Calalang vs. Lorenzo, G.R. No. L-6961. June 17, 1955.

This action was commenced in the Court of First Instance of Manila to compel the Secretary of
Public Works and Communications and the Chief of the Motor Vehicles Office to authorize
payment of petitioner’s motor vehicle registration fees for the year 1953 with a backpay
certificate of indebtedness. The defendants contended that fees are not taxes and, therefore,
not authorized to be paid with such certificate. But the trial court ruled otherwise. Hence this
appeal.

Section 2 of the Backpay Law authorizes the issuance of a backpay certificate of indebtedness
for the payment of the following:jgc:chanrobles.com.ph

"(1) obligations subsisting at the time of the approval of this Act for which the applicant may
directly be liable to the Government or to any of its branches or instrumentalities, or the
corporations owned or controlled by the Government, or to any citizen of the Philippines, or to
any association or corporation organized under the laws of the Philippines, who may be willing
to accept the same for such settlement; (2) his taxes; (3) government hospital bills of the
applicant; (4) land purchased by him from the public domain; and (5) any amount received by
the applicant as gratuity or pension which he has to refund to the Government or to any of its
branches or instrumentalities . . ." (Republic Act 304, as amended by Republic Act 800.)

The question posed by the appeal is whether motor vehicle registration fees come within the
purview of the above provision of the Backpay Law on the theory that they are taxes.

The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles
are in section 8 of that law called "fees." But the appellation is no impediment to their being
considered taxes if taxes they really are. For not the name but the object of the charge
determines whether it is a tax or a fee. Generally speaking, taxes are for revenue, whereas fees
are exactions for purposes of regulation and inspection and are for that reason limited in
amount to what is necessary to cover the cost of the services rendered in that connection.
Hence, "a charge fixed by statute for the service to be performed by an officer, where the
charge has no relation to the value of the services performed and where the amount collected
eventually finds its way into the treasury of the branch of the government whose officer or
officers collected the charge, is not a fee but a tax." (Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of the Motor
Vehicle Office are but a small portion — about 5 per centum — of the total collections from
motor vehicle registration fees. And as proof that the money collected is not intended for the
expenditures of that office, the law itself provides that all such money shall accrue to the funds
for the construction and maintenance of public roads, streets and bridges. It is thus obvious
that the fees are not collected for regulatory purposes, that is to say, as an incident to the
enforcement of regulations governing the operation of motor vehicles on public highways, for
their express object is to provide revenue with which the Government is to discharge one of its
principal functions — the construction and maintenance of public highways for everybody’s
use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for it
provides that "no other taxes or fees than those prescribed in this Act shall be imposed," thus
implying that the charges therein imposed — though called fees — are of the category of taxes.
The provision is contained in section 70, of subsection (b), of the law, as amended by section 17
f Republic Act 587, which reads:jgc:chanrobles.com.ph

"SEC. 70 (b) No other taxes or fees than those prescribed in this Act shall be imposed for the
registration or operation or on the ownership of any motor vehicle, or for the exercise of the
profession of chauffeur, by any municipal corporation, the provisions of any city charter to the
contrary notwithstanding: Provided, however, That any provincial board, city or municipal
council or board, or other competent authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries, within their respective jurisdictions,
as may be authorized and approved by the Secretary of Public Works and Communications, and
also for the use of such public roads, as may be authorized by the President of the Philippines
upon the recommendation of the Secretary of Public Works and Communications, but in none
of these cases, shall any toll fees be charged or collected until and unless the approved
schedule of tolls shall have been posted legibly in a conspicuous place at such toll
station."cralaw virtua1aw library

Villar and de Vega, in their book entitled "The Revised Motor Vehicle Law, Commented and
Annotated," observe that the changes introduced by the amendatory Act prove "the
congressional acknowledgment of the fact that automobile registration fees are at present
considered taxes." The following is their comment on the provision:jgc:chanrobles.com.p

"The origin or source of the first sentence of this subsection, as well as the proviso immediately
following it, is found in section 53 of Act No. 3045 (Old Automobile Law), reading as follows:
"No further fees than those fixed in this Act shall be exacted or demanded by any public
authority of these Islands for the operation or use of any motor vehicle on any public highway,
bridge or ferry, or for the operation of any motor vehicle by the owner thereof: Provided,
however, That nothing in this Act shall be construed to exempt any motor vehicle from the
payment of any lawful and equitable insular, local or municipal property tax imposed
thereupon . . .’

"The provisions above quoted have been amended in this Act by adding thereto after the word
’ferry’ the phrase ’or for the exercise of the profession of chauffeur.’ Evidently, the amendment
was designed to make clearer the intention of the Legislature to exempt all chauffeurs and
motor vehicles from the payment of fees other than those prescribed in this Act, a thing which
is not quite clear in Act No. 3045. The intention of the Legislature was accomplished, not only
by the addition of the phrase above mentioned but also by the incorporation in section 71 of
this Act of a new proviso reading as follows:chanrob1es virtua
1aw library

‘And provided, moreover, That no provincial or municipal authority shall impose or collect any
tax or fee on the business or privilege of maintaining or operating a Public Service motor
vehicle.’

"The subsection, as thus amended, had stayed in the statute books for a considerable period of
time. Liberation came and with it the gradual increase of the rates of registration fees for motor
vehicles to meet the ever-increasing demand for more funds or revenues for the construction
or reconstruction of public highways. The rise of automobile registration fees to the proportion
of a tax, coupled with the circumstance that recently some cities have taken the attitude that
they are legally empowered by this subsection before its amendment by Republic Act 587, to
impose an advalorem tax on motor vehicles, had compelled the Legislature in said Republic Act
587, to again amend the law by adding the word ’taxes’ after the word ’fees,’ by changing the
phrase ’for the operation, or use of any motor vehicle,’ to read ’for the registration or operation
or on the ownership of any motor vehicle, and lastly, by eliminating from the law the proviso
above quoted.

"The amendments last above mentioned proved in unmistakable manner the congressional
acknowledgment of the fact that automobile registration fees are at present considered taxes;
and, at the same time established the new Government policy to divest all cities and other
municipal corporations of the power to impose an advalorem or property tax on motor
vehicles." (Italics ours.)

We note from one of the annexes to the complaint that the Auditor General has also ruled that
motor vehicle registration fees may properly be considered as taxes the purposes of the
Backpay Law.

Our conclusion from the foregoing is that the charges prescribed by the Revised Motor Vehicle
Law for the registration of motor vehicles are taxes and may, therefore, be paid with a backpay
certificate of indebtedness.

Wherefore, the decision appealed from is affirmed, but without special pronouncement as to
costs.

PAL v. Edu, G.R. No. L- 41383 August 15, 1988

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking
for a re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals
in a case where the then Court of First Instance of Rizal dismissed the portion-about complaint
for refund of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the
grantee shall pay to the National Government during the life of this franchise a
tax of two per cent of the gross revenue or gross earning derived by the grantee
from its operations under this franchise. Such tax shall be due and payable
quarterly and shall be in lieu of all taxes of any kind, nature or description,
levied, established or collected by any municipal, provincial or national
automobiles, Provided, that if, after the audit of the accounts of the grantee by
the Commissioner of Internal Revenue, a deficiency tax is shown to be due, the
deficiency tax shall be payable within the ten days from the receipt of the
assessment. The grantee shall pay the tax on its real property in conformity with
existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation

requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles
unless the amounts imposed under Republic Act 4136 were paid. The appellant thus paid,
under protest, the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not
come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint
against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo
Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case
No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his
capacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no
cause of action. In support of the motion to dismiss, defendants repatriation the ruling
in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles
are not taxes, but regulatory fees imposed as an incident of the exercise of the police power of
the state. They contended that while Act 4271 exempts PAL from the payment of any tax
except two per cent on its gross revenue or earnings, it does not exempt the plaintiff from
paying regulatory fees, such as motor vehicle registration fees. The resolution of the motion to
dismiss was deferred by the Court until after trial on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint
"moved by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine
Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals
which certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case
at bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by

