. The State owns the properties. Properties of public dominion are tax exempt
and are exempt from sale at a public auction, not being the proper subject of
the commerce of man.
50. Under §234(a) of RA No. 7160, properties owned by the Republic are
exempt form real property tax, except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person.
51. In the present case, the Payanig properties are not properties if public
dominion because ethey are not intded for public use, nor are they intended
for some public service, or the development of national wealth. Thus, the
portions of the properties leased to taxable entities are not only subject to
real estate tax, they can also be sold at public auction to satisfy tax
delinquency.
52. Only those portions of the properties eased to taxable entities are subject to
real estate tax for the period of uch leases. Pasig City must issue new real
propert tax assessments covering the protions of the properties leased to
taxable entities. If the Republic fails to pay, then such portions may be sold
at public auntion to satisfy tax delinquency.
MARC DONNELLY v. AGREGADO (Buenaventura)
May 31, 1954| Bautista Angelo, J. | Delegation of the Power to tax to the President
PETITIONER: Marc Donnelly and Associates Inc
RESPONDENTS: Manuel Agregado, (Auditor General), Cornelio Balmaceda
(Sec. of Commerce and Industry) and Ramon L. Paguia (Chief of the Sugar Quota
Office)
SUMMARY: Commonwealth Act No. 728 gave the President authority to
regulate and prohibit exportation of certain materials. The Presiden through the
Chief of the Executive Office authorized exportation of scrap metals as long as
there is an export license with an applicant’s fee of P10 per ton of metals to be
exorted. Donnelly is an exporter of metals and he paid all these export fees. The
Cabinet then made a schedule of royalty fees to be paid. Donnelly now questions
the constitutionality of this saying that the Cabinet cannot be delegated the power
to tax and that the exportation fees are tantamount to a tax. The issue is WoN
there was undue delegation of the power to tax. The SC held no because the
constitution as well as the CA 728 gave the president authority to do so and that
the acts of the Cabinet are essentially the acts of the president. The SC also held
that the exportation fees are a form of tariff rates and is not a tax.
DOCTRINE: Congress may by law authorize the President, subject to
certain limitations, to fix, within specified limits, tariff rates, import or export
quotas, and tonnage and wharfage dues. And pursuant to this constitutional
provision, Congress approved Commonwealth Act No. 728 conferring upon
the President authority to regulate, curtail, control, and prohibit the exports
of scrap metals and to issue such rules and regulations as may be necessary to
carry out its provisions.
FACTS:
1) This is a petition for review of a decision of the Auditor General denying
the claim of petitioner of the refund of the export fees paid by it to the
Sugar Quota Office in the amount of P54,862.84.
2) On July 2, 1946, Congress enacted Commonwealth Act No. 728, making it
 unlawful for any person, association or corporation to export agricultural or
industrial products, merchandise, articles, materials, and supplies without a
permit from the President of the Philippines.
3) This Act confers upon the President authority to "regulate, curtail, control,
and prohibit the exportation of materials abroad and to issue such rules and
regulations as may be necessary to carry out the provisions of this Act,
through such department or office as he may designate."
4) The President acting upon the authority vested in him by the said law
prohibited the exportation of certain materials and allowed the exportation
of other merchandise, like scrap metals, provided an export license is first
obtained from the Philippine Sugar Administration.
5) On April 24, 1947, the Chief of the Executive Office, by authority of the
President, sent a communication to the Philippine Sugar Administration
authorizing the exportation of scrap metals upon payment by the applicants
of a fee of P10 per ton of the metals to be exported.
6) Cabinet, with the recommendation of the National Development Company,
approved a resolution fixing the schedule of royalty rates to be charged on
metal exports.
7) Donnelly herein exported large amounts of scrap iron, brass, copper, and
aluminum from December 1947 to September 1948. It paid by way of
royalty fees the total amount of P54,862.84. This amount was collected by
the Sugar Quota Office under the authority granted by the Chief of the
Executive Office and the resolution of the Cabinet. The case is now before
us by way of appeal from the decision of the Auditor General who denied
the request for refund of said royalty fees.
8) Petitioner contends that the resolution of the Cabinet of October 24, 1947,
fixing the schedule of royalty rates on metal exports and providing for their
collection constitutes an undue delegation of legislative powers because, in
substance, it creates and imposes an ad valorem tax.
ISSUE:
1) WoN the Cabinet resolution is an undue delegation of legislative power –
NO, the Cabinet acts are the same as the President’s
2) WoN the royalty fees are taxes – NO, they are tariff rates
RULING: Wherefore, petition is dismissed, without pronouncement as to costs.
RATIO:
1) Article VI, section 22 (2), of the Constitution provides:
a. The Congress may by law authorize the President, subject to such
limitations and restrictions, as it may impose, to fix, within
specified limits, tariffs rates, import or export quotas, and tonnage
and wharfage dues.
2) It is clear from the above that Congress may by law authorize the
President, subject to certain limitations, to fix, within specified
limits, tariff rates, import or export quotas, and tonnage and wharfage
dues. And pursuant to this constitutional provision, Congress approved
Commonwealth Act No. 728 conferring upon the President authority to
regulate, curtail, control, and prohibit the exports of scrap metals and
to issue such rules and regulations as may be necessary to carry out its
provisions. And implementing this broad authority, the Cabinet approved
the resolution now in question authorizing the levy and collection of certain
royalty fees as a condition for the exportation of scrap metals and other
merchandise.
3) This resolution is perfectly legal because it was done by authority of
Commonwealth Act No. 728 and in pursuance of an express provision of
our Constitution.
4) The fact that the resolution was approved by the Cabinet and the collection
of the royalty fees was not decreed by virtue of an order issued by the
President himself does not, in our opinion, invalidate said resolution
because it cannot be disputed that the act of the Cabinet is deemed to
be, and essentially is, the act of the President.
5) The secretaries of departments are mere assistants of the Chief Executive
and "the acts of the secretaries of such departments, performed and
promulgated in the regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts of the Chief
Executive." (Villena vs. The Secretary of Interior, 67 Phil., 451.) To hold
otherwise would be to entertain technicality over substance. And with
regard to the acts of the Cabinet, this conclusion acquires added force
because, unless shown otherwise, the Cabinet is deemed to be presided over
always by the President himself.
6) It is contended that the royalty rates prescribed in the Cabinet resolution are
not fees but in effect partake of the nature of an ad valorem tax the
imposition of which cannot be delegated to the President by Congress. The
rule which forbids delegation of legislative power is not absolute. It admits
of exceptions as when the Constitution itself authorizes such delegation. In
the present case, our Constitution expressly authorizes such delegation
because the royalty rates may take the form of tariff rates.
7) One point that should be considered is the distinction between the business
of exporting scrap metals, on one hand, and other merchandise on the other.
As a rule, common trades or industries, or the exportation of merchandise in
 general, cannot be prohibited, but may only be regulated in the exercise of This difference between fees and taxes is well-known in this jurisdiction,
the police power of the State; not so with regard to scrap metals whose the one implying the exercise of police power, and the other the taxing
exportation may be completely banned. This is the core of Commonwealth power. And authority to collect fees, does not ordinarily embrace the power
Act No. 728. It authorizes the President not merely to regulate but to to impose taxes.
prohibit altogether the exportation of certain articles, among them scrap 4) The police power to prohibit, or regulate, does not include the power
metals. to permit upon payment of taxes.
8) If the President can prohibit altogether such exportation, a fortiori he can,
as he did, impose conditions and limitations he may deem proper in
granting the privilege, one of them being the payment of royalties similar to
the ones subject of the present litigation.
9) The payment of the royalty can be considered as the consideration for the
exercise of the privilege and one who avails of that privilege and pays the
consideration is guilty of estoppel. This is the predicament of petitioner.

Separate Opinions

Disclaimer: There are concurring opinions written in Spanish by Pablo and

Concepcion and it was not cited in the book so I won’t include them na because
same thoughts lang din naman yun with the majority however, I will include the
dissent because it is in English even if wala din sa book 😊

BENGZON, J., dissenting:

1) As the Auditor General disapproved the refund solely upon the ground that
the Cabinet's resolution "should be presumed to be constitutional unless
declared by a competent court to be otherwise," the question is the Cabinet's
authority to direct the collection of the aforesaid royalties.
2) No statute has been quoted authorizing the Cabinet to levy the assessment.
Observe that "the taxing power of the State is exclusively a legislative
function, and taxes can be imposed only in pursuance of legislative
authority" (61 C. J. p. 81).
3) Supposing however that the resolution of the cabinet might be regarded as a
Presidential directive, the question remains whether the President himself
had power to exact the "royalty." In my opinion he had not. Under Com.
Act 728 he could, at most, require a license fee; but a "royalty" is not a fee.
It connotes some kind of ownership, far different from that power of
regulation justifying the exaction of license fees. Yet even supposing the
royalty had been labeled "export fees," it would undoubtedly be also
unauthorized, because, virtually, it was a tax, for it tended to produce
revenue — ad valorem charges. It was not collected merely as
compensation for services rendered, in the interest of necessary regulations.
 GEROCHI v. DOE (Izzy)
July 17, 2007 | Nachura, J. | Delegation of the power to tax
PETITIONER: Romeo P. Gerochi, et al.
RESPONDENTS: Department of Energy et al.
SUMMARY: After Congress passed EPIRA and its IRR was implemented, NPC-
SPUG filed with the ERC two petitions. The first one sought to avail from the
Universal Charge for Missionary Electrification and the second one from the
Universal Chare for the Environmental Charge. Both petitions were granted so
PECO was tasked to collect from all end-users the Universal Charge. Petitioner
Gerochi went to the Supreme Court to assail the constitutionality of the Universal
Charge arguing that is was a tax which was to be collected, and that such
delegation of legislative power to ERC was unconstitutional. Respondents DOE et
al. argued that the Universal Charge was not a tax and there was no undue
delegation (doctrine cited in the book).
Issue is WoN there is undue delegation of legislative power to tax. The Court ruled
in the negative. There was no undue delegation of legislative power because
EPIRA has sufficient and determinable standards which would guide ERC in the
exercise of the powers granted to it. EPIRA is complete in all its essential terms
and conditions. Although it merely provides that within 1 year from the effectivity
a Universal Charge shall be determined, fixed and approved by the ERC without
specifying the amount to be paid, the amount is nevertheless made certain
legislative parameters provided and that EPIRA contains sufficient standards.
EPIRA ensuring the total electrification of the country and the quality, reliability,
security and affordability of the supply electric power and watershed rehabilitation
and management meets the requirements for valid delegation.
Petitioner Gerochi et al.’s argument:
DOCTRINE: (Valid delegation of legislative power to tax) Due to increasing
complexity of modern life, delegation of legislative power to various specialized
administrative agencies is allowed as an exception to the principle of separation of
powers, as long as the requirements under the completeness test and sufficient
standard test are met.
FACTS::
1. THE CASE: Petitioners Romeo P. Gerochi, Katulong ng Bayan (KB), and
Environmentalist Consumers Network, Inc. (ECN) seek to:
a. declare Sec. 34 of EPIRA and Rule 18 of the IRR unconstitutional
b. refund the Universal Charge imposed upon consumers
c. restrain respondents DOE, ERC, NPC, PSALM, NPC-SPUG, and
PECO from implementing, charging and collecting the Universal
Charge
2. NPC-SPUG filed with ERC a petition for the availment from the Universal
Charge of its share for Missionary Electrification. It also filed with ERC
another petition praying that the proposed share from the Universal Charge
for the Environmental Charge of P0.0025/kWH be approved for withdrawal
from the Special Trust Fund (STF) managed by PSALM.
3. ERC provisionally approved the computed amount (P0.168/kWH) from the
Universal Charge for Missionary Electrification and authorized TRANSCO
and Distribution Utilities to collect the same from its end-users on a
monthly basis.
a. This was subsequently modified by the ERC which increased the
amount to P0.0373/kWh.
b. NPC-SPUG filed an MR asking ERC set aside the modification
which the ERC granted.
4. Meanwhile, ERC also approved the petition for the proposed share from the
Universal Charge for the Environmental Charge, authorizing NPC to draw
up to 70M from PSALM.
5. On the basis of said ERC decisions, PECO charged petitioner Gerochi and
all other end-users with the Universal Charge. Hence, this action assailing
the constitutionality of Sec. 34 of EPIRA and its IRR.
1. The Universal Charge is a tax which is to be collected from all electric end-
users and self-generating entities. The Universal Charge is not for
regulatory purpose.
2. The power to tax is strictly a legislative function and as such, the delegation
of said power to ERC is unconstitutional. It leaves ERC with complete
discretionary legislative authority.
3. ERC is empowered to approve and determine where the funds collected
should be used.
4. The imposition is oppressive and confiscatory and amounts to taxation
without representation as the consumers were not given a chance to be
heard and represented
Respondent DOE et al.’s argument:
1. PSALM: Universal Charge is levied for a specific regulatory purpose which
is to ensure the viability of the country’s electric power industry; exacted by
the State in the exercise of its police power. There is no undue delegation of
legislative power since the ERC merely exercises a limited authority or
discretion as to the execution and implementation of the provisions of
EPIRA.
2. DOE, ETC, NPC: Universal Charge not a tax because it is levied for a
specific regulatory purpose. It does not possess the essential characteristics
of a tax and that its imposition would redound to the benefit of the electric
power industry and not to the public. Its rate is also uniform on electricity
end-users, unlike a tax which is imposed based on the individual taxpayer’s
ability to pay. There is no undue delegation of legislative power because
EPIRA has sufficient determinable standards which would guide ERC in
the exercise of the powers granted to it.
3. PECO: it is duty bound to collect and remit the amount pertaining to the
Missionary Electrification and Environmental Fund components of the
Universal Charge.
ISSUE/s:
1. WoN Universal Charge is a tax – NO
2. (DOCTRINE DISCUSSED IN THE BOOK) WoN there is undue
delegation of legislative power to tax – NO
3. WoN petitioners Gerochi et al. violated the doctrine of hierarchy of courts –
YES
RULING: WHEREFORE, the instant case is hereby DISMISSED for lack of merit.
RATIO:
First Issue
1. Power to Tax v. Police Power:
a. Power to Tax: it is incident of sovereignty and is unlimited in its
range. By its nature it has no limits and the security against its
abuse is to be found only in the responsibility of the legislature
which imposes the tax. It is based on the principle that taxes are the
lifeblood of the government and their prompt and certain
availability is an imperious need. It emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting
the general welfare and well-being of the people
b. Police power: Power of the state to promote public welfare by
restraining and regulating the use of liberty and property. It is the
most pervasive, the least limitable, and the most demanding of the
three fundamental powers of the State.
c. The distinction rests in the purpos for which the charge is made. If
the generation of revenue is the primary purpose and the regulation
is merely incident, the imposition is a tax; but if regulation is the
primary purpose, the fact that revenue is incidentally raised does
not make the imposition a tax.
2. Sec. 34 of the EPIRA is not a tax. In exacting Sec. 34, the State’s police
power is invoked. This can be deduced from the purposes16 for which the
Universal Charge is imposed.
3. Well established is the doctrine that the taxing power may be used as an
implement of police power. With the Universal Charge, a Special Trust
Fund (STF) is created under PSALM. The STF has some notable
characteristics similar to that of the Oil Price Stabilization Fund and Sugar
Stabilization Fund which were exactions made in the exercise of the police
power.
16
(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the supply of electric power;
(c) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition and
full public accountability to achieve greater operational and economic efficiency and enhance the
competitiveness of Philippine products in the global market;
(d) To enhance the inflow of private capital and broaden the ownership base of the power generation,
transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and private sector entities in the process of
restructuring the electric power industry;
(f) To protect the public interest as it is affected by the rates and services of electric utilities and other
providers of electric power;
(g) To assure socially and environmentally compatible energy sources and infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy resources in power generation
in order to reduce dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the assets and liabilities of the National
Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to ensure consumer
protection and enhance the competitive operation of the electricity market; and
(k) To encourage the efficient use of energy and other modalities of demand side management.
 a. The STF reasonably serves and assures the attainment and
perpetuity of the purposes for which the Universal Charge is
imposed, i.e., to ensure the viability of the country’s electric power
industry
Second Issue (IMPORTANT)
1. Principle of separation of powers ordains that each of the three branches of
government has exclusive cognisance of and is supreme in matters facing
within its own constitutionally allocated sphere.
2. A logical corollary to the doctrine of separation of powers, as expressed in
the Latin maxim potestas delegate non delegate protest (what has been
delegated cannot be delegated).
3. Due to increasing complexity of modern life, delegation of legislative
power to various specialized administrative agencies is allowed as an
exception to the principle of separation of powers.
4. Given the volume and variety of interactions in today’s society, it is
doubtful if the legislature can promulgate laws that will deal adequately
with and respond promptly to the minutiae of everyday life.
ERC in the determination for the Universal Charge.
b. Adequate guidelines or limitations in the law to determine the
boundaries of the delegate’s authority and prevent from running
riot: EPIRA contains sufficient standards. Supreme Court had
accepted as sufficient standards “interest of law and order,” “public
interest,” “justice and equity,” "public convenience and welfare,”
“simplicity, economy and efficiency,” “standardization and
regulation of medical education;” and "fair and equitable
employment practices". EPIRA ensuring the total electrification of
the country and the quality, reliability, security and affordability of
the supply electric power and watershed rehabilitation and
management meet the requirements for valid delegation, as they
provide limitations on the ERC’s power to formulate the IRR.
7. ERC, as regulator, should have sufficient power to respond in real time to
changes wrought by multifarious factors affecting public utilities.
8. From the foregoing disquisitions, we therefore hold that there is no undue
delegation of legislative power to the ERC.