Section 8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its
heading speaks of "registration fees." The term is repeated four times in the
body thereof. Equally so, mention is made of the "fee for registration." (Ibid.,
Subsection G) A subsection starts with a categorical statement "No fees shall be
charged." (lbid., Subsection H) The conclusion is difficult to resist therefore that
the Motor Vehicle Act requires the payment not of a tax but of a registration fee
under the police power. Hence the incipient, of the section relied upon by
defendant-appellee under the Back Pay Law, It is not held liable for a tax but for
a registration fee. It therefore cannot make use of a backpay certificate to meet
such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the
imposition of additional tax on privately-owned passenger automobiles,
 motorcycles and scooters was amended by Republic Act No. 5470 which is (sic)
approved on May 30, 1969.) A special science fund was thereby created and its
title expressly sets forth that a tax on privately-owned passenger automobiles,
motorcycles and scooters was imposed. The rates thereof were provided for in
its Section 3 which clearly specifies the" Philippine tax."(Cooley to be paid as
distinguished from the registration fee under the Motor Vehicle Act. There
cannot be any clearer expression therefore of the legislative will, even on the
assumption that the earlier legislation could by subdivision the point be
susceptible of the interpretation that a tax rather than a fee was levied. What is
thus most apparent is that where the legislative body relies on its authority to
tax it expressly so states, and where it is enacting a regulatory measure, it is
equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other
hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the
name but the object of the charge determines whether it is a tax or a fee. Geveia
speaking, taxes are for revenue, whereas fees are exceptional. for purposes of
regulation and inspection and are for that reason limited in amount to what is
necessary to cover the cost of the services rendered in that connection. Hence, a
charge fixed by statute for the service to be person,-When by an officer, where
the charge has no relation to the value of the services performed and where the
amount collected eventually finds its way into the treasury of the branch of the
government whose officer or officers collected the chauffeur, is not a fee but a
tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of
the Motor Vehicle Office are but a small portion—about 5 per centum—of the
total collections from motor vehicle registration fees. And as proof that the
money collected is not intended for the expenditures of that office, the law itself
provides that all such money shall accrue to the funds for the construction and
maintenance of public roads, streets and bridges. It is thus obvious that the fees
are not collected for regulatory purposes, that is to say, as an incident to the
enforcement of regulations governing the operation of motor vehicles on public
highways, for their express object is to provide revenue with which the
Government is to discharge one of its principal functions—the construction and
maintenance of public highways for everybody's use. They are veritable taxes,
not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees
as taxes, for it provides that "no other taxes or fees than those prescribed in this
 Act shall be imposed," thus implying that the charges therein imposed—though
called fees—are of the category of taxes. The provision is contained in section
70, of subsection (b), of the law, as amended by section 17 of Republic Act 587,
which reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the
profession of chauffeur, by any municipal corporation, the
provisions of any city charter to the contrary
notwithstanding: Provided, however, That any provincial board,
city or municipal council or board, or other competent authority
may exact and collect such reasonable and equitable toll fees for
the use of such bridges and ferries, within their respective
jurisdiction, as may be authorized and approved by the Secretary
of Public Works and Communications, and also for the use of such
public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any
toll fee." be charged or collected until and unless the approved
schedule of tolls shall have been posted levied, in a conspicuous
place at such toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle
Law (Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and
1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.—Twenty per centum of the money

collected under the provisions of this Act shall accrue to the road and bridge
funds of the different provinces and chartered cities in proportion to the centum
shall during the next previous year and the remaining eighty per centum shall be
deposited in the Philippine Treasury to create a special fund for the construction
and maintenance of national and provincial roads and bridges. as well as the
streets and bridges in the chartered cities to be alloted by the Secretary of Public
Works and Communications for projects recommended by the Director of Public
Works in the different provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions

of this Act shall be deposited in a special trust account in the National Treasury
to constitute the Highway Special Fund, which shall be apportioned and
expended in accordance with the provisions of the" Philippine Highway Act of
1935. "Provided, however, That the amount necessary to maintain and equip the
Land Transportation Commission but not to exceed twenty per cent of the total
collection during one year, shall be set aside for the purpose. (As amended by RA
64-67, approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the
law requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions a
presumption arising from the use of the term "fees," which appears to have been favored by
the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of
Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.—No original registration of motor

vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented
to the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a
motor vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on
various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. 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. (1955 CCH Fed. tax Course, Par. 3101, citing
Cooley on Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz
v. Araneta 98 Phil. 198.) These exactions are sometimes called regulatory taxes.
(See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue
Code of 1954, which classify taxes on tobacco and alcohol as regulatory taxes.)
(Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd
Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98
Phil. 148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as
the law refers to the imposition on the registration, operation or ownership of a motor vehicle
as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the
imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or
operation or on the ownership of any motor vehicle, or for the exercise of the profession of
chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited
by the respondents, speak of an "additional" tax," where the law could have referred to an
original tax and not one in addition to the tax already imposed on the registration, operation, or
ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act
4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional"
tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain types
of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are
not to be understood as taxes because such fees are very minimal to be revenue-raising. Thus,
they are not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle
registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land
Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended
only for rigidly purposes in the exercise of the State's police powers. Over the years, however,
as vehicular traffic exploded in number and motor vehicles became absolute necessities
without which modem life as we know it would stand still, Congress found the registration of
vehicles a very convenient way of raising much needed revenues. Without changing the earlier
deputy. of registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional
revenues. of government even if one fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the
complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to
what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No.
5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in
legislative franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)."
July 11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner
Radio Communications of the Philippines, Inc., was subject to both the franchise
tax and income tax. In 1964, however, petitioner's franchise was amended by
Republic Act No. 41-42). to the effect that its franchise tax of one and one-half
percentum (1-1/2%) of all gross receipts was provided as "in lieu of any and all
taxes of any kind, nature, or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national from which taxes the
grantee is hereby expressly exempted." The issue raised to this Court now is the
validity of the respondent court's decision which ruled that the exemption under
Republic Act No. 41-42). was repealed by Section 24 of Republic Act No. 5448
dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the

contrary notwithstanding, all corporate taxpayers not specifically
exempt under Sections 24 (c) (1) of this Code shall pay the rates
provided in this section. All corporations, agencies, or
instrumentalities owned or controlled by the government,
including the Government Service Insurance System and the
Social Security System but excluding educational institutions, shall
pay such rate of tax upon their taxable net income as are imposed
by this section upon associations or corporations engaged in a
similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the
statute. There can be no doubt as to the power of Congress to repeal the earlier
exemption it granted. Article XIV, Section 8 of the 1935 Constitution and Article
XIV, Section 5 of the Constitution as amended in 1973 expressly provide that no
franchise shall be granted to any individual, firm, or corporation except under
the condition that it shall be subject to amendment, alteration, or repeal by the
legislature when the public interest so requires. There is no question as to the
public interest involved. The country needs increased revenues. The repealing
clause is clear and unambiguous. There is a listing of entities entitled to tax
exemption. The petitioner is not covered by the provision. Considering the
foregoing, the Court Resolved to DENY the petition for lack of merit. The decision
of the respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly
imposed because the tax exemption in the franchise of PAL was repealed during the period.
However, an amended franchise was given to PAL in 1979. Section 13 of Presidential Decree
No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay
to the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual
net taxable income computed in accordance with the provisions
of the Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with
respect to international airtransport service, only the gross
passengers, mail, and freight revenues. from its outgoing flights
shall be subject to this law.

The tax paid by the grantee under either of the above alternatives shall be in lieu
of all other taxes, duties, royalties, registration, license and other fees and
charges of any kind, nature or description imposed, levied, established, assessed,
or collected by any municipal, city, provincial, or national authority or
government, agency, now or in the future, including but not limited to the
following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier
law. PAL is now exempt from the payment of any tax, fee, or other charge on the registration
and licensing of motor vehicles. Such payments are already included in the basic tax or
franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be
exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration
fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB)
is enjoined functions-the collecting any tax, fee, or other charge on the registration and
licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree
No. 1590.
SO ORDERED.

ESSO Standard Eastern vs. CIR, G.R. Nos. L-28508-9 July 7, 1989

On appeal before us is the decision of the Court of Tax Appeals 1 denying petitioner's claims for
refund of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA
Cases No. 1251 and 1558 respectively.

In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as part of its
ordinary and necessary business expenses, the amount it had spent for drilling and exploration
of its petroleum concessions. This claim was disallowed by the respondent Commissioner of
Internal Revenue on the ground that the expenses should be capitalized and might be written
off as a loss only when a "dry hole" should result. ESSO then filed an amended return where it
asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its
oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount
of P340,822.04, representing margin fees it had paid to the Central Bank on its profit
remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed
deduction for the margin fees paid.

In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in the
amount of P367,994.00, plus 18% interest thereon of P66,238.92 for the period from April
18,1961 to April 18, 1964, for a total of P434,232.92. The deficiency arose from the
disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit
remittances to its New York head office.

ESSO settled this deficiency assessment on August 10, 1964, by applying the tax credit of
P221,033.00 representing its overpayment on its income tax for 1959 and paying under protest
the additional amount of P213,201.92. On August 13, 1964, it claimed the refund of P39,787.94
as overpayment on the interest on its deficiency income tax. It argued that the 18% interest
should have been imposed not on the total deficiency of P367,944.00 but only on the amount
of P146,961.00, the difference between the total deficiency and its tax credit of P221,033.00.

This claim was denied by the CIR, who insisted on charging the 18% interest on the entire
amount of the deficiency tax. On May 4,1965, the CIR also denied the claims of ESSO for refund
of the overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid to the
Central Bank could not be considered taxes or allowed as deductible business expenses.

ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, contending that the
margin fees were deductible from gross income either as a tax or as an ordinary and necessary
business expense. It also claimed an overpayment of its tax by P434,232.92 in 1960, for the
same reason. Additionally, ESSO argued that even if the amount paid as margin fees were not
legally deductible, there was still an overpayment by P39,787.94 for 1960, representing excess
interest.

After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and
P434,234.92 for 1960 but sustained its claim for P39,787.94 as excess interest. This portion of
the decision was appealed by the CIR but was affirmed by this Court in Commissioner of Internal
Revenue v. ESSO, G.R. No. L-28502- 03, promulgated on April 18, 1989. ESSO for its part
appealed the CTA decision denying its claims for the refund of the margin fees P102,246.00 for
1959 and P434,234.92 for 1960. That is the issue now before us.

II

The first question we must settle is whether R.A. 2009, entitled An Act to Authorize the Central
Bank of the Philippines to Establish a Margin Over Banks' Selling Rates of Foreign Exchange, is a
police measure or a revenue measure. If it is a revenue measure, the margin fees paid by the
petitioner to the Central Bank on its profit remittances to its New York head office should be
deductible from ESSO's gross income under Sec. 30(c) of the National Internal Revenue Code.
This provides that all taxes paid or accrued during or within the taxable year and which are
related to the taxpayer's trade, business or profession are deductible from gross income.

The petitioner maintains that margin fees are taxes and cites the background and legislative
history of the Margin Fee Law showing that R.A. 2609 was nothing less than a revival of the 17%
excise tax on foreign exchange imposed by R.A. 601. This was a revenue measure formally
proposed by President Carlos P. Garcia to Congress as part of, and in order to balance, the
budget for 1959-1960. It was enacted by Congress as such and, significantly, properly originated
in the House of Representatives. During its two and a half years of existence, the measure was
one of the major sources of revenue used to finance the ordinary operating expenditures of the
government. It was, moreover, payable out of the General Fund.

On the claimed legislative intent, the Court of Tax Appeals, quoting established principles,
pointed out that —

We are not unmindful of the rule that opinions expressed in debates, actual proceedings of the
legislature, steps taken in the enactment of a law, or the history of the passage of the law
through the legislature, may be resorted to as an aid in the interpretation of a statute which is
ambiguous or of doubtful meaning. The courts may take into consideration the facts leading up
to, coincident with, and in any way connected with, the passage of the act, in order that they
may properly interpret the legislative intent. But it is also well-settled jurisprudence that only in
extremely doubtful matters of interpretation does the legislative history of an act of Congress
become important. As a matter of fact, there may be no resort to the legislative history of the
enactment of a statute, the language of which is plain and unambiguous, since such legislative
history may only be resorted to for the purpose of solving doubt, not for the purpose of
creating it. [50 Am. Jur. 328.]

Apart from the above consideration, there are at least two cases where we have held that a
margin fee is not a tax but an exaction designed to curb the excessive demands upon our
international reserve.

In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose
P. Bengzon:

A margin levy on foreign exchange is a form of exchange control or restriction

designed to discourage imports and encourage exports, and ultimately, 'curtail
any excessive demand upon the international reserve' in order to stabilize the
currency. Originally adopted to cope with balance of payment pressures,
exchange restrictions have come to serve various purposes, such as limiting non-
essential imports, protecting domestic industry and when combined with the use
of multiple currency rates providing a source of revenue to the government, and
are in many developing countries regarded as a more or less inevitable
concomitant of their economic development programs. The different measures
of exchange control or restriction cover different phases of foreign exchange
transactions, i.e., in quantitative restriction, the control is on the amount of
foreign exchange allowable. In the case of the margin levy, the immediate
impact is on the rate of foreign exchange; in fact, its main function is to control
the exchange rate without changing the par value of the peso as fixed in the
Bretton Woods Agreement Act. For a member nation is not supposed to alter its
exchange rate (at par value) to correct a merely temporary disequilibrium in its
balance of payments. By its nature, the margin levy is part of the rate of
exchange as fixed by the government.

As to the contention that the margin levy is a tax on the purchase of foreign exchange and
hence should not form part of the exchange rate, suffice it to state that We have already held
the contrary for the reason that a tax is levied to provide revenue for government operations,
while the proceeds of the margin fee are applied to strengthen our country's international
reserves.

Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, 3 the
same idea was expressed, though in connection with a different levy, through Justice J.B.L.
Reyes:

Neither do we find merit in the argument that the 20% retention of exporter's
foreign exchange constitutes an export tax. A tax is a levy for the purpose of
providing revenue for government operations, while the proceeds of the 20%
retention, as we have seen, are applied to strengthen the Central Bank's
international reserve.
We conclude then that the margin fee was imposed by the State in the exercise of its police
power and not the power of taxation.

Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless be
considered necessary and ordinary business expenses and therefore still deductible from its
gross income. The fees were paid for the remittance by ESSO as part of the profits to the head
office in the Unites States. Such remittance was an expenditure necessary and proper for the
conduct of its corporate affairs.

The applicable provision is Section 30(a) of the National Internal Revenue Code reading as
follows:

SEC. 30. Deductions from gross income in computing net income there shall be
allowed as deductions

(a) Expenses:

(1) In general. — All the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered; traveling expenses while away from home in the pursuit of a trade or
business; and rentals or other payments required to be made as a condition to
the continued use or possession, for the purpose of the trade or business, of
property to which the taxpayer has not taken or is not taking title or in which he
has no equity.

(2) Expenses allowable to non-resident alien individuals and foreign corporations.

— In the case of a non-resident alien individual or a foreign corporation, the
expenses deductible are the necessary expenses paid or incurred in carrying on
any business or trade conducted within the Philippines exclusively.