5. All that is required is that the regulation be germane to the objects and
Third issue
purposes of the law and that the regulation be not in contradiction to, but in
1. Petitioner Gerochi et al. violated the doctrine of hierarchy of courts when
conformity with, the standards prescribed by the law. These requirements
they filed the complaint directly with the Supreme Court. The Complaint is
are denominated as the completeness test and the sufficient standard test.
bereft of any allegation of GADALEJ on the part of ERC. Moreover, just
6. Tests for a valid delegation of legislative power: because the SC has concurrent jurisdiction to issue writs of certiorari,
prohibition etc., it does not give litigants unrestrained freedom of choice of
a. Complete in all its terms and conditions: EPIRA is complete in all forum from which to seek such relief.
its essential terms and conditions. Although it merely provides that
within 1 year from the effectivity a Universal Charge shall be
determined, fixed and approved by the ERC without specifying the
amount to be paid, the amount is nevertheless made certain by the
legislative parameters17 provided. ERC does not enjoy a wide
latitude of discretion. It calculates the amount of the stranded debts
and stranded contract costs of NPC which shall form the basis for

17
Sec. 43(b)(ii) Financial capability standards for the generating companies, the TRANSCO, distribution
utilities and suppliers: Provided, That in the formulation of the financial capability standards, the nature
and function of the entity shall be considered: Provided, further, That such standards are set to ensure that
the electric power industry participants meet the minimum financial standards to protect the public
interest. Determine, fix, and approve, after due notice and public hearings the universal charge, to be
imposed on all electricity end-users pursuant to Section 34 hereof
 CIR V.SAN MIGUEL CORPORATION (CASTRO)
23 November 2011 | Villarama, Jr. J. | Delegation of power to tax
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: San Miguel Corporation
SUMMARY: RA 8424 or the Tax Reform Act took effect and it reproduced Sec.
140 of the NIRC. The Tax Reform Act was said to affect the excise tax rates
imposed on the fermented liquors and it also provided transitory period and varying
tax rates depending on the liters of the said liquors. After the said enactment, the
Secretary of Finance issued a Revenue Regulation increasing the applicable rates and
at the same time making a qualification as to the extension of the transitory period
and other varying rates.
With the said revenue regulation, San Miguel corporation is claiming for a tax refund
because according to the revenue regulation the said corporation overpaid while in
the tax reform act it just paid the just amount. Because of the conflicts that arose in
the said law the justiciable controversy now arise on Whether or not San Mig corp
can claim a tax refund on the basis of the different tax rate imposed by the revenue
regulation. CTA said NO, for the reason tat the said regulation lacks basis for the
said extension. SC held that the Secretary of Finance also erred in qualifying the said
law for the said law is clear and unambiguous and there is no room for such
interpretation. Furthermore; administrative issuances cannot amend or alter the
substantive law.
DOCTRINE: It bears reiterating that tax burdens are not to be imposed, nor
presumed to be imposed beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government.
In case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails as said rule or regulation cannot go
beyond the terms and provisions of the basic law. It must be stressed that the
objective of issuing BIR Revenue Regulations is to establish parameters or
guidelines within which our tax laws should be implemented, and not to amend or
modify its substantive meaning and import
FACTS:
1. San Miguel Corporation, a domestic corporation engaged in the
manufacture and sale of fermented liquor, produces as one of its products
red horse beer which is sold in 500-ml and 1 liter bottle variants
2. RA 8424 or the Tax Reform Act of 1997 took effect and reproduced as Sec.
143 18the provisions of Sec. 140 of the NIRC (National Internal Revenue
Code)
3. Thereafter on Dec. 1999 the Secretary of Finance issued revenue regulation
increasing the applicable tax rates on fermented liquor by 12%
4. The increase however was qualified by the last paragraph of the Sec. 1 of
the said revenue regulation by saying that “the new specific tax rate shall
not be lower than the excise tax that is actually paid prior January 1, 2000”
5. For the period of June 2004 to December 2004, San Miguel Corporation
was assessed and paid excise taxes amounting to 2.2 billion for the 323
million litters of Red horse beer products removed from its plants. Said
18
SEC. 143. Fermented Liquor. - There shall be levied, assessed and collected an excise tax
on beer, lager beer, ale, porter and other fermented liquors except tuba, basi, tapuy and similar
domestic fermented liquors in accordance with the following schedule:
(a) If the net retail price (excluding the excise tax and value-added tax) per liter of volume
capacity is less than Fourteen pesos and fifty centavos (P14.50), the tax shall be Six pesos and
fifteen centavos (P6.15) per liter;
(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume
capacity is Fourteen pesos and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the
tax shall be Nine pesos and fifteen centavos (P9.15) per liter;
(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume
capacity is more than Twenty-two pesos (P22.00), the tax shall be Twelve pesos and fifteen
centavos (P12a.15) per liter.
Variants of existing brands which are introduced in the domestic market after the effectivity of
Republic Act No. 8240 shall be taxed under the highest classification of any variant of that
brand.
Fermented liquor which are brewed and sold at micro-breweries or small establishments such
as pubs and restaurants shall be subject to the rate in paragraph (c) hereof.
The excise tax from any brand of fermented liquor within the next three (3) years from
the effectivity of Republic Act No. 8240 shall not be lower than the tax which was due
from each brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall
be increased by twelve percent (12%) on January 1, 2000.
 amount was computed based on the tax rate which was being applied to its
products prior to January 2000 as the last paragraph of Sec. 1 of Revenue
Regulations provided that new specific tax rate for fermented liquors shall
not be lower than the excise tax that is actually being paud prior to January
2000.
6. San Miguel, however, later contended that the said qualification in the last
paragraph of the revenue regulations has no basis in the plain wording of
Section 143. Hence, they were claiming that instead of 7.07/liter tax they
should just pay 6.89/liter.
7. On May 2006, respondent filed before the BIR a claim for refund or tax
credit on the amount of 60 million as erroneously paid excise taxes from
May to December 2004
8. Later, said amount was reduced 58 million because of prescription.
9. As the petitioner CIR failed to act on the claim, San Migue filed a petition
for review before the CTA
10. CTA granted the petition and ordered a refund to San Miguel corp or to
issue a tax credit for the said amont of the erroneously paid excise taxes
11. The CTA held that Revenue Regulations No. 17-99 modified or altered the
mandate of Section 143 of the Tax Reform Act of 1997. The CTA decision
goes by saying:
a. an analysis of the last paragraph of Revenue Regulations would
reveal that it created a new tax rate or a new requirement when it
provided that the new specific tax rate for any existing brand of
cigars, cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000. This is indeed a
situation not intended by Section 143 of the [Tax Reform Act] of
1997, as amended, both in letter and in spirit. Rather, it is a clear
contradiction to the import of the law.
12. The Commissioner of Internal Revenue sought reconsideration however it
was denied.
13. The CTA en banc held that considering that there is nothing in the law that
allows the BIR to extend the three-year transitory period and considering
there is no provision in the law mandating that the new specific rate should
not be lower than the excise tax then the last paragraph of the BIR
revenue regulation has no basis in law and there inconsistent with the
provision of the Tax Reform Act it is an unathorized administrative
legislatin and therefore invalid
14. CIR contends that it is a valid administrative interpretation and it carries out
the legislative intent behind the enactment of RA 8240
15. Meanwhile, San Miguel Corp maintains the correctness of CTA’s
interpretation as held in CIR v. Fortune Tobacco that the last paragraph of
the Revenue regulation finds no support in the wording of the law.
16. Hence this pettion
ISSUE/s:
 Whether or not the last paragraph of the Revenue regulation imposed
by the CIR providing extending the transitory period and providing a
different tax rate is valid – No, it lacks basis from the very wording of the
tax reform act
RULING:
RATIO:
1. Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It
provides for two periods: the first is the 3-year transition period beginning
January 1, 1997, the date when R.A. No. 8240 took effect, until December
31, 1999; and the second is the period thereafter. During the 3-year
transition period, Section 143 provides that the excise tax from any brand of
fermented liquorshall not be lower than the tax which was due from each
brand on October 1, 1996. After the transitory period, Section 143 provides
that the excise tax rate shall be the figures provided in the said law.
2. However, Revenue regulation then created a new tax rate when it added
in the last paragraph the qualification that the tax due after the 12%
shall not be lower than the excise tax that is actually being paid prior to
January 2000, such interpretation is clearly an invalid exercise of the
power of Secretary of Finance to interpret tax laws. Said qualification
must then be struck down as invalid and no effect.
3. It bears reiterating that tax burdens are not to be imposed, nor presumed to
be imposed beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government.
4. In case of discrepancy between the basic law and a rule or regulation
issued to implement said law, the basic law prevails as said rule or
regulation cannot go beyond the terms and provisions of the basic law.
It must be stressed that the objective of issuing BIR Revenue
Regulations is to establish parameters or guidelines within which our
tax laws should be implemented, and not to amend or modify its
substantive meaning and import
5. Hence, while it may be true that the interpretation advocated by
petitioner CIR is in furtherance of its desire to raise revenues for the
government, such noble objective must yield to the clear provisions of
the law, particularly since, in this case, the terms of the said law are
clear and leave no room for interpretation.
 035 CIR v. MARUBENI CORP. (KC)
December 18, 2001 | Puno, J. | Territoriality of excise tax
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Marubeni Corporation
SUMMARY: Marubeni Corp. was the winning-bidder of two projects with NDC
and Philphos for which the there was a financing scheme – Japanese Yen Portion I
for materials and equipment while Japanese Yen Portion II and Philippine Peso
Portion for the installation and construction. These financing scheme further
corresponded to two parts in which the 2 projects were classified – Offshore
Portion and Onshore Portion. The Japanese Yen Portion I correspond to the
Offshore Portion and Japanese Yen Portion II and Philippine Peso Portion
correspond to the Onshore Portion. CIR assessed Marubeni for deficiency due to
unpaid contractor’s tax and Marubeni questioned this arguing among others that the
Offshore Portion of the projects are not subject to contractor’s tax. The issue is
WoN the Offshore Portion is subject to a contractor’s tax. The Supreme Court held
that since contractor’s tax are excise tax on the exercise of a privilege of selling
services or labor, it can be levied by the taxing authority only when the acts,
privileges or business are done or performed within the jurisdiction of said
authority. The equipments, materials, manufacture, etc. under Japanese Yen Portion
I were made and completed in Japan. As such the Offshore Portion of the two
projects is not subject to the contractor’s tax.
(Note: Basically yung projects may payment scheme: ‘Yung Japanese Yen Portion
I pambayad ng equipments and materials, while yung Japanese Yen Portion II at
Philippine Peso Portion para sa construction and installation. Ngayon itong
payment scheme nagcocorrespond dun sa classification nung projects. Bali each
project classified/divided into two: Offshore and Onshore. ‘Yung Offshore sa Japan
kung saan minamanufucture yung mga materials, steel, equipment etc na gagamitin
tapos yung pambayad dun yung money from the Japanese Yen Portion I. G? G!
Onshore yung paggawa na mismo nung project here sa Philippines tapos yung
pambayad yung Japanese Yen Portion II at Philippine Peso Portion. Ngayon, si
CIR sinisingil si Marubeni for contractor’s tax sa Offshore Portion at ayaw ni
Marubeni kasi lahat naman nung equipments etc ginawa sa Japan. Sabi ng Court
tama si Marubeni because basahin mo nalang yung doctrine hahahaha)
DOCTRINE: A contractor’s tax is a tax imposed upon the privilege of engaging
business. It is generally in the nature of an excise tax on the exercise of a privilege
of selling services or labor rather than a sale on products. As an excise tax, it can be
levied by the taxing authority only when the acts, privileges or business are done or
performed within the jurisdiction of said authority.
FACTS:
57. Marubeni Corp. is a foreign corporation organized and existing under the
laws of Japan. It was engaged in the business of general import and export
trading, financing, and the construction business.
58. November 1985: CIR issued a letter of authority to examine the books of
accounts of Marubeni’s Manila branch office for the fiscal
year enging March 1985
59. In the course of the examination, it was found that Marubeni had undeclared
income from two contracts in the Philippines, both of which were
completed in 1984.
1. First contract: National Dev’t Company entered into a contract
with Marubeni wth the construction and installation of a wharf/port
complex at the Leyte Industrial Dev’t Estate in Isabel, Leyte
2. Second contract: Philippine Phosphate Fertilizer Corp. (Philphos)
entered into a contract with Marubeni for the construction of an
ammonia storage complex also at the Leyte Industrial Dev’t Estate
60. The two contracts were divided into two parts, i.e., the Onshore Portion and
the Offshore Portion. All materials and equipment in the contract under the
“Offshore Portion” were manufactured and completed in Japan.
61. March 1986: CIR’s revenue examiners recommended an assessment for
deficiency income, branch profit remittance, contractor’s and
commercial broker’s taxes.
62. June 1986: Marubeni questioned this assessment
63. August 1986: Marubeni received a letter from CIR assessing them several
deficiency taxes. The assessed internal revenue taxes,
 inclusive of surcharge and interest amounted to
P967,269,811.14
64. CIR argued that each contract was for a piece of work and since the projects
called for the construction and installation of facilities in the Philippines,
the entire income constituted income from Philippine sources, hence,
subject to internal revenue taxes.
65. August 1986: EO 41 declared a one-time amnesty covering unpaid income
taxes for the years 1981-1985
66. September 1986: Marubeni filed two petitions for review with the CTA.
The first one questioned the deficiency income, branch
profit remittance and contractor’s tax assessments while
the second one questioned the deficiency commercial
broker’s assessment in the same letter.
67. October 1986: Marubeni filed its tax amnesty return according to EO 41
68. November 1986: EO 41 was extended from Oct. 1986 to Dec. 1986 by EO
54; The coverage of EO 41 was also expanded by EO 64
wherein it included estate and donor’s taxes and provided
for the extension of immunities and privileges and the
period within which the taxpayer could avail of the
amnesty - Dec. 1986
69. Those taxpayers who already filed their amnesty return under EO 41 could
avail themselves of the benefits, immunities and privileges under the new
EO.
70. December 1986: Marubeni filed a supplemental tax amnesty return under
EO 64.
71. Ten years after the filing of the case, CTA rendered a decision and found
Marubeni properly availed of the tax amnest under EO 41 and 64, and
declared the deficiency taxes cancelled and withdrawn.
72. CIR appealed the same with the CA but the CA dismissed the petition and
affirmed the CTA.
73. It is Marubeni’s argument that assuming it did not validly avail of the
amnesty under the EOs, it is still not liable for the deficiency contractor’s
tax because the income from the projects came from the “Offshore Portion”
of the contracts. All materials and equipment in the contract under the
“Offshore Portion” were manufactured and completed in Japan and
therefore not subject to Philippine taxes
ISSUE/s:
17. WoN Marubeni should pay for a contractor’s tax for the Offshore Portion –
NO because a contractor’s tax is an excise tax which can be levied only
when the business are acts done in the Philippines. In the case at bar it was
in Japan.
RULING: IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R.
SP No. 42518 is affirmed.
RATIO:
53. NDC contract was broken down into two portions: (1) Japanese Yen Portion
I; (2) Japanese Yen Portion II while the price in Philippine currency was
referred to as the Philippine Pesos Portion. Under these financing schemes,
the Japanese Yen Portions I and II and the Philippine Pesos Portion were
further broken down and subdivided to the materials, equipment and
services rendered on the project.
54. Like the NDC contract, the Philphos contract the price was also divided into
three portions. The price in Japanese currency was broken down into
Japanese Yen Portion I and II while the price in the Philippine currency was
classified as the Philippine Pesos Portion. They were also broken down the
same way.
55. The division of prices into the Japanese Yen Portions and Philippine Pesos
Portion correspondent to the two parts into which the contracts were
classified – the Offshore Portion and the Onshore Portion. In both contracts,
Japanese Yen Portion I corresponded to the Offshore Portion while
Japanese Yen Portion II and the Philippine Peso Portion correspond to the
Onshore Portion
56. Marubeni does not deny its tax liability for the contractor’s tax under the
Onshore Portion, it is with regard to the Offshore Portion of the two
contracts that the liabilities involved in the assessment it contests.
57. A contractor’s tax is a tax imposed upon the privilege of engaging business.
It is generally in the nature of an excise tax on the exercise of a privilege of
selling services or labor rather than a sale on products. As an excise tax, it
can be levied by the taxing authority only when the acts, privileges or
business are done or performed within the jurisdiction of said authority.
58. An examination of the two contracts reveals that the materials and
equipment to be made and the works and services to be performed are
indeed classified into two. The subdivision of Japanese Yen Portion I
 covered materials and equipment while the other two covered the
construction and installation work.
59. Mr. Takeshi Hojo, the GM of the Industrial Plant Section of Marubeni
testified that all the machines and equipment listed under the Japanese Yen
Portion I were manufactured in Japan. Everything was designed, engineered
and frabricated by Japanese firms. All the materials and equipment
transported to the Philippines were inspected and tested in Japan prior to
shipment. All the sub-contractors of the materials and equipment were all
paid by Marubeni in Japan
60. Clearly, the service of “design and engineering, supply and delivery,
construction, erection and installation, supervision, direction and control of
testing and commission, coordination” of the two projects involved two
taxing jurisdictions
61. While the construction and installation work were completed within the
Philippines, the evidence is clear that some pieces of equipment and
supplies were completely designed and engineered in Japan.
62. All services for the design, fabrication, engineering and manufacture of the
materials and equipment under Japanese Yen Portion I were made and
completed in Japan. These services were rendered outside the taxing
jurisdiction of the Philippines and are therefore not subject to contractor’s
tax.
 36. Iloilo Bottlers Inc. v. City of Iloilo (Dim)
August 19, 1988 | Justice Cortes | Territoriality
PLAINTIFF-APPELLEE: Iloilo Bottlers Inc.,
DEFENDANT-APPELLANT: City of Iloilo
SUMMARY: The Iloilo Bottlers operated a bottling plant in Pavia, Iloilo, which
was outside the City of Iloilo where this case takes place. Iloilo bottlers was
engaged in the bottling of soft-drinks (Pepsi Cola and 7-Up), and selling the same to
its customers. The City of Iloilo enacted Ordinance No. 5 which imposed a
municipal license tax on persons, firms, and corporations in the distribution,
manufacture, and bottling of soft-drinks within the City of Iloilo. Iloilo Bottlers
distributed its softdrinks by means of a fleet of delivery trucks which went directly
to customers in the different places in lloilo province. Sales transactions with
customers were entered into and sales were perfected and consummated by route
salesmen. The City of Iloilo sought to collect the taxes from the company and
threatened that it would cease its operations within its territory if it refused. Iloilo
Bottlers payed under protest and filed a complaint with the CFI. Iloilo Bottlers
defended itself by stating that its manufacturing was outside the city and that it sold
its products directly to the customers, thus excluding it from the municipal tax on
distributors of soft-drinks. The CFI and the CA ruled in favor of the company
stating that it was entitled to the refund of the municipal license tax collected. The
SC reversed the decision, noting that the delivery trucks were not used solely for the
purpose of delivering softdrinks from their plant outside the City of Iloilo. They
served as selling units. Therefore, the Court concluded that the corporation was
engaged in the separate business of selling or distributing soft-drinks, independently
of its business of bottling them. This was evidenced by the sales conducted by the
delivery trucks or the “rolling stores” of Iloilo Bottlers. The object of the municipal
license tax was the privilege or the act of distributing, bottling or manufacturing
softdrinks, and its situs was within the city limits of the City of Iloilo. Thus, the
Iloilo Bottlers Inc., was held to be a proper subject of the tax because it distributed
or sold soft-drinks within the jurisdiction of the City of Iloilo
DOCTRINE: The municipal license tax on soft-drinks, being an excise tax, it can
be levied by the taxing authority only when the acts, privileges or businesses are
done or performed within the jurisdiction of said authority
FACTS:
1. On July 12 of 1972, the Iloilo Bottlers Inc., filed a complaint with the CFI
of Iloilo for the recovery of P3,329, which amount allegedly constituted
payments of municipal license taxes under an ordinance enacted by the
City of Iloilo.
2. Iloilo Bottlers was engaged in the business of bottling softdrinks under the
trade name of Pepsi Cola And 7-Up and selling the same to its customers,
with a bottling plant situated at the Municipality of Pavia, Iloilo, which is
outside the jurisdiction of the City of Iloilo.
3. The Ordinance No. 5 stated that: “Any person, firm or corporation engaged
in the distribution, manufacture or bottling of coca-cola, pepsi cola,
tru-orange, seven-up and other soft drinks within the jurisdiction of the
City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for
every case of twenty-four bottles.”
4. The tax ordinance imposes a tax on persons, firms, and corporations
engaged in the business of:
a. distribution of soft-drinks
b. manufacture of soft-drinks, and
c. bottling of soft-drinks within the territorial jurisdiction of the City
of Iloilo.
5. Iloilo Bottlers explained in a letter to the City of Iloilo that it could not
anymore be liable to pay the municipal license fee because its bottling
plant (was) not anymore inside the City of Iloilo, and that moreover,
since it itself (sold) its own products to its (customers) directly, it could
not be considered as a distributor in line with the doctrines enunciated by
the Supreme Court.
6. The company distributed its softdrinks by means of a fleet of delivery
trucks which went directly to customers in the different places in lloilo
province. Sales transactions with customers were entered into and sales
were perfected and consummated by route salesmen. Truck sales were made
independently of transactions in the main office. (outside the City of Iloilo)
7. The delivery trucks were not used solely for the purpose of delivering
softdrinks from their plant at the municipality of Pavia. They served as
selling units. They were what were called "rolling stores".
8. The City of Iloilo informed Iloilo bottlers that it must pay all the taxes
due, otherwise it shall be constrained to cancel the operation of the
business of the company, and because of this threat, and so as not to
occasion disruption of its business operation, the Iloilo Bottlers payed the
taxes under protest.
9. The CFI of Iloilo ruled in favor of the corporation and ordered the City of
Iloilo to pay the sum of P3,329. The City of Iloilo brought the case to the
CA, then to the SC.
10. Iloilo Bottlers, Inc. disclaims liability on two grounds:
 a. First, it contends that since it is not engaged in the independent engaged in any of the activities may be taxed in Iloilo City.
business of distributing soft-drinks, but that its activity of selling
6. As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City.
is merely an incident to, or is a necessary consequence of its
Thus, The Court has no option but to declare the company liable under
main or principal business of bottling, then it is NOT liable
the tax ordinance.
under the city tax ordinance.

b. Second, it claims that only manufacturers or bottlers having their

plants inside the territorial jurisdiction of the city are covered by
the ordinance.