In the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of

Internal Revenue, 4 the Court laid down the rules on the deductibility of business expenses,
thus:

The principle is recognized that when a taxpayer claims a deduction, he must

point to some specific provision of the statute in which that deduction is
authorized and must be able to prove that he is entitled to the deduction which
the law allows. As previously adverted to, the law allowing expenses as
deduction from gross income for purposes of the income tax is Section 30(a) (1)
of the National Internal Revenue which allows a deduction of 'all the ordinary
and necessary expenses paid or incurred during the taxable year in carrying on
any trade or business.' An item of expenditure, in order to be deductible under
this section of the statute, must fall squarely within its language.
 We come, then, to the statutory test of deductibility where it is axiomatic that to
be deductible as a business expense, three conditions are imposed, namely: (1)
the expense must be ordinary and necessary, (2) it must be paid or incurred
within the taxable year, and (3) it must be paid or incurred in carrying on a trade
or business. In addition, not only must the taxpayer meet the business test, he
must substantially prove by evidence or records the deductions claimed under
the law, otherwise, the same will be disallowed. The mere allegation of the
taxpayer that an item of expense is ordinary and necessary does not justify its
deduction.

While it is true that there is a number of decisions in the United States delving on
the interpretation of the terms 'ordinary and necessary' as used in the federal
tax laws, no adequate or satisfactory definition of those terms is possible.
Similarly, this Court has never attempted to define with precision the terms
'ordinary and necessary.' There are however, certain guiding principles worthy of
serious consideration in the proper adjudication of conflicting claims. Ordinarily,
an expense will be considered 'necessary' where the expenditure is appropriate
and helpful in the development of the taxpayer's business. It is 'ordinary' when it
connotes a payment which is normal in relation to the business of the taxpayer
and the surrounding circumstances. The term 'ordinary' does not require that
the payments be habitual or normal in the sense that the same taxpayer will
have to make them often; the payment may be unique or non-recurring to the
particular taxpayer affected.

There is thus no hard and fast rule on the matter. The right to a deduction
depends in each case on the particular facts and the relation of the payment to
the type of business in which the taxpayer is engaged. The intention of the
taxpayer often may be the controlling fact in making the determination.
Assuming that the expenditure is ordinary and necessary in the operation of the
taxpayer's business, the answer to the question as to whether the expenditure is
an allowable deduction as a business expense must be determined from the
nature of the expenditure itself, which in turn depends on the extent and
permanency of the work accomplished by the expenditure.

In the light of the above explanation, we hold that the Court of Tax Appeals did not err when it
held on this issue as follows:

Considering the foregoing test of what constitutes an ordinary and necessary

deductible expense, it may be asked: Were the margin fees paid by petitioner on
its profit remittance to its Head Office in New York appropriate and helpful in the
taxpayer's business in the Philippines? Were the margin fees incurred for
purposes proper to the conduct of the affairs of petitioner's branch in the
Philippines? Or were the margin fees incurred for the purpose of realizing a
profit or of minimizing a loss in the Philippines? Obviously not. As stated in the
 Lopez case, the margin fees are not expenses in connection with the production
or earning of petitioner's incomes in the Philippines. They were expenses
incurred in the disposition of said incomes; expenses for the remittance of funds
after they have already been earned by petitioner's branch in the Philippines for
the disposal of its Head Office in New York which is already another distinct and
separate income taxpayer.

xxx

Since the margin fees in question were incurred for the remittance of funds to
petitioner's Head Office in New York, which is a separate and distinct income
taxpayer from the branch in the Philippines, for its disposal abroad, it can never
be said therefore that the margin fees were appropriate and helpful in the
development of petitioner's business in the Philippines exclusively or were
incurred for purposes proper to the conduct of the affairs of petitioner's branch
in the Philippines exclusively or for the purpose of realizing a profit or of
minimizing a loss in the Philippines exclusively. If at all, the margin fees were
incurred for purposes proper to the conduct of the corporate affairs of Standard
Vacuum Oil Company in New York, but certainly not in the Philippines.

ESSO has not shown that the remittance to the head office of part of its profits was made in
furtherance of its own trade or business. The petitioner merely presumed that all corporate
expenses are necessary and appropriate in the absence of a showing that they are illegal
or ultra vires. This is error. The public respondent is correct when it asserts that "the paramount
rule is that claims for deductions are a matter of legislative grace and do not turn on mere
equitable considerations ... . The taxpayer in every instance has the burden of justifying the
allowance of any deduction claimed." 5

It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot
now claim this as an ordinary and necessary expense paid or incurred in carrying on its own
trade or business.

WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's claims for refund
of P102,246.00 for 1959 and P434,234.92 for 1960, is AFFIRMED, with costs against the
petitioner.

SO ORDERED.

Lozano vs. ERB, G.R. Nos. 95203-05 : December 18, 1990

The petitioners pray for injunctive relief, to stop the Energy Regulatory Board (Board
hereinafter) from implementing its Order, dated September 21, 1990, mandating a provisional
increase in the prices of petroleum and petroleum products, as follows:
PRODUCTS IN PESOS PER LITER
OPSF
Premium Gasoline 1.7700
Regular Gasoline 1.7700
Avturbo 1.8664
Kerosene 1.2400
Diesel Oil 1.2400
Fuel Oil 1.4900
Feedstock 1.4900
LPG 0.8487
Asphalts 2.7160
Thinners 1.7121 1
It appears that on September 10, 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum
Corporation, and Petron Corporation proferred separate applications with the Board for
permission to increase the wholesale posted prices of petroleum products, as follows:
Caltex P3.2697 per liter
Shell 2.0338 per liter
Petron 2.00 per liter 2
and meanwhile, for provisional authority to increase temporarily such wholesale posted prices
pending further proceedings.:-cralaw
On September 21, 1990, the Board, in a joint (on three applications) Order granted provisional
relief as follows:
WHEREFORE, considering the foregoing, and pursuant to Section 8 of Executive Order No. 172,
this Board hereby grants herein applicants' prayer for provisional relief and, accordingly,
authorizes said applicants a weighted average provisional increase of ONE PESO AND FORTY-
TWO CENTAVOS (P1.42) per liter in the wholesale posted prices of their various petroleum
products enumerated below, refined and/or marketed by them locally. 3
The petitioners submit that the above Order had been issued with grave abuse of discretion,
tantamount to lack of jurisdiction, and correctible by Certiorari.
The petitioner, Senator Ernesto Maceda, 4 also submits that the same was issued without
proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172;
that the Board, in decreeing an increase, had created a new source for the Oil Price Stabilization
Fund (OPSF), or otherwise that it had levied a tax, a power vested in the legislature, and/or that
it had "re-collected", by an act of taxation, ad valorem taxes on oil which Republic Act No. 6965
had abolished.
The petitioner, Atty. Oliver Lozano, 5 likewise argues that the Board's Order was issued without
notice and hearing, and hence, without due process of law.
The intervenor, the Trade Union of the Philippines and Allied Services (TUPAS/FSM)-W.F.T.U., 6
argues on the other hand, that the increase cannot be allowed since the respondents oil
companies had not exhausted their existing oil stock which they had bought at old prices and
that they cannot be allowed to charge new rates for stock purchased at such lower rates.
The Court set the cases (in G.R. Nos. 95203-05) for hearing on October 25, 1990, in which
Senator Maceda and his counsel, Atty. Alexander Padilla, argued. The Solicitor General, on
behalf of the Board, also presented his arguments, together with Board Commissioner Rex
Tantiangco. Attys. Federico Alikpala, Jr. and Joselia Poblador represented the oil firms (Petron
and Caltex, respectively).
The parties were thereafter required to submit their memorandums after which, the Court
considered the cases submitted for resolution.
On November 20, 1990, the Court ordered these cases consolidated.
On November 27, 1990, we gave due course to both petitions.
The Court finds no merit in these petitions.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have overlooked the
provisions of Section 8 of Executive Order No. 172, which we quote:
"SECTION 8. Authority to Grant Provisional Relief . — The Board may, upon the filing of an
application, petition or complaint or at any stage thereafter and without prior hearing, on the
basis of supporting papers duly verified or authenticated, grant provisional relief on motion of a
party in the case or on its own initiative, without prejudice to a final decision after hearing,
should the Board find that the pleadings, together with such affidavits, documents and other
evidence which may be submitted in support of the motion, substantially support the
provisional order: Provided, That the Board shall immediately schedule and conduct a hearing
thereon within thirty (30) days thereafter, upon publication and notice to all affected parties.:
nad
As the Order itself indicates, the authority for provisional increase falls within the above
provision.
There is no merit in the Senator's contention that the "applicable" provision is Section 3,
paragraph (e) of the Executive Order, which we quote:
(e) Whenever the Board has determined that there is a shortage of any petroleum product, or
when public interest so requires, it may take such steps as it may consider necessary, including
the temporary adjustment of the levels of prices of petroleum products and the payment to the
Oil Price Stabilization Fund created under Presidential Decree No. 1956 by persons or entities
engaged in the petroleum industry of such amounts as may be determined by the Board, which
will enable the importer to recover its cost of importation.
What must be stressed is that while under Executive Order No. 172, a hearing is indispensable,
it does not preclude the Board from ordering, ex parte, a provisional increase, as it did here,
subject to its final disposition of whether or not: (1) to make it permanent; (2) to reduce or
increase it further; or (3) to deny the application. Section 37 paragraph (e) is akin to a
temporary restraining order or a writ of preliminary attachment issued by the courts, which are
given ex parte, and which are subject to the resolution of the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate
exclusively of the other, in that the Board may resort to one but not to both at the same time.
Section 3(e) outlines the jurisdiction of the Board and the grounds for which it may decree a
price adjustment, subject to the requirements of notice and hearing. Pending that, however, it
may order, under Section 8, an authority to increase provisionally, without need of a hearing,
subject to the final outcome of the proceeding. The Board, of course, is not prevented from
conducting a hearing on the grant of provisional authority — which is of course, the better
procedure — however, it cannot be stigmatized later if it failed to conduct one. As we held in
Citizens' Alliance for Consumer Protection v. Energy Regulatory Board. 7
In the light of Section 8 quoted above, public respondent Board need not even have conducted
formal hearings in these cases prior to issuance of its Order of 14 August 1987 granting a
provisional increase of prices. The Board, upon its own discretion and on the basis of
documents and evidence submitted by private respondents, could have issued an order
granting provisional relief immediately upon filing by private respondents of their respective
applications. In this respect, the Court considers the evidence presented by private respondents
in support of their applications — i.e., evidence showing that importation costs of petroleum
products had gone up; that the peso had depreciated in value; and that the Oil Price
Stabilization Fund (OPSF) had by then been depleted — as substantial and hence constitutive of
at least prima facie basis for issuance by the Board of a provisional relief order granting an
increase in the prices of petroleum products. 8
We do not therefore find the challenged action of the Board to have been done in violation of
the due process clause. The petitioners may contest however, the applications at the hearings
proper.
Senator Maceda's attack on the Order in question on premises that it constitutes an act of
taxation or that it negates the effects of Republic Act No. 6965, cannot prosper. Republic Act
No. 6965 operated to lower taxes on petroleum and petroleum products by imposing specific
taxes rather than ad valorem taxes thereon; it is, not, however, an insurance against an "oil
hike", whenever warranted, or is it a price control mechanism on petroleum and petroleum
products. The statute had possibly forestalled a larger hike, but it operated no more.: nad
The Board Order authorizing the proceeds generated by the increase to be deposited to the
OPSF is not an act of taxation. It is authorized by Presidential Decree No. 1956, as amended by
Executive Order No. 137, as follows:
SECTION 8. There is hereby created a Trust Account in the books of accounts of the Ministry of
Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or changes in world
market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund
(OPSF) may be sourced from any of the following:
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 by persons or companies engaged in the business of importing, manufacturing and/or
marketing petroleum products;
d) Any resulting peso cost 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 rates as fixed by the Board of Energy.
Anent claims that oil companies cannot charge new prices for oil purchased at old rates, suffice
it to say that the increase in question was not prompted alone by the increase in world oil
prices arising from tension in the Persian Gulf. What the Court gathers from the pleadings as
well as events of which it takes judicial notice, is that: (1) as of June 30, 1990, the OPSF has
incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen to P28.00 to $1.00; (3) the
country's balance of payments is expected to reach $1 Billion; (4) our trade deficit is at $2.855
Billion as of the first nine months of the year.
Evidently, authorities have been unable to collect enough taxes necessary to replenish the OPSF
as provided by Presidential Decree No. 1956, and hence, there was no available alternative but
to hike existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a
funding designed to guarantee oil firms' profits although as a subsidy, or a trust account, the
Court has no doubt that oil firms make money from it. As we held there, however, the OPSF
was established precisely to protect the consuming public from the erratic movement of oil
prices and to preclude oil companies from taking advantage of fluctuations occurring every so
often. As a buffer mechanism, it stabilizes domestic prices by bringing about a uniform rate
rather than leaving pricing to the caprices of the market.
In all likelihood, therefore, an oil hike would have probably been imminent, with or without
trouble in the Gulf, although trouble would have probably aggravated it.: nad
The Court is not to be understood as having prejudged the justness of an oil price increase amid
the above premises. What the Court is saying is that it thinks that based thereon, the
Government has made out a prima facie case to justify the provisional increase in question. Let
the Court therefore make clear that these findings are not final; the burden, however, is on the
petitioners' shoulders to demonstrate the fact that the present economic picture does not
warrant a permanent increase.
There is no doubt that the increase in oil prices in question (not to mention another one
impending, which the Court understands has been under consideration by policy-makers) spells
hard(er) times for the Filipino people. The Court can not, however, debate the wisdom of policy
or the logic behind it (unless it is otherwise arbitrary), not because the Court agrees with policy,
but because the Court is not the suitable forum for debate. It is a question best judged by the
political leadership which after all, determines policy, and ultimately, by the electorate, that
stands to be better for it or worse off, either in the short or long run.
At this point, the Court shares the indignation of the people over the conspiracy of events and
regrets its own powerlessness, if by this Decision it has been powerless. The constitutional
scheme of things has simply left it with no choice.
In fine, we find no grave abuse of discretion committed by the respondent Board in issuing its
questioned Order.
WHEREFORE, these petitions are DISMISSED. No costs.
SO ORDERED.

Villegas vs. Hui Tsai, G.R. No. L-29646 November 10, 1978

This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent
Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797,
the dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against

the respondents, declaring Ordinance No. 6 37 of the City of Manila null and
void. The preliminary injunction is made permanent. No pronouncement as to
cost.

SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.)
FRANC
ISCO
ARCA

J
u
d
g
e
1
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on
February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on
March 27, 1968. 2

City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE

PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE
ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY
OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE
MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila
and paying the permit fee of P50.00 except persons employed in the diplomatic or consular
missions of foreign countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective households,
and members of religious orders or congregations, sect or denomination, who are not paid
monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months
to six (6) months or fine of not less than P100.00 but not more than P200.00 or both such fine
and imprisonment, upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed
a petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No.
72797, praying for the issuance of the writ of preliminary injunction and restraining order to
stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance
No. 6537 null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:

1) As a revenue measure imposed on aliens employed in the City of Manila,

Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity
in taxation;

2) As a police power measure, it makes no distinction between useful and non-

useful occupations, imposing a fixed P50.00 employment permit, which is out of
proportion to the cost of registration and that it fails to prescribe any standard
to guide and/or limit the action of the Mayor, thus, violating the fundamental
principle on illegal delegation of legislative powers:
 3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who
are thus, deprived of their rights to life, liberty and property and therefore,
violates the due process and equal protection clauses of the Constitution. 7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September
17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and making
permanent the writ of preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the
present petition on March 27, 1969. Petitioner assigned the following as errors allegedly
committed by respondent Judge in the latter's decision of September 17,1968: 9

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW

IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.