ISSUES:
(1) WoN Iloilo is engaged in the business of distributing soft-drinks – Yes
[Important]

(2) WoN Iloilo Bottlers is correct in stating that only manufacturers or bottlers
within the City of Iloilo are covered by the ordinance – Yes, as stated in the
ordinance.

RULING: WHEREFORE, the appealed decision is hereby REVERSED. The

complaint is ordered DISMISSED.

RATIO:
1. The Court noted that there are two distinct marketing systems:
1. Sales made at the main office, where purchase orders that are received
and approved and wherein delivery takes place afterwards, at the
warehouses of the company.

2. Sales made and perfected at the stores and warehouses owned by

the company. (similar to the delivery trucks of Iloilo Bottlers)

2. The SC ruled that the rolling stores fall under the second system of
marketing, hence the sales were perfected and consummated within the City
of Iloilo.

3. Thus, the corporation was engaged in the separate business of selling or

distributing soft-drinks, independently of its business of bottling them.

4. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the
privilege of distributing, manufacturing or bottling softdrinks. Being an
excise tax, it can be levied by the taxing authority only when the acts,
privileges or businesses are done or performed within the jurisdiction
of said authority

5. Specifically, the situs of the act of distributing, bottling or

manufacturing softdrinks must be within city limits, before an entity
 MACEDA v. MACARAIG (Elach)
May 31, 1991 | Gancayco, J. | Tax exemption of the state
PETITIONERS: Ernesto M. Maceda
RESPONDENTS: HON. CATALINO MACARAIG, JR., in his capacity as
Executive Secretary, Office of the President
SUMMARY: The petition seeks to nullify certain decisions, orders, ruling, and
resolutions of the respondents (Macaraig et. al) for exempting the National
Power Corporation (NPC) from indirect tax and duties. Commonwealth Act 120
created NPC as a public corporation. RA 6395 revised the charter of NPC and
provided in detail the exemption of NPC from all taxes, duties and other charges
by the government. There were many resolutions and decisions that followed
after RA 6395 which talked about the exemption and non-exemption from taxes
of NPC. Sen. Maceda argued that the tax exemption granted to NPC does not
include indirect tax exemption and that tax exemptions are strictly construed
against the taxpayer claiming the exemption. The issue in this case is whether or
not NPC is really exempt from indirect taxes? The SC said yes they are
exempted. NPC is a non-profit public corporation created for the general good
and welfare of the people. From the very beginning of its corporate existence,
NPC enjoyed preferential tax treatment to enable it to pay its debts and
obligations. From the changes made in the NPC charter, the intention to
strengthen its preferential tax treatment is obvious. The tax exemption is
intended not only to insure that the NPC shall continue to generate electricity for
the country but more importantly, to assure cheaper rates to be paid by
consumers. Furthermore, Maceda cannot invoke the rule on strictissimi juris as it
does not apply to tax exemptions granted in favor of a political subdivision or
government instrumentality. The practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax liabilities of
such agencies.
* An indirect tax is a tax primarily paid by persons who can shift the burden
upon someone else. Examples: the excise and ad valorem taxes that oil
companies pay to the BIR can be shifted to its buyer by adding them to the
“selling price.”
DOCTRINE: Strict interpretation of tax exemption does not apply to tax
exemption granted in favor of a political subdivision or government
instrumentality
FACTS:
1. Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power
from other sources.
a. RA 358: “The NPC shall be exempt from all taxes, duties, fees,
imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.”
b. RA 6395, Sec. 13: “[…]the exemption of the NPC from all taxes,
duties, fees, imposts and other charges by the government and its
instrumentalities.”
c. PD 380 (amending RA 6395): “the exemption of NPC from such
taxes, duties, fees, imposts and other charges imposed directly or
indirectly, on all petroleum products used by NPC in its operation.
d. PD 938 (amending RA 6395): “[NPC is hereby] declared exempt
from the payment of all forms of taxes, duties, fees, imposts…”
This amendment took out the words “directly or indirectly.”
2. During the period the above laws were in effect, Caltex, Shell, et al never
paid excise or specific and ad valorem taxes for petroleum products sold
and delivered to the NPC. The BIR was not collecting these taxes on the
belief that NPC was exempt from indirect taxes, as reflected in the letter of
its Deputy Commissioner.
3. June 11, 1984: PD 1931 took away all tax exemption privileges of NPC, but
it gave the Fiscal Incentives Review Board (FIRB) the power “restore,
partially or totally, the exemption withdrawn, or otherwise revise the scope
and coverage of any applicable tax and duty.” The oil companies started to
pay specific and ad valorem taxes on their sales of oil products to NPC after
the promulgation of this law. Caltex started billing NPC for both customs
duties and taxes, while before PD 1931, they only included customs duty
without the tax portion.
4. February 7, 1985: The FIRB restored tax exemption privileges of NPC and
made them retroact from June 11, 1984 up to June 30, 1985. This was
supported by a declaration from Acting Commissioner Ancheta of the BIR.
Thus, NPC applied with the BIR for a refund of Specific Taxes paid on
petroleum products (those paid by Caltex amounting to P58 million).
5. On October 22, 1985, however, the same Commissioner Ancheta in a BIR
ruling disapproved the refund claim of one of NPC’s contractors, holding
that “NPC’s exemption privileges cover only taxes for which it is directly
liable and does not cover taxes which are only shifted to it or for indirect
taxes.” It reversed its previous position.
6. January 7, 1986: FIRB Resolution No. 1-86 was issued restoring NPCÊs tax
exemptions retroactively from July 1, 1985 to an indefinite period.
7. July 7, 1986: The P58 million refund claim was approved by the BIR.
However, by this time, NPC’s claims for tax refunds already amounted to
P468 million. Certificates for the tax credit of P58 M were given to NPC,
which assigned them to Caltex. This assignment was approved by the BIR.
8. NPC then reiterated the request for refund of the balance of P468 million,
but this was denied by the BIR, which declared that NPC had already lost
its tax and duty exemptions because it only enjoys special privilege for
taxes for which it is directly liable.
9. December 22, 1986: Another withdrawal of tax exemptions under EO 93
 (this EO gave FIRB the same power to restore). However, the FIRB again
restored NPC’s tax exemption privilege and included in the exemption
“those pertaining to its domestic purchases of petroleum and petroleum
products,” and the restorations were made to retroact effective March 10,
1987.
10. August 6, 1987: The Secretary of Justice issued an Opinion stating that “the
power conferred upon the FIRB by EO 93 constituted undue delegation of
legislative power and was unconstitutional.”
11. NPC kept on filing its claims for refund, and by July 1988, the Office of the
President and the Department of Finance had ordered the BIR to refund the
tax payments of the NPC amounting to P1.58 Billion, which included the
P410 Million Tax refund already rejected by BIR.
12. Senator Maceda, the petitioner in this case, wrote to the DOF and the BIR
for them to hold in abeyance the impending refunds to NPC. The Senate
Blue Ribbon Committee, of which he was chair, conducted hearings on the
issue, and issued a recommendation to:
a. cancel the P58 M refund issued earlier (assigned to Caltex),
because the NPC did not have any indirect tax exemption since
May 27, 1976 when PD 938 was issued
b. stop processing the P1.58 Billion tax refund of NPC
13. March 30, 1989: acting on the request of the Finance Secretary Jayme,
Exec. Sec. Macaraig granted the request for clearance to direct the BIR and
BOC to proceed with the processing of claims for tax credits/refunds of the
NPC.
14. Hence, this petition.
ISSUE/s
W/N NPC ceased to enjoy indirect tax and duty exemption with the enactment of
P.D. No. 938 on May 27, 1976 – NO
W/N the rule on strict interpretation may be applied to NPC? – NO
RULING: WHEREFORE, the petition is DISMISSED for lack of merit. No
pronouncement as to costs.
RATIO:
1. NPC still enjoyed indirect tax and duty exemption. Despite Maceda’s
contention that PD 938 deleted the words “directly or indirectly,” the
wording of the law is that NPC is exempted “from all forms of taxes…”
This demonstrates the intention of the law to give NPC all the tax
exemptions it has been enjoying before.
2. Repeal by implication is not favored unless it is manifest that the legislature
so intended.
3. Distinction between a direct tax and an indirect tax:
a. A direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in. Examples: custom duties and
ad valorem taxes paid by the oil companies to the BOC for their
importation of crude oil
b. An indirect tax is a tax primarily paid by persons who can shift the
burden upon someone else. Examples: the excise and ad valorem
taxes that oil companies pay to the BIR can be shifted to its buyer
by adding them to the “selling price.”
On the issue on applying the rule on strict interpretation (as cited by Dean in
her book):
4. The petitioner cannot invoke the rule on strictissimi juris with respect to the
interpretation of statutes granting tax exemptions to NPC
5. Moreover, it is a recognized principle that the rule on strict interpretation
does not appy in the case of exemptions in fvor of a government political
subdivision or instrumentality.
6. The basis for applying the rule of strict construction to statutory provisions
granting tax exemptions or deductions, even more obvious than with
reference to the affirmative or levying provisions of tax statutes, is to
minimize differential treatment and foster impartiality, fairness, and
equality of treatment among tax payers
7. The reason for the rule does not apply in the case of exemptions running to
the benefit of the government itself or its agencies. In such case the
practical effect of an exemption is merely to reduce the amount of money
that has to be handled by government in the course of its operations. For
these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax liabilities of such agencies.
Dissenting (if ever)
Justice Sarmiento: The fact that NPC has been tasked with the enormous undertaking
to improve the quality of life, is no reason, to include indirect taxes, within the
coverage of its preferential tax treatment. The deletion of “indirect taxes” as stated in
one of the assailed orders (PD 938), is significant, because if said law truly intends to
exempt NPC from indirect taxes, it would have said so specifically.
 MIAA v. CA (Fordan)
July 20, 2006 | Carpio, J. | Tax Exemption of the State
PETITIONER: Manila International Airport Authority (MIAA)
RESPONDENTS: Court of Appeals (CA), City of Parañaque; City Mayor of
Parañaque; Sangguniang Panglungsod ng Parañaque; City Assesor of Parañaque;
and City Treasurer of Parañaque
SUMMARY: MIAA received Final Notices of Real Estate Tax Delinquency from
the City of Parañaque for the taxable years 1992 to 2001. MIAA’s real estate tax
delinquency was estimated at P 624,506,725.42, where P 32,932,623.80 has already
been paid. The City of Parañaque, through its City Treasurer, issued notices of levy
and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax delinquency. MIAA filed with the CA
an original petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order which sought to restrain the City of
Parañaque from imposing real estate tax on, levying against, and auctioning for
public sale the Airport Lands and Buildings. The City of Parañaque contends that
Section 193 of the LGC expressly withdrew the tax exemption privileges of
“government-owned and-controlled corporations” upon the effectivity of the LGC.
Thus, it asserts that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax. MIAA’s contention that Airport Lands and Buildings
are owned by the Republic. The government cannot tax itself.
The issue in this case is whether or not the Airport Lands and Buildings of MIAA
are exempt from real estate tax under existing laws.
The SC ruled that MIAA’s Airport Lands and Buildings are exempt from real estate
tax imposed by local governments. First, MIAA is not a government-owned or
controlled corporation (GOCC) but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of
MIAA are owned by the Republic of the Philippines and thus exempt from real
estate tax. Pursuant to Section 133(o) of the LGC which recognizes the basic
principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power “subject to such
guidelines and limitations as the Congress may provide.” Thus, MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the
LGC.
DOCTRINE: The real properties owned by the Republic which are titled either in
the name of the Republic itself or in the name of agencies or instrumentalities of
the National Government are exempted from real property taxes. Furthermore,
Local governments are devoid of power to tax the national government, its agencies
and instrumentalities. The taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities, “[u]nless otherwise
provided in this Code” as stated in the saving clause of Section 133 of the LGC.
FACTS:
74. Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive
Order No. 903 (MIAA Charter). As operator of the international airport,
MIAA administers the land, improvements and equipment within the NAIA
Complex.
75. On March 21, 1997, the Office of the Government Corporate Counsel
(OGCC) issued Opinion No. 061 where it opined that the Local
Government Code (LGC) of 1991 withdrew the exemption from real estate
tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with City of Parañaque to pay the real estate tax imposed by the
City. MIAA then paid some of the real estate tax already due amounting to
P 32,932,623.80 out of P 624,506,725.42.
76. On July 17, 2001, the City of Parañaque, through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings.
The Mayor of the City of Parañaque threatened to sell at public auction the
 Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
77. The OGCC pointed out that Section 206 of the LGC requires persons
exempt from real estate tax to show proof of exemption. The OGCC opined
that Section 21 of the MIAA Charter is the proof that MIAA is exempt from
real estate tax.
78. On October 1, 2001, MIAA filed with the CA an original petition for
prohibition and injunction, with prayer for preliminary injunction or
temporary restraining order which sought to restrain the City of Parañaque
from imposing real estate tax on, levying against, and auctioning for public
sale the Airport Lands and Buildings.
79. On October 5, 2001, the CA dismissed the petition because MIAA filed it
beyond the 60-day reglementary period and it also denied MIAA’s motion
for reconsideration and supplemental motion for reconsideration. Hence,
MIAA filed on December 5, 2002 the present petition for review.
80. Meanwhile, in January 2003, the City of Parañaque posted notices of
auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and
Tambo, Parañaque City; in the public market of Barangay La Huerta; and in
the main lobby of the Parañaque City Hall. The City of Parañaque also
published the notices in the January 3 and 10, 2003 issues of the Philippine
Daily Inquirer. The notices announced the public auction sale of the Airport
Lands and Buildings to the highest bidder on February 7, 2003, 10:00 a.m.,
at the Legislative Session Hall Building of Parañaque City.
81. A day before the public auction at 5:10 p.m., MIAA filed before this Court
an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary
Restraining Order sought to restrain respondents from auctioning the
Airport Lands and Buildings. On February 7, 2003, this Court issued a
temporary restraining order (TRO) effective immediately which
respondents received on the same day but it was already three hours after
the conclusion of the public auction.
82. MIAA admits that the MIAA Charter has placed the title to the Airport
Lands and Buildings in the name of MIAA. However, MIAA points out that
it cannot claim ownership over these properties since the real owner of the
Airport Lands and Buildings is the Republic of the Philippines.
Furthermore, Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from
real estate tax under Section 234 of the LGC because the Airport Lands and
Buildings are owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax itself.
83. Respondents invoke Section 193 of the LGC, which expressly withdrew the
tax exemption privileges of “govern- ment-owned and-controlled
corporations” upon the effectivity of the LGC. Furthermore, it also cited the
ruling of this Court in Mactan International Airport v. Marcos where we
held that the Local Government Code has withdrawn the exemption from
real estate tax granted to international airports. It also further argue that
since MIAA has already paid some of the real estate tax assessments, it is
now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
ISSUE: Whether or not the Airport Lands and Buildings of MIAA are exempt from
real estate tax under existing laws. –YES, because MIAA is a government
instrumentality and it is exempt from real property taxes.
RULING: Wherefore, the petition is hereby granted. We set aside the assailed
Resolutions of the CA and declare the Airport Lands and Buildings of the MIAA
exempt from the real estate tax imposed by the City of Parañaque. We declare void
all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings
of the MIAA, except for the portions that the MIAA has leased to private parties. We
also declare void the assailed auction sale, and all its effects, of the Airport Lands
and Buildings of the MIAA.
RATIO:
63. The SC ruled that MIAA’s Airport Lands and Buildings are exempt from
 real estate tax imposed by local governments. First, MIAA is not a
government-owned or controlled corporation (GOCC) but an
instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real estate tax.
First: MIAA is not GOCC
64. SC held that there is no dispute that a GOCC is not exempt from real estate
tax. However, MIAA is not a government-owned or controlled corporation.
Section 2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a GOCC as follows:
SEC. 2. General Terms Defined.—x x x x (13) Government-owned
or controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public
needs whether governmental or proprietary in nature, and owned by
the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its capital stock: x x x.
(Emphasis supplied)
A GOCC must be “organized as a stock or non-stock corporation.” MIAA
is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares.
65. MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as “one
where no part of its income is distributable as dividends to its members,
trustees or officers.” A non-stock corporation must have members. Even if
we assume that the Government is considered as the sole member of MIAA,
this will not make MIAA a non-stock corporation. Non- stock corporations
cannot distribute any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury. This prevents MIAA from
qualifying as a non-stock corporation.
66. Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is the
legal status of MIAA within the National Government? MIAA is a
government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate
powers. Section 2(10) of the Introductory Provisions of the Administrative
Code defines a government “instrumentality” as follows:
SEC. 2. General Terms Defined.––x x x x (10) Instrumentality refers
to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction
by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy,
usually through a charter. x x x (Emphasis supplied)
67. A government instrumentality like MIAA falls under Section 133(o) of the
LGC, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units.—Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following: x x x x (o)
Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units.
(Emphasis and italics supplied)
Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may
only exercise such power “subject to such guidelines and limitations as the
Congress may provide.”
68. There is no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of
local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations. There must
 be express language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether such power
exists is resolved against local governments.
Second: Properties of MIAA is owned by the Republic
69. The Airport Lands and Buildings of MIAA are property of public dominion
and therefore owned by the State or the Republic of the Philippines. The
Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 420. The following things are property of public
dominion: (1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character; (2) Those
which belong to the State, without being for public use, and are
intended for some public service or for the development of the
national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer
intended for public use or for public service, shall form part of the
patrimonial property of the State.
70. No one can dispute that properties of public dominion mentioned in Article
420 of the Civil Code, like “roads, canals, rivers, torrents, ports and bridges
constructed by the State,” are owned by the State. The term “ports” includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a
“port” constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion and
thus owned by the State or the Republic of the Philippines.
71. Section 234(a) of the LGC exempts from real estate tax any “[r]eal property
owned by the Republic of the Philippines.” Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax.—The following
are exempted from payment of the real property tax: (a) Real
property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person; x
x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing “[t]axes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities x x x.” The real properties owned by the Republic are
titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from
real estate tax.
72. MIAA, as a government instrumentality, is not a taxable person under
Section 133(o) of the Local Government Code. Thus, even if we assume
that the Republic has granted to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not make these real properties subject
to real estate tax. However, portions of the Airport Lands and Buildings that
MIAA leases to private entities are not exempt from real estate tax. For
example, the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has granted
the beneficial use of such land area for a consideration to a taxable person
and therefore such land area is subject to real estate tax.
73. By express mandate of the LGC, local governments cannot impose any kind
of tax on national government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national government, its
agencies and instrumentalities. The taxing powers of local governments do
not extend to the national government, its agencies and instrumentalities,
“[u]nless otherwise provided in this Code” as stated in the saving clause of
Section 133. The saving clause refers to Section 234(a) on the exception to
the exemption from real estate tax of real property owned by the Republic.
TINGA, J., DISSENTING OPINION
74. There really is no prohibition against the government taxing itself, and
nothing obscene with allowing government entities exercising proprietary
functions to be taxed for the purpose of raising the coffers of LGUs. On the
other hand, it would be an even more noxious proposition that the
government or the instrumentalities that it owns are above the law and may
refuse to pay a validly imposed tax. MIAA, or any similar entity engaged in
the exercise of proprietary, and not sovereign functions, cannot avoid the
adverse-effects of tax evasion simply on the claim that it is imbued with
some of the attributes of government.
 REPUBLIC v. CITY OF PARANAQUE (Cyria)
July 18, 2012 | Mendoza, J. | Tax exemption
PETITIONER: Republic, represented by Philippine Reclamation Authority
RESPONDENTS: City of Paranaque
SUMMARY: PRA reclaimed portions of the foreshore and offshore areas of the
Manila Bay, including those located in Paranaque City and was issued OCT and
TCT. Paranaque City Treasurer issued Warrants of Levy on PRA’s reclaimed
proprities for deliquent real property taxes. PRA filed a TRO but the lots were
sold in a public action. RTC riled that PRA was not exempt from payment of
real property taxes as it was a GOCC. As a GOCC, local tax exemption is
withdraw by virtue of LGC. PRA now argues before the SC that it is exempted
from payment of tax, that as an incorporated instrumentality of the National
Government, it is exempt from the payment of real property tax except when the
beneficial use of the real property is granted to a taxable person.
WoN PRA is exempt from the payment of real property taxes – YES. It is clear
from LGC that real property owned by the Republic is exempt from real
property tax unless beneficial use thereof has been granted to a taxable person.
In this case, there is no proof that PRA granted the beneficial use of the subject
reclaimed lands to a taxable entity. There is no showing on record either that
PRA leased the subject reclaimed properties to a private taxable entity.
DOCTRINE: The Republic grants the beneficial use of its real property to an
agency or instrumentality of the national government. This happens when the
title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption, unless "the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person."
FACTS:
1. PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Parañaque City, and was issued
Original Certificates of Title and Transfer Certificates of Title over the
reclaimed lands.
2. Parañaque City Treasurer Liberato M. Carabeo issued Warrants of Levy on
PRA’s reclaimed properties located in Parañaque City based on the
assessment for delinquent real property taxes for tax years 2001 and 2002.
3. PRA filed a petition for prohibition with prayer for temporary restraining
order (TRO) and/or writ of preliminary injunction against Carabeo before
the RTC.
4. The properties were sold in a public action. PRA thus filed a Motion for
Leave to File and Admit Attached Supplemental Petition which sought to
declare as null and void the assessment for real property taxes, the levy
based on the said assessment, the public auction sale conducted, and the
Certificates of Sale issued pursuant to the auction sale.
5. RTC rendered its decision dismissing PRA’s petition. PRA was not exempt
from payment of real property taxes as it was a GOCC. As a GOCC, local
tax exemption is withdrawn by virtue of Section 193 of Republic Act No.
7160 Local Government Code (LGC).
6. PRA appealed to the SC. PRA insists that, as an incorporated
instrumentality of the National Government, it is exempt from payment of
real property tax except when the beneficial use of the real property is
granted to a taxable person. Reclaimed lands are part of the public domain,
owned by the State, thus, exempt from the payment of real estate taxes.
7. The City of Parañaque argues that since PRA is a GOCC, it is not exempt
from the payment of real property tax.
ISSUE: WoN PRA is exempt from the payment of real property taxes – YES
RULING: Petition GRANTED.
RATIO:
1. It is clear from Section 23419 that real property owned by the Republic of
the Philippines (the Republic) is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person. In this case,
there is no proof that PRA granted the beneficial use of the subject
reclaimed lands to a taxable entity. There is no showing on record either
that PRA leased the subject reclaimed properties to a private taxable entity.
2. This exemption should be read in relation to Section 133(o)20 of the same
Code, which prohibits local governments from imposing "taxes, fees or
19
SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
20
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities,
and local government units.
 charges of any kind on the National Government, its agencies and
instrumentalities x x x." The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain
owned by the Republic and continue to be exempt from real estate tax.
3. Indeed, the Republic grants the beneficial use of its real property to an
agency or instrumentality of the national government. This happens when
the title of the real property is transferred to an agency or instrumentality
even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption, unless "the
beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person."
4. Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax.
5. When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments.
6. Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality.
7. The subject reclaimed lands are still part of the public domain, owned by
the State and, therefore, exempt from payment of real estate taxes.
 TANADA vs. ANGARA (Gueco)
May 2, 1997 | Panganiban, J. | Principle of International Comity
PETITIONER: WIGBERTO E. TAADA and ANNA DOMINIQUE
COSETENG, as members of the Philippine Senate and as taxpayers;
GREGORIO ANDOLANA and JOKER ARROYO as members of the House of
Representatives and as taxpayers; NICANOR P. PERLAS and HORACIO R.
MORALES, both as taxpayers; CIVIL LIBERTIES UNION, NATIONAL
ECONOMIC PROTECTIONISM ASSOCIATION, CENTER FOR
ALTERNATIVE DEVELOPMENT INITIATIVES, LIKAS-KAYANG
KAUNLARAN FOUNDATION, INC., PHILIPPINE RURAL
RECONSTRUCTION MOVEMENT, DEMOKRATIKONG KILUSAN NG
MAGBUBUKID NG PILIPINAS, INC., and PHILIPPINE PEASANT
INSTITUTE, in representation of various taxpayers and as non-governmental
organizations
RESPONDENTS: EDGARDO ANGARA, ALBERTO ROMULO, LETICIA
RAMOS-SHAHANI, HEHERSON ALVAREZ, AGAPITO AQUINO,
RODOLFO BIAZON, NEPTALI GONZALES, ERNESTO HERRERA, JOSE
LINA, GLORIA MACAPAGAL-ARROYO, ORLANDO MERCADO, BLAS
OPLE, JOHN OSMEA, SANTANINA RASUL, RAMON REVILLA, RAUL
ROCO, FRANCISCO TATAD and FREDDIE WEBB, in their respective
capacities as members of the Philippine Senate who concurred in the ratification
by the President of the Philippines of the Agreement Establishing the World
Trade Organization; SALVADOR ENRIQUEZ, in his capacity as Secretary of
Budget and Management; CARIDAD VALDEHUESA, in her capacity as
National Treasurer; RIZALINO NAVARRO, in his capacity as Secretary of
Trade and Industry; ROBERTO SEBASTIAN, in his capacity as Secretary of
Agriculture; ROBERTO DE OCAMPO, in his capacity as Secretary of Finance;
ROBERTO ROMULO, in his capacity as Secretary of Foreign Affairs; and
TEOFISTO T. GUINGONA, in his capacity as Executive Secretary
SUMMARY:
The Philippine Government signed in Morocco the “Final Act” which seeks to
submit the WTO Agreement for consideration. The WTO Agreement, if
approved, opens access to foreign markets because of the reduction in the tariffs
on exports in agricultural and industrial products. It thus provides new
opportunities for the service sector cost and allows for more investment in the
country. President Fidel V. Ramos wrote a letter stating that he concurs with the
agreement establishing the WTO. As such, the Senate adopted Resolution No.
97 to ratify the WTO Agreement. Subsequently, Senators Tañada et. al filed the
present petition questioning the constitutionality of the WTO Agreement.
Among others, they argue that the provision in the agreement which states that
“each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the annexed
Agreements” is unconstitutional because it “intrudes, limits, and/or impairs” the
constitutional powers of the Congress. ISSUE: WON the provisions of the
WTO Agreement limit, restrict, or impair the exercise of legislative power by
Congress—NO, A PORTION OF SOVEREIGNTY MAY BE WAIVED
WITHOUT VIOLATING THE CONSTITUTION. RULING: While
sovereignty has traditionally been deemed absolute and all encompassing on the
domestic level, it is however subject to restrictions and limitations voluntarily
agreed to by the Philippines, expressly or impliedly, as a member of the family
of nations.  The sovereignty of a state, therefore, cannot in fact and in reality be
considered absolute.  Certain restrictions enter into the picture, such as: (1) the
limitations imposed by the very nature of membership in the family of nations
and (2) limitations imposed by treaty stipulations. *See ratio #3 of the first issue
for the specific agreements which limit Philippine sovereignty*
DOCTRINE: Exercise of sovereign power may be limited through international
agreements entered into by the States.
FACTS:
1. On 1994, the Philippine Government (represented by Sec. Navarro from the
Department of Trade and Industry) signed in Morocco the “Final Act”, an
agreement which seeks to submit the Word Trade Agreement Organization
Agreement (“WTO Agreement”) for consideration with the respective
competent authorities.
a. The WTO opens access to foreign markets because of the reduction in
the tariffs on exports in agricultural and industrial products. It thus
provides new opportunities for the service sector cost and allows for
more investment in the country.
2. President Fidel V. Ramos then wrote a letter stating that he concurs with the
agreement establishing the WTO. As such, the Senate adopted Resolution
No. 97 to ratify the WTO Agreement.
3. Subsequently, Senators Tañada et. al filed the present petition questioning
the constitutionality of the WTO Agreement. They argued that:
a. The agreement violates the mandate of the 1987 Constitution to
“develop a self-reliant and independent national economy effectively
controlled by Filipinos… and to give preference to qualified Filipinos,
as well as to promote the preferential use of Filipino labor, domestic
materials and locally produced goods.”
b.They further contend that certain provisions of the agreement have the
effect of placing foreign nationals and products of foreign countries on
the same footing as Filipinos and our local products—this in turn, they
allege, is a contravention of the Filipino first policy of the Constitution
(Sec. 19, Art. II, Sec. 10, Art. XII, and Sec. 12, Art. XII).
i. In case she asks: the provisions assailed as
unconstitutional by Tañada et al are the “parity provisions” and
“national treatment” clauses. These provisions state that foreign
products “shall be accorded treatment no less favorable than
that accorded to like products of national origin.”
c. Lastly (relevant in tax), they contend that the provision in the
 agreement which states that “each Member shall ensure the 1. The SC stated that Sections 19 of Art. II, Section 10 of Art. XII, and Sec. 12
conformity of its laws, regulations and administrative procedures of Art. XII are not self-executory. They are merely used as guides in the
with its obligations as provided in the annexed Agreements” is exercise of judicial review and in making laws.  
unconstitutional because it “intrudes, limits, and/or impairs” the
2. It is true that in the recent case of Manila Prince Hotel vs. Government
constitutional powers of the Congress.
Service Insurance System, et al., this Court held that “Sec. 10, second par.,
ISSUES: Art. XII of the 1987 Constitution is a mandatory command which is
1. WoN the provisions of the WTO Agreement limit, restrict, or impair the complete, it is, however, enforceable only in regard to “the grants of rights,
exercise of legislative power by Congress—NO, A PORTION OF privileges and concessions covering national economy and patrimony” and
SOVEREIGNTY MAY BE WAIVED WITHOUT VIOLATING THE not to every aspect of trade and commerce.  It refers to exceptions rather
CONSTITUTION. than the rule.  
2. WoN the WTO Agreement is unconstitutional because it violates the
3. The issue here is not whether this paragraph of Sec. 10 of Art. XII is self-
Filipino first policy of the Constitution—NO, NOT VIOLATIVE OF
CONSTITUTION. executing or not.  Rather, the issue is whether, as a rule, there are enough
balancing provisions in the Constitution to allow the Senate to ratify the
RULING: WHEREFORE, the petition is DISMISSED for lack of merit. Philippine concurrence in the WTO Agreement.  And we hold that there are
(agreement recognizes the need to protect weak economies, there are
RATIO: specific provisos which protect developing countries, the agreement does
not rule out foreign competition and the agreement favors consumers and
FIRST ISSUE: WON AGREEMENT RESTRICTS POWER OF CONGRESS: not industries or enterprises).
1. While sovereignty has traditionally been deemed absolute and all
encompassing on the domestic level, it is however subject to restrictions and
limitations voluntarily agreed to by the Philippines, expressly or impliedly,
as a member of the family of nations.  
2. The sovereignty of a state, therefore, cannot in fact and in reality be
considered absolute.  Certain restrictions enter into the picture, such as: (1)
the limitations imposed by the very nature of membership in the family of
nations and (2) limitations imposed by treaty stipulations.  
3. The UN Charter and other Treaties have limited Philippine Sovereignty. To
wit:
a. Bilateral convention with the US regarding taxes on income:
agreement to exempt from tax the income received by the Federal
Reserve Bank of the United States.
b. Bilateral agreement with Belgium, Sweden, and France providing,
among others, the avoidance of double taxation with respect to income
taxes.
c. Bilateral air transport agreement with Korea where the Philippines
agreed to exempt from all customs duties, inspection fees and other
duties or taxes aircrafts of South Korea.
d. Multilateral Convention on the Law of Treaties.  In this
convention, the Philippines agreed to be governed by the Vienna
Convention on the Law of Treaties.

SECOND ISSUE: WON AGREEMENT VIOLATES FILIPINO FIRST

POLICY:
 Roxas v CTA (REINE)
April 26, 1968 | Bengzon, JP. J| Conflicting Interests of Taxing Authority &
Taxpayer
PETITIONER: Antonio Roxas, Eduardo Roxas & Roxas y Cia in their own
respective behalf and as judicial co-guardians of Jose Roxas
RESPONDENTS: Court of Tax Appeals & Commissioner of Internal Revenue
SUMMARY: Roxas brothers inherited 19K hectares of land from their
grandparents in Batangas, a house in Ermita and several securities. To manage
the properties, they formed a partnership in the name of Roxas y Compania. In
consonance with the Constitutional mandate to acquire big landed estates &
apportion them among landless tenant farmers, the government succeeded in
persuading Roxas y Compania to sell 13.5 hectares to the gov’t for distribution
to actual occupants. However, as it turned out the gov’t did not have sufficient
funds to pay for the purchase price. Roxas y Compania obligingly sold the lands
directly to the farmers with the purchase price payable in installments in the
course of 10 years. The CIR contended that Roxas y Compania was a real estate
dealer as it was engaged in the business of selling real estate.
The issue was whether or not Roxas y Compania was considered a real estate
dealer for the sale in question. The Court ruled that although the vendees paid for
their respective holdings in installment for a period of 10 years it would not
make the vendor (Roxas y Compania) a real estate dealer in this isolated
transaction with its peculiar circumstances.
DOCTRINE: There must be a balance of interests in the exercise of the State’s
power of taxation over its subjects. he power of taxation is sometimes called also
the power to destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally
and uniformly, lest the tax collector kill the "hen that lays the golden egg". And,
in order to maintain the general public's trust and confidence in the Government
this power must be used justly and not treacherously. It does not conform with
Our sense of justice in the instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.
FACTS:
1.) Don Pedro Roxas & Dona Carmen Ayala, Spanish subjects transmitted to their
grandchildren by hereditary succession the following properties: (a) Agricultural
lands with a total area of 19,000 hectares situated in Nasugbu, Batangas (b)
Residential house & lot located in Malate (c) Shares of stocks in different
corporations.
2.) To manage said properties, Antonio Roxas (A. Roxas) Eduardo Roxas (E Roxas)
& Jose Roxas (J Roxas) formed a partnership called Roxas y Compania.
3.) At the conclusion of the Second World War, the tenants who have all been tilling
the lands in Nasugbu for generations expressed their desire to purchase from Roxas y
Cia. the parcels which they actually occupied. For its part, the Government, in
consonance with the constitutional mandate to acquire big landed estates and
apportion them among landless tenants-farmers, persuaded the Roxas brothers to part
with their landholdings.
4.) Conferences were held with the farmers in the early part of 1948 and finally the
Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to
actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and
subdivision expenses. It turned out however that the Government did not have funds
to cover the purchase price, and so a special arrangement was made for the
Rehabilitation Finance Corporation to advance to Roxas y Cia the amount of
P1,500,000.00 as loan. 
5.) Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the
same price but by installment, and contracted with the Rehabilitation Finance
Corporation to pay its loan from the proceeds of the yearly amortizations paid by the
farmers.
6.) In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain
of P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income
tax purposes as gain on the sale of capital asset held for more than one year pursuant
to Section 34 of the Tax Code.
7.) As to the Residential House, after Antonio & Eduardo got married, they resided
somewhere else leaving only Jose in the old house. In this case, Jose paid to Roxas
rentals for the house in the sum of P8000 a year.
8.) The Commissioner of Internal Revenue (CIR) demanded from Roxas y Cia the
payment of real estate dealer’s tax for 1952 in the amount of P150.00 plus P10.00
compromise penalty for late payment, and P150.00 tax for dealers of securities for
1952 plus P10.00 compromise penalty for late payment. The assessment for real
estate dealer's tax was based on the fact that Roxas y Cia. received house rentals
from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code,
an owner of a real estate who derives a yearly rental income therefrom in the amount
of P3,000.00 or more is considered a real estate dealer and is liable to pay the
corresponding fixed tax. The CIR  justified his demand for the fixed tax on dealers of
securities against Roxas y Cia., on the fact that said partnership made profits from
the purchase and sale of securities.
9.) The deficiency income taxes resulted from the inclusion as income of Roxas y
Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale
of the Nasugbu farm lands to the tenants, and the disallowance of deductions from
gross income of various business expenses and contributions claimed by Roxas y
Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu
farm lands and sold them to the farmers on installment, the Commissioner
considered the partnership as engaged in the business of real estate, hence, 100% of
the profits derived therefrom was taxed.
10.) The Roxas brothers protested the assessment but inasmuch as said protest was
denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961.
The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining
the assessment except the demand for the payment of the fixed tax on dealer of
securities and the disallowance of the deductions for contributions to the Philippine
Air Force Chapel and Hijas de Jesus' Retiro de Manresa.
ISSUE/s:
 WoN the gain derived from the sale of Nasugbu farm lands an ordinary gain Firemen and Baguio City Police are not deductible for the reason that the Christmas
hence 100% taxable? - NO, only 50% funds were not spent for public purposes but as Christmas gifts to the families of the
members of said entities. Under Section 39(h), a contribution to a government entity
RULING: WHEREFORE, Antonio Roxas, Eduardo Roxas and Jose Roxas are is deductible when used exclusively for public purposes. For this reason, the
ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual disallowance must be sustained. On the other hand, the contribution to the Manila
deficiency income tax all corresponding for the year 1955. Police trust fund is an allowable deduction for said trust fund belongs to the Manila
Police, a government entity, intended to be used exclusively for its public functions.
Ratio: 7.)  Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it,
1.) The CIR contends that Roxas y Cia could be considered a real estate dealer because although it earned a rental income of P8,000.00 per annum in 1952, said
because it engaged in the business of selling real estate. The business activity alluded rental income came from Jose Roxas, one of the partners. Section 194 of the Tax
to was the act of subdividing the Nasugbu farm lands and selling them to the Code, in considering as real estate dealers owners of real estate receiving rentals of at
farmers-occupants on installment. However, the proposition of the CIR estate dealer least P3,000.00 a year, does not provide any qualification as to the persons paying
because it engaged in the business of selling real estate. The business activity alluded the rentals.
to was the act of subdividing the Nasugbu farm lands and selling them to the 8.) No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas
farmers-occupants on installment. and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of
2.) It should be borne in mind that the sale of the Nasugbu farm lands to the P109.00, P91.00 and P49.00, respectively
very farmers who tilled them for generations was not only in consonance with,
but more in obedience to the request and pursuant to the policy of our
Government to allocate lands to the landless.  It was the bounden duty of the
Government to pay the agreed compensation after it had persuaded Roxas y
Cia. to sell its haciendas, and to subsequently subdivide them among the
farmers at very reasonable terms and prices. However, the Government could
not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered
the Government's burden, went out of its way and sold lands directly to the
farmers in the same way and under the same terms as would have been the case
had the Government done it itself.
3.) In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in
question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the
farmers are capital assets, and the gain derived from the sale thereof is capital
gain, taxable only to the extent of 50%.
4.) The power of taxation is sometimes called also the power to destroy.
Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in
order to maintain the general public's trust and confidence in the Government
this power must be used justly and not treacherously. It does not conform with
Our sense of justice in the instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.
5.) Representation expenses are deductible from gross income as expenditures
incurred in carrying on a trade or business under Section 30(a) of the Tax Code
provided the taxpayer proves that they are reasonable in amount, ordinary and
necessary, and incurred in connection with his business. In the case at bar, the
evidence does not show such link between the expenses and the business of Roxas y
Cia. The findings of the Court of Tax Appeals must therefore be sustained.
6.) The contributions to the Christmas funds of the Pasay City Police, Pasay City
 Gala v. Ellice Agro-Industrial Corp. (Steph)
December 11, 2003 | Ynares-Santiago, J. | Reconciliation of conflicting interests of
taxing authority and the taxpayer: Taxpayer can resort to his own devices to avoid
tax as long as he does it within the means provided by law.
PETITIONER: Alicia E. Gala, Guia G. Domingo and Rita G. Benson,
RESPONDENTS: Ellice Agro-Industrial Corporation, Margo Management And
Development Corporation, Raul E. Gala, Vitaliano N. Aguirre Ii, Adnan V. Alonto,
Elias N. Cresencio, Moises S. Maniego, Rodolfo B. Reyno, Renato S. Gonzales,
Vicente C. Nolan, Nestor N. Baticulon
SUMMARY: Spouses Manuel and Alicia Gala, along with their kids, incorporated
Ellice Agro-Industrial Corporation (Ellice). Among the contributions for capital of
the corporation are several parcels of land, originally under the names of the
Spouses. Three years later, their kids incorporated Margo Management and
Development Corporation (Margo). A series of transactions transpired (as in they
sold each other shares, see fact 3), which resulted in Margo owning majority stocks
in Ellice. In their respective board meetings, the Board of Directors of Margo and
Ellice both elected Raul Gala as its chariman/president/manager. After that, they
filed a petition with the SEC to appoint a receiver, and start liquidation proceedings
for Ellice. Most importantly, Raul Gala sought to nullify several dispositions of
property made by Alicia. In response to this Alicia filed to annul the appointment
of Raul Gala for both Ellice and Margo.
SEC first ruled in favor of Alicia and annulled the assailed resolutions and
appointments, but the SEC reversed and ruled in favor of Raul instead. CA
affirmed, so they bring the matter to the SC. They question the legality of Raul’s
acts, specifically using the corporations to exempt him from estate tax.
SC ruled that it is well within Raul Gala’s right to reduce the amount of what
otherwise could be his taxes or altogether avoid them as long as it is done by means
which the law permits.
DOCTRINE: rule of law that applied and how the court applied it
FACTS:
84. Spouses Manuel and Alicia Gala (parents), their children Guia Domingo,
Ofelia Gala, Raul Gala, and Rita Benson (kids), and their encargados (like
managers) Virgilio Galeon and Julian Jader formed and organized the Ellice
Agro-Industrial Corporation.
85. Three years later, Guia Domingo, Ofelia Gala, Raul Gala (kids), Virgilio
Galeon and Julian Jader (encargados aka managers) incorporated the Margo
Management and Development Corporation (Margo)
86. The following transactions resulted in Margo owning majority stocks in
Ellice:
1. Manuel Gala sold a portion of his shares in Ellice to Margo.
2. Alicia Gala transferred a portion of her shares in Ellice to a certain
Victor de Villa on March 2, 1983. That same day, de Villa
transferred said shares to Margo.
3. A few months later, on August 28, 1983, Alicia Gala transferred
854.3 of her shares to Ofelia Gala, 500 to Guia Domingo and 500
to Raul Gala.
4. Years later, on February 8, 1988, Manuel Gala transferred all of his
remaining holdings in Ellice, amounting to 2,164 shares, to Raul
Gala.
5. On July 20, 1988, Alicia Gala transferred 10,000 of her shares to
Margo.
87. After that, Raul Gala was elected chairman/president/manager of Margo.
The Board of Directors of Margo voted to annul several dispositions of
property made my Alicia (mom).
 88. The Board of Directors of Ellice likewise elected Raul Gala as
chariman/president/manager.
89. After that, they filed a petition with the SEC to appoint a receiver, and start
liquidation proceedings for Ellice.
90. In response to this, Alicia Guia and Rita filed to annul the appointment of
Raul Gala for both corporations.
91. SEC ruled in favor of Alicia and her other children, nullifying the
resolutions of the Board and the election of Raul Gala.
92. Raul et al appealed to the SEC en banc, and the SEC en banc reversed.
93. Alicia appealed to the Court of Appeals but it affirmed the SEC ruling, and
hence this petition to the Supreme Court.
ISSUE/s:
18. WoN Raul Gala’s acts (utilizing the coprorations to exempt him from estate
tax) are legal – YES
RULING: SC affirmed the lower courts decision.
RATIO:
75. Alicia et. al claim that Raul Gala’s acts show that he used the corporations
as tools to circumvent land reform laws and to avoid estate taxes.
1. They claim that the parcels of land and money were registered as
contributions to the corporation to exempt it from estate tax and
reform laws.
76. With regard to their claim that Ellice and Margo were meant to be used as
mere tools for the avoidance of estate taxes, suffice it say that the legal
right of a taxpayer to reduce the amount of what otherwise could be his
taxes or altogether avoid them, by means which the law permits, cannot
be doubted.
77. (side note: This is just a family squabble for property that reached the
SC, so it said “It is hoped that people reacquaint themselves with the
concepts of mutual aid and security that are the original driving forces
behind the formation of family corporations and use these tenets in order to
facilitate more civil, if not more amicable, settlements of family corporate
disputes.”)
LORENZO V. POSADAS (CARLO)
June 18, 1937| J. Laurel | Prospective Application of Taxes
PETITIONER: PABLO LORENZO
RESPONDENTS: JUAN POSADAS
SUMMARY: In 1922, Thomas Hanley died in Zamboanga, Zamboanga,
leaving a will and considerable amount of real and personal properties. The will
contained a provision that after 10 years from the time of death of Thomas, his
property will be transferred to his nephew Matthew Hanley. CFI found it proper
to appoint a trustee to administer the properties during the 10-year period.
During the incumbency of Lorenzo as the trustee, Juan Posadas, the CIR,
assessed against the estate of the deceased an unpaid INHERITANCE TAX in
the amount of P1434.24. Such assessment was based on Section 1544 of the
Revised Administrative Code as amended by Act No. 3606 which took effect
in 1930
CIR filed a case before the CFI of Zamboanga ordering Lorenzo to pay such
inheritance tax. Lorenzo, under protest, paid such tax but subsequently told the
CIR that if refunds would not be made, Lorenzo will file a case against CIR. The
CIR overruled the Lorenzo’s protest and refused to refund the said amount
hausted.
The issue in this case is WoN the inheritance tax be based on Section 1544 of
the Revised Administrative Code as amended by Act No. 3606 - NO
SC held that it is well-settled that inheritance taxation is governed by the
statute in force at the time of the death of the decedent. The CIR cannot
assess the value of the inheritance tax using Section 1544 of the Revised
Administrative Code as amended by Act No. 3606 even if some provisions
are more favorable to the taxpayer as, at the time of the death of Thomas
Henley, the statute in effect was Section 1544 of the Revised Administrative
Code as amended by Act No 3031.
A statute should be considered as prospective in its operation, whether it
enacts, amends, or repeals an inheritance tax, unless the language of the
statute clearly demands or expresses that it shall have a retroactive effect
A tax statute may be made retroactive in its operation but the legislative
intent that a tax statute should operate retroactively should be perfectly
clear.
Act No. 3606 itself contains no provisions indicating legislative intent to give
it retroactive effect.