II

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF

LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST
UNDUE DESIGNATION OF LEGISLATIVE POWER.

III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF

LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND
EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on
the ground that it violated the rule on uniformity of taxation because the rule on uniformity of
taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a
tax or revenue measure but is an exercise of the police power of the state, it being principally a
regulatory measure in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which
requires that the alien shall secure an employment permit from the Mayor involves the exercise
of discretion and judgment in the processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character the second part which requires
the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no
logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is
obvious that the purpose of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider
valid substantial differences in situation among individual aliens who are required to pay it.
Although the equal protection clause of the Constitution does not forbid classification, it is
imperative that the classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The same amount of P50.00 is
being collected from every employed alien whether he is casual or permanent, part time or full
time or whether he is a lowly employee or a highly paid executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails to
state any policy or to set up any standard to guide or limit the mayor's action, expresses no
purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal,
and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power
to grant or deny the issuance of building permits, such ordinance is invalid, being an undefined
and unlimited delegation of power to allow or prevent an activity per se lawful. 10

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the
Supreme Court ruled against the interpretation of uncontrolled power as it vested in the
administrative officer an arbitrary discretion to be exercised without a policy, rule, or standard
from which it can be measured or controlled.

It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse
permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is
not uncontrolled discretion but legal discretion to be exercised within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to
guide the mayor in the exercise of the power which has been granted to him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule of the
Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of Manila
who may withhold or refuse it at will is tantamount to denying him the basic right of the people
in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a
State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be
deprived of life without due process of law. This guarantee includes the means of livelihood.
The shelter of protection under the due process and equal protection clause is given to all
persons, both aliens and citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to

costs.
SO ORDERED.

Progressive Dev. Corp. vs. QC, G.R. No. L-36081 April 24, 1989

On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No.
7997, Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which
provided:

Sec. 3. Supervision Fee.- Privately owned and operated public markets shall
submit monthly to the Treasurer's Office, a certified list of stallholders showing
the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay
10% of the gross receipts from stall rentals to the City, ... , as supervision fee.
Failure to submit said list and to pay the corresponding amount within the
period herein prescribed shall subject the operator to the penalties provided in
this Code ... including revocation of permit to operate. ... .1

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March
1972, which reads:

SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on

rentals or lease of space in privately-owned public markets in Quezon City.

xxx xxx xxx

SECTION 3. For the effective implementation of this Ordinance, owners of

privately owned public markets shall submit ... a monthly certified list of
stallholders of lessees of space in their markets showing ... :

a. name of stallholder or lessee;

b. amount of rental;

c. period of lease, indicating therein whether the same is on a daily, monthly or

yearly basis.

xxx xxx xxx

SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3)
consecutive months, the City shall revoke the permit of the privately-owned
market to operate and/or take any other appropriate action or remedy allowed
by law for the collection of the overdue percentage tax and surcharge.

xxx xxx xxx 2

On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a
public market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition
with Preliminary Injunction against respondent before the then Court of First Instance of Rizal
on the ground that the supervision fee or license tax imposed by the above-mentioned
ordinances is in reality a tax on income which respondent may not impose, the same being
expressly prohibited by Republic Act No. 2264, as amended.

In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the
questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax
on income. The Solicitor General also filed an Answer arguing that petitioner, not having paid
the ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to
question, and was estopped from questioning, its validity; that the tax on gross receipts was not
a tax on income but one imposed for the enjoyment of the privilege to engage in a particular
trade or business which was within the power of respondent to impose.

In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest
the five percent (5%) tax under Ordinance No. 9236 for the months of June to September 1972.
Two (2) days later, on 25 September 1972, petitioner moved for judgment on the pleadings,
alleging that the material facts had been admitted by the parties.

On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned
imposition is not a tax on income, but rather a privilege tax or license fee which local
governments, like respondent, are empowered to impose and collect.

Having failed to obtain reconsideration of said decision, petitioner came to us on the present
Petition for Review.

The only issue to be resolved here is whether the tax imposed by respondent on gross receipts
of stall rentals is properly characterized as partaking of the nature of an income tax or,
alternatively, of a license fee.

We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as
the Revised Charter of Quezon City, authorizes the City Council:

xxx xxx xxx

(b) To provide for the levy and collection of taxes and other city revenues and
apply the same to the payment of city expenses in accordance with
appropriations.

(c) To tax, fix the license fee, and regulate the business of the following:

... preparation and sale of meat, poultry, fish, game, butter, cheese, lard
vegetables, bread and other provisions. 4
The scope of legislative authority conferred upon the Quezon City Council in respect of
businesses like that of the petitioner, is comprehensive: the grant of authority is not only" [to]
regulate" and "fix the license fee," but also " to tax" 5

Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act, provides that:

Any provision of law to the contrary notwithstanding, all chartered

cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or municipal
districts by requiring them to secure licenses at rates fixed by the municipal
board or city council of the city, the municipal council of the municipality, or the
municipal district council of the municipal district; to collect fees and charges for
service rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business,
profession or occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes just and uniform
taxes licenses or fees: ... 6

It is now settled that Republic Act No. 2264 confers upon local governments broad taxing
authority extending to almost "everything, excepting those which are mentioned therein,"
provided that the tax levied is "for public purposes, just and uniform," does not transgress any
constitutional provision and is not repugnant to a controlling statute. 7 Both the Local
Autonomy Act and the Charter of respondent clearly show that respondent is authorized to fix
the license fee collectible from and regulate the business of petitioner as operator of a
privately-owned public market.

Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from
capital invested in the construction of the Farmers Market, practically operates as a tax on
income, one of those expressly excepted from respondent's taxing authority, and thus beyond
the latter's competence. Petitioner cites the same Section 2 of the Local Autonomy Act which
goes on to state: 8

... Provided, however, That no city, municipality or municipal district may levy or
impose any of the following:

xxx xxx xxx

(g) Taxes on income of any kind whatsoever;

The term "tax" frequently applies to all kinds of exactions of monies which become public
funds. It is often loosely used to include levies for revenue as well as levies for regulatory
purposes such that license fees are frequently called taxes although license fee is a legal
concept distinguishable from tax: the former is imposed in the exercise of police power
primarily for purposes of regulation, while the latter is imposed under the taxing power
primarily for purposes of raising revenues. 9 Thus, if the generating of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that incidentally revenue is also obtained does not make the
imposition a tax. 10

To be considered a license fee, the imposition questioned must relate to an occupation or

activity that so engages the public interest in health, morals, safety and development as to
require regulation for the protection and promotion of such public interest; the imposition
must also bear a reasonable relation to the probable expenses of regulation, taking into
account not only the costs of direct regulation but also its incidental consequences as
well. 11 When an activity, occupation or profession is of such a character that inspection or
supervision by public officials is reasonably necessary for the safeguarding and furtherance of
public health, morals and safety, or the general welfare, the legislature may provide that such
inspection or supervision or other form of regulation shall be carried out at the expense of the
persons engaged in such occupation or performing such activity, and that no one shall engage
in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the
inspection or supervision has been paid. 12 Accordingly, a charge of a fixed sum which bears no
relation at all to the cost of inspection and regulation may be held to be a tax rather than an
exercise of the police power. 13

In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution
No. 7350 passed on 30 January 1967 by respondents's local legislative body authorizing
petitioner to establish and operate a market with a permit to sell fresh meat, fish, poultry and
other foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for
continuous operation, the obligation to "abide by and comply with the ordinances, rules and
regulations prescribed for the establishment, operation and maintenance of markets in Quezon
City." 15

The "Farmers' Market and Shopping Center" being a public market in the' sense of a market
open to and inviting the patronage of the general public, even though privately owned,
petitioner's operation thereof required a license issued by the respondent City, the issuance of
which, applying the standards set forth above, was done principally in the exercise of the
respondent's police power. 16 The operation of a privately owned market is, as correctly noted
by the Solicitor General, equivalent to or quite the same as the operation of a government-
owned market; both are established for the rendition of service to the general public, which
warrants close supervision and control by the respondent City, 17 for the protection of the
health of the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in the
market, compliance of all food stuffs sold therein with applicable food and drug and related
standards, for the prevention of fraud and imposition upon the buying public, and so forth.