DOCTRINE: A statute should be considered as prospective in its operation,
whether it enacts, amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or expresses that it shall have a
retroactive effect
FACTS:
1. On May 27, 1922, Thomas Hanley died in Zamboanga, Zamboanga, leaving
a will and considerable amount of real and personal properties. The Court of
First Instance of Zamboanga, conducted the necessary proceedings for the
probate of his will and the settlement and distribution of his estate
2. The will provides among others that:
A. all real estate owned by me (Thomas Hanley) at the time of my
death be not sold or otherwise disposed of for a period of ten (10) years
after my death, and that the same be handled and managed by the executors,
and proceeds thereof to be given to my nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he
be directed that the same be used only for the education of my brother's
children and their descendants.
B.that ten (10) years after my (Thomas Hanley) death my property
be given to the above mentioned Matthew Hanley to be disposed of in the
way he thinks most advantageous.
3. The CFI considered it proper to appoint a trustee to administer the
properties during the period of 10 years before it is transferred to Matthew
Hanley and as such, Moore was appointed by the CFI to be the trustee. He
continued to be the trustee until he resigned and was replaced by Pablo
Lorenzo
4. During the incumbency of Lorenzo as the trustee, Juan Posadas, the CIR,
assessed against the estate of the deceased an unpaid INHERITANCE TAX
in the amount of P1434.24
5. CIR filed a case before the CFI of Zamboanga ordering Lorenzo to pay such
inheritance tax. CFI granted such petition and as such, Lorenzo paid the tax
under protest notifying the CIR at the same time that unless the amount was
promptly refunded a suit would be brought for its recovery. The CIR
overruled the Lorenzo’s protest and refused to refund the said amount
hausted.
6. On appeal, Lorenzo contends among others that the court erred in holding
that the inheritance tax in question be based upon the value of the estate
upon the death of the testator, and not, as it should have been held, upon the
value thereof at the expiration of the period of ten years after which,
according to the testator's will, the property could be and was to be
delivered to the instituted heir.
ISSUE/S: WoN the inheritance tax be based on Section 1544 of the Revised
Administrative Code as amended by Act No. 3606 – NO
RULING: The judgment of the lower court is accordingly modified, with costs
against the plaintiff in both instances.
RATIO:
1. SC held that the lower court erred in basing the inheritance tax on the value
of the estate after the expiration of the 10-year period.
2. In the case at bar, the CIR assessed the estate of the decedent applying Act
No 3606 which took effect in 1930, however Thomas Hanley died in 1922
where a different law was in effect
3. SC said that the CIR cannot assess the value of the inheritance tax
using Section 1544 of the Revised Administrative Code as amended by
Act No. 3606 even if such is more favorable to the taxpayer as, at the
time of the death of Thomas Henley, the statute in effect was Section
1544 of the Revised Administrative Code as amended by Act No 3031.
4. It is well-settled that inheritance taxation is governed by the statute in
force at the time of the death of the decedent. The taxpayer cannot
foresee and ought not to be required to guess the outcome of pending
measures. Of course, a tax statute may be made retroactive in its
operation but the legislative intent that a tax statute should operate
retroactively should be perfectly clear.
5. A statute should be considered as prospective in its operation, whether
it enacts, amends, or repeals an inheritance tax, unless the language of
the statute clearly demands or expresses that it shall have a retroactive
effect
6. Though the last paragraph of section 5 of Regulations No. 65 of the
Department of Finance makes section 3 of Act No. 3606, amending
section 1544 of the Revised Administrative Code, applicable to all
estates the inheritance taxes due from which have not been paid, Act
No. 3606 itself contains no provisions indicating legislative intent to give
it retroactive effect. No such effect can be given the statute by this
court.
7. The defendant Collector of Internal Revenue maintains, however, that
certain provisions of Act No. 3606 are more favorable to the taxpayer than
those of Act No. 3031, that said provisions are penal in nature and,
therefore, should operate retroactively in conformity with the provisions of
article 22 of the Revised Penal Code. This is the reason why he applied Act
No. 3606 instead of Act No. 3031
8. However, the SC held that properly speaking, a statute is penal when it
imposes punishment for an offense committed against the state which,
under the Constitution, the Executive has the power to pardon
9. Revenue laws, generally, which impose taxes collected by the means
ordinarily resorted to for the collection of taxes are not classed as penal
laws, although there are authorities to the contrary. Article 22 of the
Revised Penal Code is not applicable to the case at bar, and in the absence
of clear legislative intent, we cannot give Act No. 3606 a retroactive effect.
 CHURCHILL VS. RAFFERTY (Laguilles)
December 21, 1915 | Trent, J. | Prohibition on the use of injunctions to enjoin the
collection of internal revenue taxes
PETITIONER: Francis A. Churchill, Stewart Tait
RESPONDENTS: James J. Rafferty, Collector of Internal Revenue
SUMMARY: Churchill and Tait owned billboards in Rizal. However, these
were removed by the orders of the Collector of Internal Revenue on the ground
that such billboards are offensive to the sight and are a nuisance. Moreover, the
CIR wanted to collect internal revenue taxes by virtue of Section 139 of Act No.
2339. Churchill and Tait thus assail Section 139 as it expressly forbids the use
of an injunction to stay the collection of any internal revenue tax. The lower
court decided in favor of Churchill and Tait, and perpetually restrained and
prohibited the CIR from collecting and enforcing against Churchill and Tait the
tax mentioned in the subsection (b) of Section 100 of Act No. 2339. The issue
before the court is WoN the provisions prohibiting the use of injunctions to
enjoin the collection of internal revenue taxes is valid.
The SC held that such provisions are valid, because the State relies on the power
of taxation to function. The fact that a tax is illegal, does not authorize a court of
equity to restrain its collection by injunction, because it is upon taxation that the
government relies to obtain the means to carry on its operations, and it is of
utmost importance that the modes adopted to enforce the collection of taxes be
summary and interfered with as little as possible.
DOCTRINE: The fact that a tax is illegal, does not authorize a court of equity
to restrain its collection by injunction, because it is upon taxation that the
government relies to obtain the means to carry on its operations
FACTS:
1. Francis Churchill and Stewart Trait are involved in the advertising business,
particularly in billboard advertising. Their billboards, located in private
lands in Rizal, were removed by the orders of defendant Collector of
Internal Revenue by virtue of subsection (b) of Section 100 of Act No.
2339, and on the ground that the same is offensive to the sight or is
otherwise a nuisance.
2. The judgment appealed from in this case perpetually restrains and prohibits
CIR from collecting and enforcing against Francis Churchill and Stewart
Tait the annual tax mentioned in subsection (b) of Section 100 of Act 2339,
and from destroying or removing any sign, signboard, or billboard, the
property of Churchill and Tait, for the sole reason that such signs may be
offensive to the sight.
3. Sec 139 of Act No. 2339 expressly forbids the use of an injunction1 to
stay the collection of any internal revenue tax; Sec 140 provides the
remedy for any wrong in connection with such taxes, and this remedy is
exclusive.
4. The two sections mentioned involve the right of a dissatisfied taxpayer to
use an exceptional remedy to test the validity of any tax or to determine any
other question whether the remedy by injunction is exceptional.
5. Plaintiffs Churchill and Tait then question the prohibition to use an
injunction to prevent the collection of taxes on such “illegal taxes” by
assailing the law as unconstitutional.
ISSUE/s:
2. WoN the provisions prohibiting the use of injunctions to enjoin tax
collection is valid – YES
3.
RULING: The motion for rehearing is denied.
RATIO:
1. The preventive remedies of the courts are extraordinary and are not the
usual remedies. The history of the writ of injunction show that it has always
been regarded as extraordinary.
2. The Government does, through Section 139 and 140, take away the
11
A judicial order that restrains a person from beginning or continuing an action threatening or
invading the legal right of another, or that compels are person to carry out a certain act.
 preventive remedy of injunction, and leaves the taxpayer the same ordinary
remedial actions which prevail between citizen and citizen.
3. Plaintiffs Churchill and Tait argue that the two sections are unconstitutional
because they attempt to deprive aggrieved taxpayers of all substantial
remedy for the protection of their property.
4. In the first place, Section 139 does not apply to the tax in question
because the section, in speaking of a “tax,” means only legal taxes; and
that an illegal tax (the one complained of) is not a tax, and, therefore,
does not fall within the inhibition of the section.
5. The inhibition applies to all internal revenue taxes imposes, or authorized to
be imposed by Act No. 2339.
6. The fact that a tax is illegal, or that the law is unconstitutional, does not
authorize a court of equity to restrain its collection by injunction.
7. Moreover, “due process of law” does not always require the same process
that is required between citizens. A citizen’s property may be taken by the
government in payment of taxes without any judicial proceedings.
8. This must necessarily be the course because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations,
and it is of utmost importance that the modes adopted to enforce the
collection of the taxes levied should be summary and interfered with as
little as possible.
PHIL. GUARANTY v. CIR (CALLUENG)
April 30, 1965 | Bengzon, J.P, J. | Promptness in Payment
PETITIONER: The Philippine Guaranty Co., Inc
RESPONDENTS: The Commissioner of Internal Revenue and The Court of Tax
Appeals
SUMMARY: The Philippine Guaranty Company, Inc. moves for the
reconsideration of the decision, promulgated on April 30, 1965, holding it liable for
the payment of income tax which it should have withheld and remitted to the
Bureau of Internal Revenue in the total sum of P375,345.00. (This is an MR). The
movant argues that it is found it "innocent of the charges of violating, willfully or
negligently, subsection (c) of Section 53 and Section 54 of the National Internal
Revenue Code." Hence, it cannot subsequently be held liable for the assessment of
P375,345.00 based on said sections. WoN Philippine Guaranty should be held
liable for the payment of the income tax. YES. SC held that it would be incorrect
for movant to state that it was found "innocent of the charges of violating, willfully
or negligently, sub-section (c) of Section 53 and Section 54. For, precisely, the
mere fact that it was exempted from paying the penalty necessarily implies
violation of Section 53(c). Violating Section 53(c) is one thing; imposing the
penalty for such violation under Section 72 ** is another. If it is found that the
failure to file is due to a reasonable cause, then exemption from surcharge sets in
but never exemption from payment of the tax due. Since movant failed to pay the
tax due, in the sum of P375,345.00, this Court ordered it to pay the same. Simply
because movant was relieved from paying the surcharge for failure to file the
necessary returns, it now wants us to absolve it from paying even the tax. This, we
cannot do. The non-imposition of the 25% surcharge does not carry with it
remission of the tax. The requirement in Section 200 that the withholding
agent should first withhold the tax before addressing a query to the Commissioner
of Internal Revenue is not without meaning for it is in keeping with the general
operation of our tax laws: payment precedes defense. For taxes are the lifeblood of
government. Also, such measures tend to prevent collusion between the taxpayer
and the tax collector. By questioning a tax's legality without first paying it, a
taxpayer, in collusion with Bureau of Internal Revenue officials, can unduly delay,
if not totally evade, the payment of such tax
DOCTRINE: The requirement in Section 200 that the withholding agent should
first withhold the tax before addressing a query to the Commissioner of Internal
Revenue is not without meaning for it is in keeping with the general operation of
our tax laws: payment precedes defense.
FACTS:
1. The Philippine Guaranty Co., Inc., a domestic insurance company, entered
into reinsurance contracts with foreign insurance companies not doing
 business in the Philippines and it failed to remit taxes as a withholding
agent due to the issues on the taxability of transactions.
2. The Philippine Guaranty Company, Inc. moves for the reconsideration of
the decision, promulgated on April 30, 1965, holding it liable for the
payment of income tax which it should have withheld and remitted to the
Bureau of Internal Revenue in the total sum of P375,345.00. (This is an
MR, please see annex for the summary of the original case)
3. The grounds raised in the instant motion all spring from movant's view that
the Court of Tax Appeals as well as this Court, found it "innocent of the
charges of violating, willfully or negligently, subsection (c) of Section 53
and Section 54 of the National Internal Revenue Code." Hence, it cannot
subsequently be held liable for the assessment of P375,345.00 based on said
sections.
ISSUE/s:
19. WoN Philippine Guaranty should be held liable for the payment of the
income tax. YES.
RULING: WHEREFORE, the motion for reconsideration is denied. So ordered.
RATIO:
1. The Court of Tax Appeals and this Court did not find that it did not violate
Sections 53 (c) and 54 of the Tax Code. On the contrary, movant was
found to have violated Section 53(c) by failing to file the necessary
withholding tax return and to pay tax due. Still, finding that
movant's violation was due to a reasonable cause — namely, reliance on the
advice of its auditors and opinion of the Commissioner of Internal Revenue
— no surcharge to the tax was imposed. Section 72 of the Tax Code
provides:
a. SEC. 72. Surcharges for failure to render returns and for rendering false and
fraudulent returns. — The Commissioner of Internal Revenue shall assess all
income taxes. In case of willful neglect to file the return or list within the time
prescribed by law or in case a false or fraudulent return or list is willfully made, the
Commissioner of Internal Revenue shall add to the tax or to the deficiency tax, in
case any payment has been made on the basis of such return before the discovery of
the falsity or fraud, a surcharge of fifty per centum  of the amount of such tax or
deficiency tax. In case of any failure to make and file a return or list within the time
prescribed by law or by the Commissioner or other internal-revenue officer, not due
to willful neglect, the Commissioner of Internal Revenue shall add to the tax
twenty-five per centum of its amount, except that, when a return is voluntarily and
without notice from the Commissioner or other officer filed after such time, and it
is shown that the failure to file it was due to a reasonable cause, no such addition
shall be made to the tax ... .
2. It will be noted that the first half of the above-quoted section covers failure
to file a return, willingly and/or due to negligence, in which case the
surcharge is, 50%. In the second part of the law it covers failure to make
and file a return "not due to willful neglect," in which case only 25%
surcharge should be added. As a further concession to the taxpayer the
above-quoted section provides that if "it is shown that the failure to file it
was due to a reasonable cause, no such addition shall be made to the tax."
3. It would, therefore, be incorrect for movant to state that it was found
"innocent of the charges of violating, willfully or negligently, sub-section
(c) of Section 53 and Section 54. For, precisely, the mere fact that it was
exempted from paying the penalty necessarily implies violation of Section
53(c). Violating Section 53(c) is one thing; imposing the penalty for
such violation under Section 72 ** is another. If it is found that the
failure to file is due to a reasonable cause, then exemption from
surcharge sets in but never exemption from payment of the tax due.
4. Since movant failed to pay the tax due, in the sum of P375,345.00, this
Court ordered it to pay the same. Simply because movant was relieved
from paying the surcharge for failure to file the necessary returns, it
now wants us to absolve it from paying even the tax. This, we cannot
do. The non-imposition of the 25% surcharge does not carry with it
remission of the tax.
5. Movant argues that it could not be expected to withhold the tax, for as early
as August 18, 1953 the Board of Tax Appeals held in the case of Franklin
Baker that the reinsurance premiums in question were not subject to
withholding. On top of that, movant maintains, the Commissioner of
Internal Revenue, in reply to the query of its accountants and auditors,
issued on September 5, 1953 an opinion subscribing to the ruling in the
Franklin Baker case. As already explained in our decision a mistake
committed by Government agents is not binding on the Government.
6. Inasmuch as movant insists on this point in its motion for reconsideration,
 we shall further elaborate on the same. Section 200 of the Income Tax
Regulations expressly grants protection to him only if and when he
follows strictly what has been provided therein.
7. Section 53 (c) makes the withholding agent personally liable for the income
tax withheld under Section 54. It states:
8. SEC. 53(c). Return and payment. — Every person required to deduct and withhold any tax
under this section shall make return thereof, in duplicate, on or before the fifteenth day of April
of each year, and, on or before the time fixed by law for the payment of the tax, shall pay the
amount withheld to the officer of the Government of the Philippines authorized to receive it.
Every such person is made personally liable for such tax, and is indemnified against the claims
and demands of any person for the amount of any payments made in accordance with the
provisions of this section.
9. The law sets no condition for the personal liability of the withholding agent
to attach. The reason is to compel the withholding agent to withhold the tax
under all circumstances. In effect, the responsibility for the collection of the
tax as well as the payment thereof is concentrated upon the person over
whom the Government has jurisdiction. Thus, the withholding agent is
constituted the agent of both the Government and the taxpayer. With respect
to the collection and/or withholding of the tax, he is the Government's
agent. In regard to the filing of the necessary income tax return and the
payment of the tax to the Government, he is the agent of the taxpayer. The
withholding agent, therefore, is no ordinary government agent especially
because under Section 53 (c) he is held personally liable for the tax he is
duty bound to withhold; whereas, the Commissioner of Internal Revenue
and his deputies are not made liable by law.
10. Movant then further contends that as agent of the Government it was
released from liability for the tax after it was advised by the Commissioner
of Internal Revenue that the reinsurance premiums involved were not
subject to withholding. It relies on the provisions of the second paragraph of
Section 200 of the Income Tax Regulations which states:
11. In case of doubt, a withholding agent may always protect himself by withholding the tax due,
and promptly causing a query to be addressed to the Commissioner of Internal Revenue for the
determination of whether or not the income paid to an individual is not subject to withholding.
In case the Commissioner of Internal Revenue decides that the income paid to an individual is
not subject to withholding the withholding agent may thereupon remit the amount of tax
withheld.
12. The section above-quoted relaxes the application of the stringent provisions
of Section 53 of the Tax Code. Accordingly, it grants exemption from tax
liability, and in so doing, it lays down steps to be taken by the
withholding agent, namely: (1) that he withholds the tax due; (2) that he
promptly addresses a query to the Commissioner of Internal Revenue for
determination whether or not the income paid to an individual is subject to
withholding; and (3) that the Commissioner of Internal Revenue decides
that such income is not subject to withholding. Strict observance of said
steps is required of a withholding agent before he could be released from
liability. Generally, the law frowns upon exemption from taxation,
hence, an exempting provision should be construed strictis simi juris. 
13. The facts in this case do not support a finding that movant complied with
Section 200. For, it has not been shown that it withheld the amount of tax
due before it inquired from the Bureau of Internal Revenue as to the
taxability of the reinsurance premiums involved. As a matter of fact, the
Court of Tax Appeals found that "upon advice of its accountants and
auditors, ... petitioner did not collect and remit to the Commissioner of
Internal Revenue the withholding tax." This finding of fact of the lower
court, unchallenged as it is, may not be disturbed.4
14. The requirement in Section 200 that the withholding agent should first
withhold the tax before addressing a query to the Commissioner of
Internal Revenue is not without meaning for it is in keeping with the
general operation of our tax laws: payment precedes defense. Prior to
the creation of the Court of Tax Appeals, the remedy of a taxpayer was to
pay an internal revenue tax first and file a claim for refund later. This
remedy has not been abrogated for the law creating the Court of Tax
Appeals merely gives to the taxpayer an additional remedy. With respect to
customs duties the consignee or importer concerned is required to pay them
under protest, before he is allowed to question the legality of the imposition.
Likewise, validity of a realty tax cannot be assailed until after the taxpayer
has paid the tax under protest. The legislature, in adopting such measures in
our tax laws, only wanted to be assured that taxes are paid and collected
without delay. For taxes are the lifeblood of government. Also, such
measures tend to prevent collusion between the taxpayer and the tax
collector. By questioning a tax's legality without first paying it, a taxpayer,
in collusion with Bureau of Internal Revenue officials, can unduly delay, if
not totally evade, the payment of such tax.
 15. Of course, in this case there was absolutely no such collusion. Precisely, the
Philippine Guaranty Company, Inc. was absolved from the payment of the
25% surcharge for non-filing of income tax returns inasmuch as the Tax
Court as well as this Court believes that its omission was due to a
reasonable cause.
ANNEX (Summary of the original case):
Reinsurance Company was signed by both parties in Switzerland, the same specifically provided that its
provision shall be construed according to the laws of the Philippines, thereby manifesting a clear intention
of the parties to subject themselves to Philippine law.
The reinsurance premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty against liability for loss under original insurances. Such
undertaking, as explained above, took place in the Philippines. These insurance premiums, therefore, came
from sources within the Philippines and, hence, are subject to corporate income tax.

FACTS: The Philippine Guaranty Co., Inc., a domestic insurance comapany, entered into reinsurance
contracts, on various dates, with foreign insurance companies not doing business in the Philippines.
Philippine Guaranty agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has
originally underwritten in the Philippines, in consideration for the assumption by the latter of liability on
an equivalent portion of the risks insured. Said reinsurrance contracts were signed by Philippine Guaranty
Co., Inc. in Manila and by the foreign reinsurers outside the Philippines, except one contract with Swiss.
The foreign insurers' place of business should not be confused with their place of activity. Business should
not be continuity and progression of transactions 2 while activity may consist of only a single transaction.
An activity may occur outside the place of business. Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the
activity creating the income is performed or done in the Philippines. What is controlling, therefore, is not
the place of business but the place of activity that created an income.

The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of
Philippine Guaranty under the original insurance. A proportionate amount of taxes on insurance premiums
not recovered from the original assured were to be paid for by the foreign reinsurers. The foreign
reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to
compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums.
Conflicts and/or differences between the parties under the reinsurance contracts were to be arbitrated in
Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their contract shall
be construed by the laws of the Philippines.

Pursuant to the reinsurance contracts, Philippine Guaranty ceded to the foreign reinsurers the premiums
and were excluded from its gross income when it file its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them. CIR assessed withholding tax on the ceded
reinsurance premiums. Philippine Guaranty protested on the ground that reinsurance premiums ceded to
foreign reinsurers did not constitute income from sources within the Philippines because the foreign
reinsurers did not engage in business in the Philippines, nor did they have office here.

ISSUE: WoN the premiums were income from sources within the Philippines and therefore taxable. YES.

HELD: The reinsurance contracts, however, show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty against losses arising from the original insurances in the
Philippines were performed in the Philippines. The liability of the foreign reinsurers commenced
simultaneously with the liability of Philippine Guaranty under the original insurances. Philippine
Guaranty kept in Manila a register of the risks ceded to the foreign reinsurers. Entries made in such
register bound the foreign resinsurers, localizing in the Philippines the actual cession of the risks and
premiums and assumption of the reinsurance undertaking by the foreign reinsurers.

Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of doing insurance business
in the Philippines were payable by the foreign reinsurers when the same were not recoverable from the
original assured. The foreign reinsurers paid Philippine Guaranty an amount equivalent to 5% of the ceded
premiums, in consideration for administration and management by the latter of the affairs of the former in
the Philippines. Disputes and differences between the parties were subject to arbitration in the City of
Manila. All the reinsurance contracts, except that with Swiss Reinsurance Company, were signed by in the
Philippines and later signed by the foreign reinsurers abroad. Although the contract with Swiss
 CHURCHILL AND TAIT v. RAFFERTY (Kat)
December 21, 1915 | Trent, J. | Injunction to restrain collection of tax and police
power of the State
PETITIONER: Francis A. Churchill and Stewart Tait
RESPONDENTS: James J. Rafferty, Collector of Internal Revenue
SUMMARY: The judgment appealed from restrains and prohibits Rafferty and
his deputies from collecting and enforcing against Churchill and Tait, and their
property the annual tax provided in Act No. 2339 and from destroying or
removing any sign, signboard, or billboard, the property of petitioners, for the
sole reason that such sign, signboard, or billboard is, or may be, offensive to the
sight. This case has two parts/questions: (1) that relating to the power of the
court to restrain by injunction the collection of the tax complained of, and (2)
that relating to the validity of those provisions of Act No. 2339, conferring
power upon the Collector of Internal Revenue to remove any sign, signboard, or
billboard upon the ground that the same is offensive to the sight or is otherwise a
nuisance. Court ruled in favor of the defendants mainly because: (1) a provision
in an internal revenue law prohibiting the courts from enjoining the collection of
an internal revenue tax by injunction is valid as opposed to the "due process"
and "equal protection of the law" clauses of the bill of rights. Also, jurisdiction
was never conferred upon Philippine courts to enjoin the collection of taxes
imposed by the Philippine Commission and because an adequate remedy has
been provided by the law because it is upon taxation that the Government chiefly
relies to obtain the means to carry on its operations. (2) If a law relates to the
public health, safety, morals, comfort, or general welf are of the community, it is
within the scope of the police power of the State within such bounds the wisdom,
expediency, or necessity of the law does not concern the courts. It has long been
recognized that uses of private property which are offensive to the senses of
smell or hearing may be so regulated or segregated as to disturb as little as
possible the pursuits of other persons.
DOCTRINE: No courts shall have authority to grant an injunction restraining
the collection of any taxes and the court may prescribe regulations for the good
order, peace, health, protection, comfort, convenience and morals of the
community.
FACTS:
1. Churchill and Tait aims to enjoin Rafferty from collecting and enforcing against
them and their property the annual tax mentioned and described in Act No. 2339
and from destroying or removing any sign, signboard, or billboard, on the
property of the petitioner, for the sole reason that such is, or may be, offensive to
the sight; and decrees the cancellation of the bond given by the plaintiffs to
secure the issuance of the preliminary injunction granted soon after the
commencement of this action.
2. Plaintiffs contend that the sections 139 and 140 (provided at the end of the digest) are
unconstitutional because (a) they attempt to deprive aggrieved taxpayers of all
substantial remedy for the protection of their property, thereby, depriving them
of their property without due process of law; and (b) they attempt to diminish
the jurisdiction of the courts
3. Churchill and Tait also seek to enjoin the Collector of Internal Revenue from
removing certain billboards, the property of the plaintiffs located upon private
lands in the Province of Rizal. The plaintiffs allege that the billboards here in
question “in no sense constitute a nuisance and are not deleterious to the health,
morals, or general welfare of the community, or of any persons” because
“billboards were quite a distance from the road and that they were strongly built,
not dangerous to the safety of the people, and contained no advertising matter
which is filthy, indecent, or deleterious to the morals of the community.” (the
specific problem was not mentioned in the case)
4. Rafferty claims that after due investigation made upon the complaints of the
British and German Consuls, he “decided that the billboard complained of was
and still is offensive to the sight, and is otherwise a nuisance.”
ISSUES:
WoN the provision forbidding the use of an injunction in connection with taxes
deprives petitioners of due process? NO
WoN provisions of subsection (b) of section 100 of Act No. 2339 is a valid exercise
of police power and does not violate petitioners’ right to due process? YES
RULING: For the foregoing reasons the judgment appealed from is hereby
REVERSED and the action DISMISSED upon the merits, with costs.
RATIO:
(Case is divided into two parts)
Power of the Court to Restrain by Injunction the Collection of the Tax
1. The legislative body has declared from the beginning that payment under protest
and suit to recover is an adequate remedy to test the legality of any tax or
impost. The plaintiffs in the case at bar are the first to question either the
adequacy or exclusiveness of this remedy.
2. The mere fact that a tax is illegal, or that the law, by virtue of which it is
imposed, is unconstitutional, does not authorize a court of equity to restrain its
collection by injunction. This is the settled law in the United States, even in the
absence of statutory enactments such as sections 139 and 140.
3. In this country, as well as in the US, the officer charged with the collection of
taxes is authorized to seize and sell the property of delinquent taxpayers without
applying to the courts for assistance. This must necessarily be the course,
because it is upon taxation that the Government chiefly relies to obtain the
means to carry on its operations. No government could exist if every litigious
man were permitted to delay the collection of its taxes. This principle of public
policy must be constantly borne in mind in determining cases such as the one
under consideration.
4. Section 3224 of the Revised Statutes of the United States, effective since
1867, provides that: "No suit for the purpose of restraining the assessment or
collection of any tax shall be maintained in any court."
Similar to Section 139: "No court shall have authority to grant an injunction
"to restrain the collection of any internal-revenue tax."
5. If the US Supreme Court has clearly and definitely held that the provisions of
section 3224 do not violate the "due process of law" and "equal protection of the
law" clauses in the Constitution, we would be going too far to hold that section
139 violates those same provisions in the Philippine Bill.
6. If there existed in the courts any general power of impeding or controlling the
collection of taxes, or relieving the hardship incident to taxation, the very
existence of the government might be placed in the power of a hostile judiciary.
Validity of subsection (b) of section 100 of Act No. 2339
1. If a law relates to the public health, safety, morals, comfort, or general welf are
of the community, it is within the scope of the police power of the State. Within
such bounds the wisdom, expediency, or necessity of the law does not concern
the courts.
2. We think it quite demonstrable that sight is as valuable to a human being as any
of his other senses, and that the proper ministration to this sense conduces as
much to his contentment as the care bestowed upon the senses of hearing or
smell, and probably as much as both together.
3. It is quite natural for people to protest against this indiscriminate and wholesale
use of the landscape by advertisers and the intrusion of tradesmen upon their
hours of leisure and relaxation from work. Outdoor life must lose much of its
charm and pleasure if this form of advertising is permitted to continue
unhampered until it converts the streets and highways into veritable canyons
through which the world must travel in going to work or in search of outdoor
pleasure.
4. Courts held that the regulation of billboards and their restriction is NOT a
regulation of private property. This is a regulation of the use of the streets and
other public thoroughfares. A source of annoyance and irritation to the public
does not minister to the comfort and convenience of the public.
5. The use of private property may be regulated or restricted to whatever extent
may be necessary to preserve inviolate these declared essentials to the well
being of the public.
6. The Court in this case ruled that the unsightly advertisements or signs,
signboards, or billboards which are offensive to the sight, are not disassociated
from the general welfare of the public.
Gist of the pertinent provisions:
Section 139: "No court shall have authority to grant an injunction "to restrain the
collection of any internal-revenue tax."
Sec. 140. Recovery of Tax Paid Under Protest. This is section provides the remedy
for section 139 of the taxpayer who claims that he is unjustly assessed or taxed.
There shall be a payment under protest of the sum claimed from him by the Collector
of Internal Revenue and by action, he can recover back the sum claimed to have been
illegally collected."
Subsection (b) of section 100 of Act No. 2339: "If after due investigation the
Collector of Internal Revenue shall decide that any sign, signboard, or billboard
displayed or exposed to public view is offensive to the sight or is otherwise a
nuisance, he may by summary order direct the removal of such sign, signboard, or
billboard, and if same is not removed within ten days after he has issued such order
he may himself cause its removal, and the sign, signboard, or billboard shall
thereupon be forfeited to the Government, and the owner thereof charged with the
expenses of the removal so effected. When the sign, signboard, or billboard ordered
to be removed as herein provided shall not comply with the provisions of the general
regulations of the Collector of Internal Revenue, no rebate or refund shall be allowed
for any portion of a year for which the taxes may have been paid. Otherwise, the
Collector of Internal Revenue may in his discretion make a proportionate refund of
the tax for the portion of the year remaining for which the taxes were paid. An appeal
may be had from the order of the Collector of Internal Revenue to the Secretary of
Finance and Justice whose decision thereon shall be final."
 047 DAVID v. RAMOS (Marcos)
recovery against him.
October 31, 1951 | Jugo, J. | No Injunction Against Collection of Taxes
FACTS:
PETITIONER: Saturnino David, in his capacity as Collector of Internal Revenue
RESPONDENTS: Honorable Simeon Ramos, in his capacity as Judge of the Court
of First Instance of Manila and Maria B. Castro
SUMMARY: Maria filed a case with the CFI a complaint against David in his
capacity as the Collector of Internal Revenue. She alleged that despite her being
acquitted in the criminal case for non-payment of war profits tax, the Collector still
announced that her properties be sold at public auction to satisfy the war profits tax.
She further alleged that the War Profits Tax Law is unconstitutional. She prayed for
a writ of preliminary injunction. The Collector filed his answer and alleged that the
CFI has no jurisdiction to entertain the case and that the remedy is first by paying
the tax and suing for its recovery. The CFI declared that it had authority to proceed
the case but denied the petition of Maria. The Collector proceeded with the sale and
then filed a petition for for certiorari, prohibition, and injunction, alleging and
maintaining that the CFI has no jurisdiction to restrain the collection of taxes, the
remedy being to pay and sue for recovery. He further prays for a preliminary
injunction to restrain the Judge from proceeding with the case. The SC granted the
petition of the Collector and ruled that the CFI had no jurisdiction over the case. It
has been the uniform holding of this Court that no suit for enjoining the collection
of a tax, disputed or undisputed, can be brought, the remedy being to pay the tax
first, formerly under protest and now without need of protest, file the claim with the
Collector, and if he denies it, bring an action for recovery against him. That taxes
must be collected promptly is a policy deeply entrenched in our tax system. Thus,
no court is allowed to grant injunction to restrain the collection of any internal
revenue tax.
DOCTRINE: It has been the uniform holding of this Court that no suit for
enjoining the collection of a tax, disputed or undisputed, can be brought, the
remedy being to pay the tax first, formerly under protest and now without need of
protest, file the claim with the Collector, and if he denies it, bring an action for
94. Maria B. Castro (Maria) filed in the CFI of Manila a complaint against
Saturnino David, in his capacity as Collector of Internal Revenue (The
Collector).
95. She alleged that despite her being acquitted in a criminal case for non-
payment of the war profits tax for insufficiency of evidence, the Collector
still announced that her properties would be sold at public auction to satisfy
the war profits tax assessed against her.
96. She further alleged that this was an abuse of authority and that RA 55 or
thw War Profits Tax Law is unconstitutional.
97. She prayed that a preliminary injunction be issued against the Collector
from proceeding with the sale.
98. The Collector filed his answer and alleged as a special defense that the CFI
had no jurisdiction to entertain the complaint nor issue a writ of injunction
to restrain the collection of the war profits tax.
99. He contends that the remedy is by first paying the tax and suing for its
recovery. Further, he contends that the previous criminal case could not
have been res judicata since the case was dismissed with the consent of
Maria.
100.When the trial began, the Collector was firm in saying that the CFI had no
jurisdiction and objected the reception of evidence of the court.
101.The court declared that it had authority to proceed the case but denied the
petition of Maria for preliminary injunction.
102.Since there was no preliminary injunction, the Collector proceeded with the
sale at public auction.
103.The Collector then filed a petition for certiorari, prohibition, and injunction,
alleging and maintaining that the CFI has no jurisdiction to restrain the
collection of taxes, the remedy being to pay and sue for recovery.
 104.The Collector further prays for a preliminary injunction to restrain the Judge
from proceeding with the case.
105.The SC granted the prayer for a writ of preliminary injunction.
106.The Judge of the CFI denied some of the allegations of the petition and
maintained in effect that the court below had jurisdiction to entertain the
case.
ISSUE/s:
20. WoN the courts can restrain the collection of taxes on the ground that their
validity is disputed by the taxpayer. – NO. The remedy is to pay the tax first
then sue for recovery.
RULING: In view of the foregoing, the respondent Court of First Instance of Manila
is declared without jurisdiction to proceed with the trial of Civil Case No. 12356
entitled "Maria B. Castro v. Saturnino David," and its order dated November 8,
1950, in so far as it orders the continuation of the proceedings, is set aside.
of protest, file the claim with the Collector, and if he denies it, bring an
action for recovery against him.
81. That taxes must be collected promptly is a policy deeply entrenched in our
tax system. Thus, no court is allowed to grant injunction to restrain the
collection of any internal revenue tax.
82. All the allegations of the respondents to the effect that the dismissal of the
criminal case is res judicata or a bar to the collection by distraint and levy;
and that Republic Act No. 55, known as the War Profits Tax Law, is
unconstitutional, should be set forth as part of the cause of action in the
complaint that may be filed against the Collector of Internal Revenue for
recovery of the tax after its payment, but not in an action for prohibition
or injunction.
83. The respondents cite some cases in the United States in which the principle
that the collection of taxes should not be restrained by injunction has been
found subject to certain exceptions.
84. It has not been shown in the present case that extraordinary and exceptional
circumstances exist so as to take this case out of the rule.
85. In the Philippines no extraordinary and exceptional circumstances of the
magnitude of those occurring in the United States have existed. On the
whole it is believed that we should not disrupt the regular procedure
prescribed by our laws, as uniformly construed by our courts.