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the meaning of
Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the
business in which the petitioner is engaged. While it is true that the amount imposed by the
questioned ordinances may be considered in determining whether the exaction is really one for
revenue or prohibition, instead of one of regulation under the police power, 18 it nevertheless
will be presumed to be reasonable. Local' governments are allowed wide discretion in
determining the rates of imposable license fees even in cases of purely police power measures,
in the absence of proof as to particular municipal conditions and the nature of the business
being taxed as well as other detailed factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates. 19 Thus:

[A]n ordinance carries with it the presumption of validity. The question of

reasonableness though is open to judicial inquiry. Much should be left thus to
the discretion of municipal authorities. Courts will go slow in writing off an
ordinance as unreasonable unless the amount is so excessive as to be
prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule which
has gained acceptance is that factors relevant to such an inquiry are the
municipal conditions as a whole and the nature of the business made subject to
imposition. 20

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and
excessive and so grossly disproportionate to the costs of the regulatory service being
performed by the respondent as to compel the Court to characterize the imposition as a
revenue measure exclusively. The lower court correctly held that the gross receipts from stall
rentals have been used only as a basis for computing the fees or taxes due respondent to cover
the latter's administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs
to the public. The use of the gross amount of stall rentals as basis for determining the
collectible amount of license tax, does not by itself, upon the one hand, convert or render the
license tax into a prohibited city tax on income. Upon the other hand, it has not been suggested
that such basis has no reasonable relationship to the probable costs of regulation and
supervision of the petitioner's kind of business. For, ordinarily, the higher the amount of stall
rentals, the higher the aggregate volume of foodstuffs and related items sold in petitioner's
privately owned market; and the higher the volume of goods sold in such private market, the
greater the extent and frequency of inspection and supervision that may be reasonably
required in the interest of the buying public. Moreover, what we started with should be
recalled here: the authority conferred upon the respondent's City Council is not merely "to
regulate" but also embraces the power "to tax" the petitioner's business.

Finally, petitioner argues that respondent is without power to impose a gross receipts tax for
revenue purposes absent an express grant from the national government. As a general rule,
there must be a statutory grant for a local government unit to impose lawfully a gross receipts
tax, that unit not having the inherent power of taxation. 21 The rule, however, finds no
application in the instant case where what is involved is an exercise of, principally, the
regulatory power of the respondent City and where that regulatory power is expressly
accompanied by the taxing power.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18,
is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of merit.

SO ORDERED.

City of Ozamis vs. Lumapas, G.R. No. L-30727 July 15, 1975

Appeal by certiorari from the decision, dated March 18, 1969, of respondent Judge Geronimo R.
Marave, of the Court of First Instance of Misamis Occidental, Branch II, Ozamiz City, declaring
Ordinance No. 466, series of 1964, of the Municipal Board of the City of Ozamiz, null and void
(Civil Case No. OZ-159), and ordering petitioner to return to respondent Serapio S. Lumapas the
sum of P1,243.00, representing the amount collected as parking fees, by virtue of the
ordinance, without costs.

The facts of this case, which are not disputed, are as follows:

Respondent Serapio S. Lumapas is an operator of transportation buses for passengers and

cargoes, under the name of Romar Line, with Ozamiz City and Pagadian, Zamboanga del Sur, as
terminal points, by virtue of a certificate of public convenience issued to him by the Public
Service Commission. On September 15, 1964, the Municipal Board of Ozamiz City enacted the
following:

ORDINANCE NO. 466

AN ORDINANCE IMPOSING PARKING FEES FOR EVERY MOTOR VEHICLE PARKED

ON ANY PORTION OF THE EXISTING PARKING SPACE IN THE CITY OF OZAMIZ. Be
it ordained by the Municipal Board of the City of Ozamiz, that:

SECTION 1 — There is hereby imposed parking fees for all motor vehicles parked
on any portion of the duly designated parking areas in the City of Ozamiz;

SECTION 2. — Motor Vechicles' as used in this ordinance shall be construed to

mean all vehicles run by engine whether the same is offered for passengers or
for cargoes of whatever kind or nature;

SECTION 3. — The word "Parking" as used in this ordinance shall be construed to

mean, when a motor vehicle of whatever kind is stopped on any portion of the
existing parking areas for the purpose of loading and unloading passengers or
cargoes;
 SECTION 4. — For purposes of the fee hereinabove provided, the following
schedule of rates collectible daily from the conductor, driver, operator and/or
owner must be observed:

For Passenger

(a) Passenger Bus ........................................................................ P1.00

(b) Weapon Carrier, Baby Bus & others of similar nature ..... .70

(c) Pick Up, Jeepneys, PU Cars and others of similar

nature .......................................................................................................................
.50

For Cargoes

(a) Cargo Trucks .......................................................................... 1.00

(b) Pick Up, Jeeps, Jeepneys, Weapon Carriers & Others of similar
nature ......................................................................................................................
.70

SECTION 5. — That the City Treasurer or his authorized representative is hereby

empowered to collect the herein parking fees using any form of official receipt
he may devise, from the conductor, driver, operator and/or owner of the motor
vehicles parked in said designated parking areas;

SECTION 6. — Any person or persons, violating any provision of this ordinance

shall, upon conviction thereof, be punished by an imprisonment of not less than
two (2) months nor more than six (6) months, or by a fine in the sum of not less
than P100.00 but not more than P400.00 or both such fine and imprisonment at
the discretion of the Court;

SECTION 7. — This ordinance shall take effect immediately upon its approval.

Enacted, September 15, 1964,

Approved, October 7, 1964.1

After approval of the above-quoted ordinance, the City of Ozamiz began collecting the
prescribed parking' fees and collected from respondent-appellee Serapio S. Lumapas, who had
paid under protest, the parking fees at One Peso (P1.00) for each of his buses, from October
1964 to January 1967, or an aggregate amount of P1,259.002 for which official receipts were
issued by petitioner.
About four (4) years later, or on January 11, 1968, respondent Serapio S. Lumapas filed a
complaint, dated August 3, 19673 against the City of Ozamiz, represented by the City Mayor,
Municipal Board, City Treasurer, and City Auditor, with the Court of First instance of Misamis
Occidental, Branch II (Civil Case No. OZ-159), for recovery of parking fees, alleging, among
others, that said Ordinance No. 466 is ulta vires, and praying that judgment be issued (1)
nullifying Ordinance No. 466, series of 1964, and (2) ordering the Municipal Board to
appropriate the amount of P1,459.00 for the reimbursement of P1,259.00 he had paid as
parking fees, plus P200.00 as attorney's fees.

On January 25, 1968, petitioner filed its answer, with affirmative defenses 4 to which
respondent-appellee Serapio S. Lumapas filed his reply, dated January 30, 1968. 5

On January 3, 1969, the parties, through their respective counsel, filed the following:

STIPULATION OF FACTS

COME NOW the plaintiff and the defendants, through their respective counsel,
and unto this Honorable Court respectfully submit this stipulation of facts, to wit:

(1) That the area enclosed in red pencil in the sketch is a market site of the City
of Ozamiz which holds the same in its proprietary character as evidenced by Tax
Declaration No. 51234. This area is for public use.