RATIO:

78. Section 305 of the National Internal Revenue Code, is as follows:

"SEC. 305. Injunction not available to restrain collection of tax. — No

court shall have authority to grant an injunction to restrain the
collection of any national internalrevenue tax, fee, or charge imposed by
this Code."

79. It is clear that the word "tax," as used in said section 305, means a tax
even if it is disputed by the taxpayer, for otherwise it would be sufficient
to dispute a tax in order to take it out from the provisions of said section,
rendering them practically nugatory.
80. It has been the uniform holding of this Court that no suit for enjoining the
collection of a tax, disputed or undisputed, can be brought, the remedy
being to pay the tax first, formerly under protest and now without need
 048 REPUBLIC V. CAGUIOA (MAYUMI)
October 15, 2007 | Carpio Morales, J. | No Injunction Against Collection of Taxes
PETITIONER: Republic of the Philippines, represented by the Honorable
Secretary of Finance, the Honorable Commissioner of BIR, the Honorable
Commissioner of Customs, and the Collector of Customs of the port of Subic
RESPONDENTS: Hon. Ramon Caguioa, Indigo Distribution Corp, W Star
Trading, et. al
FACTS:
SUMMARY: RA 7227 was enacted creating the Subic Special Economic and
Freeport Zone (SBF). Section 12 of this law states that no taxes will be imposed
within the SBF. Pursuant to this, several companies such as Indigo Distribution
Corp. were granted Certificates of Registration and Tax Exemptions in the
import and distribution of products, including alcohol and tobacco products.
Thereafter RA 9334 was passed which provided that the importation of cigars
and cigarettes (tabacco), and alcoholic products in the SBF shall be subject to
taxes. Pursuant to this law, the Subic Bay Metropolitan Authority (SMBA)
issued a memorandum that the importation of tabacco and alcohol products
would be subject to taxes which must be paid before these items can be cleared
up and released to the companies. Moreover, the SMBA Administrator required
that these products will be covered by a consumption entry and not a warehouse
entry anymore. Thus, the several companies within the SBF filed a complaint in
the RTC questioning the constitutionality of RA 9334 and requested for a Writ
of Preliminary Injunction. The latter was granted, and so the government
elevated this case to the SC alleging that the court acted with GAD for issuing
the Preliminary Injunction. The SC held that the inferior court acted without
jurisdiction in its issuance of the injunction. The RTC judge disregarded
the fact that as a condition sine qua non to the issuance of a writ of
preliminary injunction, the companies needed also to show a clear legal
right that ought to be protected. That requirement is not satisfied in this
case.
There is no vested right in a tax exemption. It is a mere statutory privilege, and
so a tax exemption may be modified or withdrawn at will by the granting
authority. Further, tax exemptions are not absolute and unconditional as to
constitute rights in esse. Whatever right may have been acquired on the basis of
the Certificates of Registration and Tax Exemption must yield to the State’s
valid exercise of police power. Hence, the injunction enjoining the
implementation of a law imposing taxes is tantamount to an injunction
issued enjoining the collection of the same, which is prohibited by law.
DOCTRINE: The injunction enjoining the implementation of a law imposing
taxes is tantamount to an injunction issued enjoining the collection of the same,
which is prohibited by law. (from the book)
1. When Congress enacted RA 7227 (the Bases Conversion and Development
Act of 1992), it created the Subic Special Economic and Freeport Zone
(SBF) and the Subic Bay Metropolitan Authority.
2. In line with the law’s vision to develop the SBF to a self-sustaining,
industrial, commercial, financial, and investment center, Sec. 12 provided
that “no taxes, local and national, shall be imposed within the Subic
Special Economic Zone.”
3. In case of conflict between national and local laws with respect to tax
exemption privileges in the Subic Special Economic Zone, the same shall
be resolved in favor of the latter
4. Pursuant to RA 7227, Indigo Distribution Corporation, W Star Trading and
Warehouse Corporation, Freedom Brands Philippines Corporation, and
several other companies (Indigo Distribution, et. al) applied for and were
granted the Certificates of Registration and Tax Exemptions. (There were
around 12 so I named some in case ma’am asks you which companies)
5. These Certificates of Registration allowed the companies to engage in the
business either of:
a. trading, retailing or wholesaling,
b. import and export,
c. warehousing, distribution and/or transshipment of general
merchandise, including alcohol and tobacco products,
6. Moreover, the Certificate allowed them tax exemptions for the said
importations as contained in their respective Certificates. Particularly it says
that:
“The Company shall be entitled to tax and duty-free importation of raw
materials, capital equipment, and household and personal items for use
solely within the Subic Bay Freeport Zone”
7. Subsequently, RA 9334 was passed. In this law, Section 6 provided that:
 “The provision of any special or general law to the contrary
notwithstanding, the importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the Philippines, even if
destined for tax and duty free shops, shall be subject to all applicable
taxes, duties, charges, including excise taxes due thereon. This shall apply
to cigars and cigarettes, distilled spirits, fermented liquors and wines
brought directly into the duly chartered or legislated freeports of
the Subic Economic Freeport Zone, created under Republic Act 7227”
8. Because of this new law, the Subic Bay Metropolitan Authority issued a
Memorandum declaring that all importations of cigars, cigarettes, distilled
spirits, fermented liquors and wines into the SBF, including those intended
to be transshipped to other free ports in the Philippines, shall be treated as
ordinary importations subject to all applicable taxes, duties and charges,
including excise taxes.
9. Meanwhile, the former BIR Commissioner (Parayno, Jr) requested then
Customs Commissioner Jereos to immediately collect the excise tax due on
imported alcohol and tobacco products brought to the Duty Free Philippines
and Freeport zones.
10. Thus, the Collector of Customs of the port of Subic directed the Subic Bay
Metropolitan Authority (SMBA) Administrator to require the payment of all
appropriate duties and taxes on all importations of cigars and cigarettes,
distilled spirits, fermented liquors and wines, and for all transactions
involving those products to be covered from by a consumption entry and no
longer by a warehousing entry.
11. In Feb. 2005, SMBA issued a second memorandum. This time, directing the
departments concerned to require locators/importers in the SBF to pay their
corresponding duties and taxes on their importation of cigars, cigarettes,
liquors and wines before said items are cleared and released from the
freeport.
12. Thereafter, Indigo Distribution, and the other companies wrote to the office
of the Collector of Customs and the SMBA Administrator requesting for a
reconsideration of the directives on the imposition of duties and taxes,
particularly excise taxes, on their shipments of cigars, cigarettes, wines and
liquors
13. Despite these letters, however, they were not allowed to file any
warehousing entry for their shipments. Thus, they filed a special civil action
in the RTC of Olongapo City for declaratory relief to have certain
provisions of R.A. No. 9334 declared as unconstitutional. According to
them:
a. R.A. No. 9334 should not be interpreted as altering, modifying or
amending the provisions of R.A. No. 7227 because repeals by
implication are not favored
b. a general law like R.A. No. 9334 cannot amend R.A. No. 7727,
which is a special law
c. the assailed law violates the one bill-one subject rule embodied in
Section 26(1), Article VI of the Constitution as well as the
constitutional proscription against the impairment of the obligation
of contracts.
14. They also prayed for a writ of preliminary injunction and/or Temporary
Restraining Order (TRO) and preliminary mandatory injunction to enjoin
the directives of the Collector of Customs and the SMBA alleging that great
and irreparable loss and injury would befall the companies as a consequence
of the imposition of taxes.
15. Meanwhile, the Collector of Customs and SMBA argue that:
a. tax exemptions are not presumed and even when granted, are
strictly construed against the taxpayer
b. an increase in business expense is not the injury contemplated by
law, it being a case of damnum absque injuria
c. the drawback mechanism established in the law clearly negates the
possibility of the feared injury
16. The Court granted the companies’ application for the issuance of a writ of
preliminary injunction after it found that the necessary elements were
present. Further, the court ruled that the companies were entitled to enjoy
the benefits of tax incentives under R.A. No. 7227, particularly the
exemption from local and national taxes under Section 12(c) because the
aforecited provision of R.A. No. 7227, plus the Certificates of Registration
and Tax Exemption from the SBMA, vested a clear and unmistakable right
that would be violated should R.A. No. 9334 be implemented
17. Thereafter, the trial court issued a Writ of Preliminary Injunction directing
the Collector of Customs, and SMBA Administrator to:
a. Allow the companies to file warehousing entries instead of
consumption entries as regards to their importation of tobacco and
alcohol products
b. To cease and desist from implementing the pertinent provisions of
R.A. No. 9334 by not compelling the companies to immediately
pay duties and taxes on said alcohol and tobacco products as a
condition to their removal from the port area for transfer to the
warehouses of these companies
18. The Collector of Customs along with the Commissioner of Customs, BIR
 Commissioner, and Secretary of Finance thereafter directly filed an appeal
to the Supreme Court alleging that the Writ of Preliminary Injunction was
issued with GAD amounting to lack or excess of jurisdiction. According to
them:
a. The court unjustly issued the injunctive writ despite the absence of
the legal requisites for its issuance, resulting in heavy government
revenue losses
b. the tax exemption previously enjoyed by private respondents has
clearly been withdrawn by R.A. No. 9334, and so the companies
have no right to invoke a legal injury in the enforcement of RA
9334.
ISSUES:
1. WoN the Writ of Preliminary Injunction was done within the scope of the
trial court’s powers (AKA no abuse of discretion) –NO. There was grave
abuse of discretion amounting to lack of jurisdiction.
NOTE: the constitutionality issue was ruled by the SC as having no bearing in
resolving this petition.
RULING: WHEREFORE, the Petition is PARTLY GRANTED. The writ of
certiorari to nullify and set aside the Order of May 4, 2005 as well as the Writ of
Preliminary Injunction issued by respondent Judge Caguioa on May 11, 2005 is
GRANTED. The assailed Order and Writ of Preliminary Injunction are hereby
declared NULL AND VOID and accordingly SET ASIDE. The writ of prohibition
prayed for is, however, DENIED.
RATIO:
1. For a writ of preliminary injunction to issue, the plaintiff must be able to
establish the following elements:
a. there is a clear and unmistakable right to be protected,
b. the invasion of the right sought to be protected is material and
substantial,
c. there is an urgent and paramount necessity for the writ to prevent
serious damage
2. R.A. 7227 granted certain companies, such as Indigo Distribution,
exemption from local and national taxes, including excise taxes, on their
importations of general merchandise. Thus, they enjoyed tax-exempt
status until the effectivity of R.A. 9334. The enactment of RA 9334
showed the Congress’ intention to withdraw the tax exemption privilege on
the importations of cigars, cigarettes, distilled spirits, liquors, and wines on
the companies found in the SBF.
3. When in comes to the constitutionality of a statute, the presumption is in
favor of the statute. Hence, the burden of proving its unconstitutionality
rests of the party alleging such. Courts must ever be mindful of the time-
honored principle that a statute is presumed to be valid.
4. There is no vested right in a tax exemption, more so when the latest
expression of legislative intent renders its continuance doubtful. Being a
mere statutory privilege, a tax exemption may be modified or
withdrawn at will by the granting authority.
5. To state otherwise is to limit the taxing power of the State, which is
unlimited, plenary, comprehensive and supreme. The power to impose taxes
is one so unlimited in force and so searching in extent, it is subject only to
restrictions which rest on the discretion of the authority exercising it
6. As a general rule, tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. The burden of proof
rests upon the taxpayer claiming the exemption to prove that it is in fact
covered by the exemption claimed.
7. Fourth, the rights granted under the Certificates of Registration and Tax
Exemption are not absolute and unconditional as to constitute rights in esse
—those clearly founded on or granted by law or is enforceable as a matter
of law
8. These certificates granting private respondents a “permit to operate” their
respective businesses are in the nature of licenses, which the bulk of
jurisprudence considers as neither a property nor a property right.
9. While the tax exemption contained in the Certificates of Registration of
private respondents may have been part of the inducement for carrying on
their businesses in the SBF, this exemption, nevertheless, is far from being
contractual in nature in the sense that the non-impairment clause of the
Constitution can rightly be invoked
10. Whatever right may have been acquired on the basis of the Certificates
of Registration and Tax Exemption must yield to the State’s valid
exercise of police power.
11. It is not difficult to recognize that public welfare and necessity underlie the
enactment of R.A. No. 9334. It was passed in order to curb the pernicious
practice of some unscrupulous business enterprises inside the SBF of using
their tax exemption privileges for smuggling purposes.
12. It is not enough that the companies make out a case of unconstitutionality or
invalidity to overcome the prima facie presumption of validity of a statute;
they must also be able to show a clear legal right that ought to be protected
 by the court. 
13. While the grant or denial of an injunction generally rests on the sound
discretion of the lower court, this Court may and should intervene in a clear
case of abuse
a. One such case of grave abuse obtained in this case when public
respondent issued his Order of May 4, 2005 and the Writ of
Preliminary Injunction on May 11, 200551 despite the absence of
a clear and unquestioned legal right of private respondents.
b. In holding that the presumption of constitutionality and validity of
R.A. No. 9334 was overcome by Indigo Distribution Corp and
other companies, the RTC judge disregarded the fact that as a
condition sine qua non to the issuance of a writ of preliminary
injunction, the companies needed also to show a clear legal
right that ought to be protected. That requirement is not
satisfied in this case.
c. To stress, the possibility of irreparable damage without proof of an
actual existing right would not justify an injunctive relief
14. The injunction enjoining the implementation of a law imposing taxes is
tantamount to an injunction issued enjoining the collection of the same,
which is prohibited by law. In the instant case, Section 6 of RA 9334
imposed taxes on the importation of alcohol and cigarettes into the Subic
Special Economic Zone which are previously exempted from taxes. The SC
held that the inferior court acted without jurisdiction in its issuance of the
injunction.
 Angeles City v Angeles Electric Corp (Mendoza)
June 29, 2010 | Del Castillo, J. | Prohibition on issuance of injunctions enjoining
collection of taxes excepttion; local taxes collected by LGUs
PETITIONERS: Angeles City
RESPONDENTS: Angeles City Electric Corporation and RTC Branch 57,
Angeles City
SUMMARY: Angeles Electric Corporation (AEC) was granted a legislative
franchise under RA 4079 to construct, maintain and operate an electric light,
heat, and power system for the purpose of generating and distributing electric
light, heat, and power for sale in Angeles City. When the Local Government
Code was passed into law, it imposed tax on businesses enjoying franchise, and
in accordance, the Sangguniang Panlunsod of Angeles City enacted Tax
Ordinance No. 33, S-93, otherwise known as the Revised Revenue Code of
Angeles City (RRCAC). A petition was then filed by Metro Angeles Chamber of
Commerce and Industry, Inc. (MACCI) of which AEC is a member, seeking the
reduction of the tax rates and a review of the provisions of the RRCAC. The City
Treasurer denied AEC’s protest and levied on the real properties of AEC
prompting AEC to file with the RTC an Urgent Motion for Issuance of a TRO
and/or Writ of Preliminary Injunction which the RTC granted. Issue is WoN the
RTC gravely abused its discretion in issuing the writ of preliminary injunction enjoining
Angeles City and its City Treasurer from levying, selling, and disposing the properties of
AEC – NO. SC upheld the RTC decision in ordering the writ of preliminary injunction
enjoining Angeles City and its treasurer from levying, selling, and disposing the
properties of Angeles Electric Corporation. SC ruled that the prohibition of the issuance
of injunctions enjoining the collection of taxes shall apply only to national internal
revenue taxes, and not to local taxes collected by LGUs. Unlike the NIRC, the Local Tax
Code does not contain any specific provision prohibiting courts from enjoining the
collection of local taxes. Such statutory lapse or intent, however it may be viewed, may
have allowed preliminary injunction where local taxes are involved. However, SC noted
that injunctions enjoining the collection of local taxes are frowned upon. Courts therefore
should exercise extreme caution in issuing such injunctions. Additional note (Just in case
ma’am asks): The two requisites in order to warrant the issuance of a writ of preliminary injunction
was satisfied: (1) the existence of a clear and unmistakable right that must be protected (rights of
ownership and possession of the properties); and (2) an urgent and paramount necessity for the writ
to prevent serious damage (if the auction sale will push through, petitioner will not only lose control
and operation of its facility, but its employees will also be denied access to equipments vital to
petitioners, and grave and irreparable damage will be suffered not only by the petitioner but all its
electric consumers in Angeles, Clark, Dau and Bacolor, Pampanga).
DOCTRINE: The prohibition on the issuance of a writ of injunction to enjoin the
collection of taxes applies only to national internal revenue taxes, and not to local taxes.
FACTS:
1. Angeles Electric Corporation (AEC) was granted a legislative franchise under RA 4079 to
construct, maintain and operate an electric light, heat, and power system for the purpose of
generating and distributing electric light, heat and power for sale in Angeles City,
Pampanga. Pursuant to Section 3-A thereof, AECs payment of franchise tax for gross
earnings from electric current sold was in lieu of all taxes, fees and assessments.
2. PD 551 reduced the franchise tax of electric franchise holders. Section 1 of PD 551
reduced the franchise tax of electric franchise holders to 2% of their gross
receipts from the sale of electric current and from transactions incident to the
generation, distribution and sale of electric current.
3. The Local Government Code of 1991 was passed into law, conferring upon provinces and
cities the power to impose tax on businesses enjoying franchise. Pursuant to this,
the Sangguniang Panlungsod of Angeles City enacted Tax Ordinance No. 33, S-93,
otherwise known as the Revised Revenue Code of Angeles City (RRCAC).
4. A petition seeking the reduction of the tax rates and a review of the provisions of the
RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles Chamber of
Commerce and Industry Inc. (MACCI) of which AEC is a member.
5. Sangguniang Panlungsod brought no action and so, MACCI elevated the petition to the
Department of Finance, which referred the same to the Bureau of Local Government
Finance (BLGF). MACCI alleged that the RRCAC is oppressive, excessive, unjust and
confiscatory.
6. Acting on the petition, the BLGF issued a First Indorsement to the City Treasurer of
Angeles City, instructing the latter to make representations with the Sangguniang
Panlungsod for the appropriate amendment of the RRCAC in order to ensure compliance
with the provisions of the LGC, and to make a report on the action taken within five days.
7. Thereafter, AEC has been paying the local franchise tax to the Office of the City Treasurer
on a quarterly basis, in addition to the national franchise tax it pays every quarter to the
Bureau of Internal Revenue
8. The City Treasurer denied AEC’s protest that it was exempt from paying local
business tax, the payment of franchise tax on business resulted to double taxation,
the assessment period has already prescribed, and the assessment and collection
of taxes under RRCAC cannot be made retroactive.
9. The City Treasurer then levied on the real properties of AEC prompting AEC to
file with the RTC an Urgent Motion for Issuance of a TRO and/or Writ of
Preliminary Injunction.
10. After due notice and hearing, the RTC issued a TRO followed by an Order granting the
issuance of a Writ of Preliminary Injunction. Upon AECs posting of the required P10M
bond, the RTC issued a Writ of Preliminary Injunction.  perpetually; (b) That the commission, continuance or non-performance of the act or acts
11. Angeles City and its City Treasurer filed a Motion for Dissolution of Preliminary
Injunction and Motion for Reconsideration of the Order Finding no compelling reason to
disturb and reconsider its previous findings, the RTC denied the joint motion.
ISSUE: WoN the RTC gravely abused its discretion in issuing the writ of preliminary
injunction enjoining Angeles City and its City Treasurer from levying, selling, and disposing
the properties of AEC – NO, RTC was correct.
HELD: WHEREFORE, the petition is hereby DISMISSED.
RATIO:
1. A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the
government should be collected promptly, without unnecessary hindrance or delay.
However, an exception to the rule that no court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or charge
obtains only when in the opinion of the Court of Tax Appeals the collection thereof may
jeopardize the interest of the government and/or the taxpayer.
2. The situation, however, is different in the case of the collection of local taxes as there is no
express provision in the LGC prohibiting courts from issuing an injunction to
restrain local governments from collecting taxes.  City and surrounding communities.
3. Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch II: Unlike the
NIRC, the Local Tax Code does not contain any specific provision prohibiting courts
from enjoining the collection of local taxes. Such statutory lapse or intent, however it
may be viewed, may have allowed preliminary injunction where local taxes are
involved but cannot negate the procedural rules and requirements under Rule 58.
The lower courts denial of the motion for the issuance of a writ of preliminary injunction
to enjoin the collection of the local tax was upheld in this case, not because courts are
prohibited from granting such injunction, but because the circumstances required for
the issuance of writ of injunction were not present.
4. Nevertheless, it must be emphasized that although there is no express prohibition in the
LGC, injunctions enjoining the collection of local taxes are frowned upon. Courts
therefore should exercise extreme caution in issuing such injunctions.
5. Section 3, Rule 58, of the Rules of Court lays down the requirements for the issuance of a
writ of preliminary injunction: (a) Applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission or continuance of the
acts complained of, or in the performance of an act or acts, either for a limited period or
complained of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, or agency or a person is doing, threatening, or attempting to do, or
is procuring or suffering to be done, some act or acts probably in violation of the rights of
the applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.
6. Two requisites must exist to warrant the issuance of a writ of preliminary injunction,
namely: (1) the existence of a clear and unmistakable right that must be protected; and (2)
an urgent and paramount necessity for the writ to prevent serious damage.
7. To the mind of the Court, since there is no other plain, speedy and adequate remedy
available to the petitioner in the ordinary course of law except this application for a TRO
and/or writ of preliminary injunction to stop the auction sale and/or to enjoin and/or
restrain respondents from levying, annotating the levy, seizing, confiscating, garnishing,
selling and disposing at public auction the properties of petitioner, or otherwise exercising
other administrative remedies against the petitioner and its properties, this alone justifies
the move of the petitioner in seeking the injunctive reliefs sought for.
8. Respondents assert that not one of the witnesses presented by the petitioner have
proven what kind of right has been violated by the respondent. Engr. Abordos
testimony and Affidavit showed that if the auction sale will push
through, petitioner will not only lose control and operation of its facility, but its
employees will also be denied access to equipments vital to petitioners
operations, and since only the petitioner has the capability to operate Petersville
sub station, there will be a massive power failure or blackout which will
adversely affect business and economy, if not lives and properties in Angeles
9. Petitioner showed that unless the TRO is issued, grave and irreparable damage
will be suffered not only by the petitioner but all its electric consumers in
Angeles, Clark, Dau and Bacolor, Pampanga. The purpose of injunction is to
prevent injury and damage from being incurred, otherwise, it will render any
judgment in this case ineffectual. 
10. It appearing that the two essential requisites of an injunction have been
satisfied, as there exists a right on the part of the petitioner to be protected, its
rights of ownership and possession of the properties subject of the auction
sale, and that the acts (conducting an auction sale) against which the injunction
is to be directed, are violative of the said rights of the petitioner, the Court has
 no other recourse but to grant the prayer for the issuance of a writ of preliminary
injunction.
11.  SC found no grave abuse of discretion on the part of the RTC in issuing the writ of
injunction. Petitioner, who has the burden to prove grave abuse of discretion, failed to
show that the RTC acted arbitrarily and capriciously in granting the injunction. Neither
was petitioner able to prove that the injunction was issued without any factual or legal
justification. In assailing the injunction, petitioner primarily relied on the prohibition on
the issuance of a writ of injunction to restrain the collection of taxes. 
12. But as we have already said, there is no such prohibition in the case of local
taxes. Records also show that before issuing the injunction, the RTC conducted a hearing
where both parties were given the opportunity to present their arguments. During the
hearing, AEC was able to show that it had a clear and unmistakable legal right over the
properties to be levied and that it would sustain serious damage if these properties, which
are vital to its operations, would be sold at public auction.  The issue is whether a previous decision of a BIR Commissioner can be
13. A final note. While we are mindful that the damage to a taxpayers property rights
generally takes a back seat to the paramount need of the State for funds to sustain
governmental functions, this rule finds no application in the instant case where the
disputed tax assessment is not yet due and demandable. Considering that AEC was able to
appeal the denial of its protest within the period prescribed under Section 195 of the LGC,
the collection of business taxes through levy at this time is, to our mind, hasty, if not
premature.
14. The issues of tax exemption, double taxation, prescription and the alleged retroactive
application of the RRCAC, raised in the protest of AEC now pending with the RTC, must
first be resolved before the properties of AEC can be levied. In the meantime, AECs rights
of ownership and possession must be respected.
050 PHILIPPINE NATIONAL OIL COMPANY v. CA (MERILLES)
April 26, 2005 | Chico-Nazario, J. | No Estoppel Against the State
PETITIONER: Philippine National Oil Company (PNOC)
RESPONDENTS: CA, CIR, Tirso Avellano
SUMMARY: Savellano reported to the BIR that PNB failed to withhold final
tax on earnings and yield from money placements of PNOC. BIR requested
PNOC to settle their tax liability. PNOC proposed that tax refund/credit of
NAPOCOR be used. This was accepted by BIR Commissioner Tan.
Savellano filed a motion for reconsideration on the validity of the compromise
agreement between Comm. Tan and PNOC. The new BIR Comm. Ong declared
the compromise agreement void and without effect.
overturned by the succeeding BIR Commissioner.
The SC held that errors committed by agents of the State in the assessment and
collection of taxes cannot be held against the State. The new ruling of Comm.
Ong is meritorious.
DOCTRINE: An administrative officer, such as the BIR Commissioner, may
revoke, repeal or abrogate the acts or previous rulings of his predecessor in
office.  The Government cannot be estopped from collecting taxes by the
mistake, negligence, or omission of its agents.
FACTS:
1. Tirso Savellano informed the BIR that PNB had failed to withhold the 15%
final tax on interest earnings and yields from the money placements of
PNOC, which was violative of P.D. 1931 (which withdrew all tax
exemptions of GOCCs)
2. Acting on such information, the BIR requested PNOC to settle the
aforementioned tax liability.
3. PNOC offered to compromise the same by proposing that it be set-off
against a claim by NAPOCOR for tax refund/credit (the amount of the tax
refund was supposedly a receivable account of PNOC from NAPOCOR)
4. The proposal was found premature by the BIR as NAPOCOR’s claim was
still under process, so PNOC amended its offer and offered to pay an
amount representing 30% of the basic tax in accordance with E.O. 44
5. The same was accepted by BIR Commissioner Bienvenido Tan
6. Meanwhile, Savellano was paid the informer’s reward (15% of the tax
collected from PNOC and PNB)
7. A month after receiving his last installment for the reward, Savellano wrote
the BIR to demand payment of the balance of his reward, to which the BIR
(through Comm. Tan) replied that Savellano was no longer owed by them
 as he had already received an amount equal to 15% of the compromise 8. To safeguard such interest, neglect or omission of government officials
agreement proposed by PNOC entrusted with the collection of taxes should not be allowed to bring
8. Savellano sought a reconsideration of the decision, questioning the legality harm or detriment to the people, in the same manner as private persons
of the compromise agreement between the BIR and PNOC may be made to suffer individually on account of his own negligence, the
9. While his Motion for Reconsideration was yet pending with the BIR, presumption being that they take good care of their personal affairs. 
Savellano filed a Petition for Review with the CTA claiming Comm. Tan
acted with grave abuse of discretion in entering into a compromise
agreement with PNOC which immensely lessened his informer’s reward
10. Ultimately, new BIR Commissioner Jose Ong, found meritorious
Savellano’s Motion for Reconsideration and ordered the PNB to pay the
deficiency withholding tax on the interest earnings from PNOC’s money
placements
11. The CTA later on likewise found the compromise agreement entered into
between the BIR and PNOC as without any force and effect
12. They likewise ordered that upon payment by PNOC, Savellano was entitled
to the balance of his informer’s reward
13. The CA concurred with the CTA decision and affirmed the same, hence the
case at bar

ISSUE/s:
1. WON the new BIR Commissioner Ong can overturn a previous ruling of his
predecessor - YES

RULING: Petition is DISMISSED. Order of BIR Commissioner Ong is upheld.

RATIO:
1. Errors committed by agents of the State in the assessment and collection of
taxes cannot be held against the State
2. The new BIR Commissioner, Commissioner Ong, had acted well within his
powers when he set aside the compromise agreement, dated 22 June 1987,
after finding that the said compromise agreement was without legal basis.
3. It had been declared by this Court in Hilado v. Collector of Internal
Revenue, et al., that an administrative officer, such as the BIR
Commissioner, may revoke, repeal or abrogate the acts or previous
rulings of his predecessor in office. 
4. The construction of a statute by those administering it is not binding on
their successors if, thereafter, the latter becomes satisfied that a different
construction should be given.
5. Approval of the compromise agreement and acceptance of the compromise
payment by his predecessor cannot estop BIR Commissioner Ong from
setting aside the compromise agreement for lack of legal basis; and from
demanding payment of the deficiency withholding tax from PNB. 
6. As a general rule, the Government cannot be estopped from collecting
taxes by the mistake, negligence, or omission of its agents.
7. Upon taxation depends the Government ability to serve the people for
whose benefit taxes are collected. 
 SECRETARY OF FINANCE v. ORO MAURA (PAT)
July 15, 2009 | Brion, J. | Estoppel of the government
Petitioner: Secretary of Finance
Respondents: Oro Maura Shipping Lines
SUMMARY: Glory imported the M/V Haruna and was allowed temporary registration
and tax and duty free release but it was required to pay a bond. Eventually, when the re-
export bond expired, the Mactan Collector wanted Glory to pay the duties and taxes that
were due. But these were never paid by Glory even despite several demands. Glory,
without knowledge of the Mactan Collector, sold the vessel to Oro and Oro applied for an
authority to import, but this time, the duties and taxes were lower (Php 1.1 million and
around Php 149k) as compared to that owed by Glory. And when the Mactan Collector
found out about this, they demanded Oro to pay what Glory owed. But Oro didn’t pay the
amount owed by Glory, but instead paid on the basis of what the Manila Collector and the
MARINA assessed (the lower amount). This made the Mactan Collector ordered for
seizure of the vessel against Oro. But the Cebu District Collector reversed the decisions of
the Mactan Collector, saying that Oro was not a party to the fraud. Commissioner of
Customs also affirmed this and when elevated to the SOF, the SOF likewise affirmed but
ordered for a re-assessment without the depreciated value, so Oro filed for a MR but was
denied. When elevated to the CTA and the CA, they said that the assessment by the
Manila Collector had already become final and conclusive and the demands made by the
Mactan Collector was already way beyond the 1 year period allowed. Hence, this petition.
The issues in this case are: (1) whether the SOF may order the re-assessment of taxable
transactions and (2) is whether or not the State is estopped from collecting. The SC held
that the SOF may indeed order the re-assessment in that the principle of estoppel finds no
application against the State when it acts to rectify the mistakes of its agents and officials.
This ensures the efficient conduct of the affairs of the State without any hindrance on the
part of the government from implementing laws despite prior mistakes or even illegal acts
of its agents shackling government ops and allowing others to profit from official error or
misbehavior. In addition, it is axiomatic that government cannot and must not be estopped
particularly in matters involving taxes since taxes are the lifeblood of the nation through
which government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. Thus, it should be collected without
unnecessary hindrance or delay.
FACTS:
1. Marina authorized the importation of the M/V Haruna (vessel) under a
Bareboat Charter for 5 years from its actual delivery to the charterer.
a. Parties to the agreement were: Haruna Maritime with Mr. Morinaga as
rep and Glory Shipping Lines (Glory) represented by Mr. Dajao, the
charterer.
2. The Dept. of Finance (DOF) in the 1 st Indorsement, allowed the temporary
registration of the vessel and its tax and duty-free release to Glory. The
Bureau of Customs (BOC) also required Glory to post a bond in the amount
equal to 150% of the duties, taxes, and other charges.
3. Glory posted an Ordinary Re-Export Bond for Php 1,952,000 conditioned
on the re-export of the vessel or in case of default, to pay taxes amounting
to Php 1,296,710.
a. The vessel arrived in Mactan and the dutiable value was Php 6,171,092
and estimated customs duty as Php 1,296,710.
4. The re-export bond of Glory expired and Glory sent a Letter of Guarantee to
the Collector of the Port of Mactan (Mactan Collector) guaranteeing to
renew the Re-Export Bond.
5. But Glory never complied with the Letter of Guarantee and never paid
duties and taxes despite demands by the Mactan Collector.
6. Unknown to the Mactan Collector, Glory offered to sell the vessel to Oro
Maura Shipping Lines (Oro).
a. Oro already applied for an Authority to Import the M/V Haruna with
MARINA, pegging the acquisition cost to Php 1.1 million and
MARINA granted this request.
b. Eventually the vessel was sold to Oro without Haruna Maritime and
Glory informing the Mactan Collector.
7. Kariton, the company representing Oro, inquired with the DOF if it could
pay the duties and taxes due on the vessel with the info that the vessel was
acquired by Glory through a Bareboat Charter to be released under a re-
export bond.
8. Kariton filed an Import Entry with the Port of Manila and the Collector of
Manila (Manila Collector) accepted the declared value of Php 1.1 million
and assessed duties and taxes amounting to only Php 149,989.
9. Mactan Collector discovered that the vessel had been sold so they sent Oro
demand letter for the unpaid customs duties of Glory and when Oro failed
to pay, the Mactan Collector filed for seizure proceedings of the vessel in
accordance with the Tariff and Customs Code, ordering the said forfeiture
after finding that Glory and Oro defrauded the government.
 10. The Cebu District Collector (CDC) reversed the Mactan Collector’s
decision on the basis that Oro was not a party to the fraud and that with
regard to appraisal, the value given by the Manila Collector was proper.
11. The Commissioner of Customs also affirmed the decision of the CDC.
12. When the matter was elevated to the Secretary of Finance (SOF), he
affirmed the Commissioner’s recommendation but ordered a re-assessment
of the vessel based on the entered value. Oro filed MR, denied.
13. Oro filed a Petition for Review with the CTA and the CTA granted it.
14. SOF filed a review with the CA, but the CA affirmed the findings of the
CTA and said that the assessment made by the Manila Collector has already
become final and conclusive and that the Mactan Collector demanded
payment way beyond the 1 year period allowed. SOF filed MR, denied.
15. Hence, this petition.
ISSUE/S:
1. WON the SOF can order a re-assessment of taxable transactions. – YES.
2. WON the State is estopped. – NO.
HELD: WHEREFORE, we REVERSE the decision of the CA and REINSTATE
WITH MODIFICAITON the ruling under Former Secretary Espiritu’s 4 th
Indorsement. The re-assessment shall be based on the unpaid assessment by the
Mactan Collector against Oro, made on the basis of M/V Haruna’s entered value,
without allowance for depreciation, but including other taxes and charges due.
Seizure proceedings shall proceed in due course unless the unpaid customs duties,
other taxes and charges are duly paid. Costs against the petitioner.
RATIO:
On whether the SOF can order a re-assessment of taxable transactions
1. The Mactan Collector found out that Oro defrauded the BOC.
a. Although the rule is that factual findins when affirmed by the CA are
generally conclusive, the SC can delve into such when there are
palpable errors or the findings are attended by arbitrariness.
b. SC found that the CTA and CA overlooked and misinterpreted factual
circumstances.
2. The following were the facts that the CTA and the CA overlooked:
a. 1st phase: the original tax and duty-free entry.
i. The vessel had a declared dutiable value of Php 6,171,092 and
estimated customs duty of Php 1,296,710; none of these were paid
despite demand.
b. 2nd phase: Glory offered to sell the vessel to Oro.
i. Oro filed for authority to import based on the proposed acquisition
of Php 1.1 million and MARINA granted, taking into consideration
wear and tear.
ii. There was already bad faith on the part of Oro considering that
they disregarded the demand letters of the Mactan Collector.
iii. Oro also knew of the status of the vessel and also joined Glory in
evading payment.
c. 3rd phase: Kariton asked DOF if it could pay the duties and taxes due on
the vessel.
i. They paid the duties and taxes based on what the Manila Collector
gave and the lower appraisal of MARINA.
d. 4th phase: Mactan Collector filed for seizure proceedings when they
found out about the sale and fraud.
3. There was fraud in this case on the basis of the following:
a. Valuation was originally pegged at Php 6,171,092 and when Oro
wanted to import it as well, the acquisition cost was only Php 1.1
million.
b. So over a year and a half, the declared value decreased by 80%. In
addition, the taxes due also decreased from 1,296,710 to Php 149,989.
c. Based on Sec. 2503 of the Tariff and Customs Code, there is already a
prima facie evidence of fraud if there is an undervalution of more than
30%.
d. In addition, the TCCP doesn’t state that the depreciated value of an
imported item can be used as basis to determine dutiable value (since
they gave the 1.1 assessment based on wear and tear).
e. And even assuming that depreciated value can be considered, 80% is
just too much.
On whether the State is estopped
1. Estoppel generally finds no application against the State when it acts to
rectify mistakes, errors, irregularities, of its officials and agents.
a. This ensures efficient conduct of affairs of State without any
hindrance.
b. Rule holds true even if the rectification prejudices parties who had
received benefits.
2. Based on Chevron Phils v. Commissioner: Taxes are the lifeblood of the
nation. Tariff and customs duties are taxes constituting a significant
portion of the public revenue which enables the government to carry
out the functions it has been ordained to perform for the welfare of its
constitutents. Hence, their prompt and certain availaibility is an
imperative need and they must be collected without unnecessary
hindrance.
Other notes
1. When Oro bought the vessel from Glory, the obligation to pay the BOC had
already attached to the vessel and the non-renewal of the re-export bond
made this liability due and demandable. The subsequent transfer did not
extinguish this liability.
2. Even though Oro paid the customs duties assessed by the Manila Collector,
this did not extinguish the lien since it had already attached to the vessel
and they paid something different from what they owed.