(2) That the Zulueta Street is now extended up to the end of the market site
passing a row of tiendas up to the end marked "toilet" in the sketch plan of
market site when the market building was constructed in 1969;

(3) That on the right side near the row of tiendas and near the toilet and marked
with series of x's and where the buses of plaintiff were parking waiting for
passengers going to the south;

(4) That this space marked "rig parking" in the sketch plan marked "x" has been
designated by City Ordinance No. 233 as a parking place marked Exhibit "2";

(5) That the defendant City Government has been collecting parking fees and
issued corresponding official receipts to the plaintiff for each unit belonging to
the plaintiff every time it left Ozamiz City from said parking place but once a day
at one peso per unit;

(6) That the total amount of parking fees collected from the plaintiff by the
defendant is P1,243.00 as per official receipts actually counted in the presence of
both parties;
 (7) That the plaintiff made a demand for the reimbursement of the total amount
collected from 1964 to 1967 and this demand was received on September 1,
1967, by the City Treasurer and that the City Treasurer replied by first
indorsement dated September 11, 1967, asking for reference and verification;
and

(8) That in reply to said first indorsement, the plaintiff sent a letter to the City
Treasurer dated January 18, 1967, citing cases in support of the demand, and in
answer to that letter, the City Treasurer in his communication dated January 11,
1968, flatly denied payment of the demand.

(9) That the parties will file their respective memoranda within twenty days from
today.

WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be

rendered based upon this stipulation of facts after the parties shall have
submitted their respective memoranda or after the lapse of twenty days from
today.

Ozamiz City, December 27, 1968.6

On the basis of the foregoing Stipulation of Facts, and of the court's finding, after an ocular
inspection of the parking area designated by Ordinance No. 286, series of 1956, 7 superseding
Ordinance No. 234, series of 1953, that it is a municipal street, although part of the public
market, said court rendered judgment on March 18, 1969 declaring that such parking fee is in
the nature of toll fees for the use of public road and made in violation of Section 59[b] of
Republic Act No. 4136 (Land Transportation and Traffic Code), there being no prior approval
therefor by the President of the Philippines upon recommendation of the Secretary of Public
Works and Communications (now Public Works). Hence, the present appeal by certiorari.

Petitioner now contends that the lower court erred: (1) in declaring Ordinance No. 466, series
of 1964, of Ozamiz City, null and void; (2) in considering parking fees as road tolls under Section
59[b] of Republic Act No. 4136; (3) in declaring the parking area as a public street and not the
patrimonial property of the city; and (4) in ordering the reimbursement of parking fees paid by
respondent-appellee.

Decisive of this controversy is whether the Municipal Board of the City of Ozamiz, herein
petitioner-appellant, had the power to enact said Ordinance No. 466.

Petitioner-appellant, in maintaining the affirmative view, contends: (1)that the ordinance is

valid for the fees collected thereunder are in the nature of property rentals for the use of
parking spaces belonging to the City in its proprietary character, as evidenced by Tax
Declaration No. 51234, and are authorized by Section 2308 (f) of the Revised Administrative
Code, 8(2) that Section 15 (y) of the Charter of Ozamiz City (Republic Act No. 321) 9 also
authorizes the Municipal Board to regulate the use of streets which carries with it the power to
impose fees for its implementation; (3) that, pursuant to such power, the Municipal Board
passed said Ordinance No. 234, the purpose of which is to minimize accidents, to avoid
congestion of traffic, to enable the passengers to know the exact time of the departure of
trucks and, for this purpose, the Municipal Board provided for parking areas for which the City
has to have funds for the implementation of the purposes abovestated; (4) that Section 2 of the
Local Autonomy Law (Republic Act No. 2264)likewise empowers the local governments to
impose taxes and fees, except those that are enumerated therein, and parking fee is not among
the exceptions: and (5) that the word "toll" connotes the act of passing along the road and the
collection of toll fees may not be imposed unless approved by the President of the Philippines
upon the recommendation of the Secretary of Public Works, pursuant to Section 59[b] of
Republic Act No. 4136; whereas the word "parking" implies a stationary condition and the
parking fees provided for in Ordinance No. 466 is for the privilege of using the designated
parking area, which is owned by the City of Ozamiz, as its patrimonial property.

On the other hand, respondent-appellee insists (1) that Ozamiz City has no power to impose
parking fees on motor vehicles parked on Zulueta Street, which is property for public use and,
as such, Ordinance No. 466 imposing such fees is null and void; (2) that granting arguendo that
Zulueta Street is part of the City's public market site, its conversion into a street removes it
from its category as patrimonial property to one for public use; 10 (3) that the use of Zulueta
Street as a parking place is only incidental to the free passage of motor vehicles for, as soon as
the buses are loaded with passengers, the vehicles start their journey to their respective
destinations and pay the toll clerk at a station about one hundred; (100) feet ahead along
Zulueta Street before they are allowed to get out of the City and as such, the prohibition to
impose taxes or fees embodied in Section 59[b] of Republic. Act No. 4136 applies to this case;
(4) that Section 2308[f] of the Revised Administrative Code providing that the "proceeds on
income from the ... use or management of property lawfully held by the municipality" accrue to
the municipality, does not grant, either expressly or by implication, to the municipality, the
power to impose such tax, (5) that Section 15[y] of the Charter of Ozamiz City (Republic Act No.
321) which authorizes the City, among others, "to regulate the use of a street," does not
empower the City to impose parking fees; besides, said section contains a proviso, i.e., "except
as otherwise provided by law", which, in this case, is Republic Act No. 4136; and (6) that, since
the power to impose parking fees is not among those conferred by the Local Autonomy Act on
local government, said City cannot, therefore, impose such parking fees.

After the filing of its brief, or on December 10, 1969, the petitioner- appellant, through its
counsel, First Assistant City Fiscal Artemio C. Engracia, filed the following Manifestation, dated
November 27, 1969, praying that the decision of the lower court be reversed in view of the
approval by the President of the Philippines upon the recommendation of the Secretary of
Public Works of the ordinance in question that validates the same, to wit:

1. That the decision of the lower court, marked Annex "E" of the petition,
declaring Ordinance No. 466, series of 1964, of Ozamiz City, marked Annex "G"
of the petition, null and void is based on the non-compliance with the provisions
 of Section 59[b] of Republic Act No. 4136, otherwise known as The Land
Transportation Law, which requires the approval by the President of the
Philippines upon the recommendation of the Secretary of Public Works of such
kind of ordinance..

2. That the President of the Philippines has now approved the Ordinance in
question. A certified copy of said approval is hereunder quoted.

xxx xxx xxx

4th Indorsement
Manila, September 26, 1969

Respectfully returned to the Mayor, City of Ozamiz, hereby approving, as

recommended in the 3rd indorsement hereon of the Secretary of Public Works
and Communications, Ordinance No. 466, series of 1964, of that city, entitled:
"AN ORDINANCE IMPOSING PARKING FEES FOR EVERY MOTOR VEHICLE PARKED
ON ANY PORTION OF THE EXISTING PARKING SPACE IN THE OZAMIZ."

By Authority of the President:

(Sgd.) FLORES BAYOT
Assistant Executive Secretary

3. That the approval by the President of the Philippines is based upon the
recommendation of the Secretary of Public Works. A certified copy of said
recommendation is hereunder reproduced:

3rd Indorsement
June 3, 1969

Respectfully forwarded to His Excellency, the President of the Philippines,

Malacañang, recommending favorable action, in view of the representations
herein made, on the within letter dated March 21, 1969 of Mayor Hilarion A.
Ramiro, Ozamiz City, requesting approval No. 466, series of 1964, passed by the
Municipal Board, same city regarding the collection of fees for the privilege of
parking vehicles in the lots privately-owned by said City.

(Sgd.) ANTONIO V. RAQUIZA

Secretary

4. That the action of the Secretary of Public Works is based upon the findings of
the Commissioner of the Land Transportation Commission. A certified copy of
the same is herein reproduced:
 xxx xxx xxx

2nd Indorsement
May 16, 1969

Respectfully returned to the Honorable Secretary, Department of Public Works

and Communications, Manila, with the statement that this Commission
interposes no objection on the approval of Ordinance No. 466, series of 1964, of
Ozamiz City, considering that the schedule of rate collectible from the conductor,
driver, operator and/or owner as stated under Section 4 thereof appears to be
reasonable.

It may be stated in this connection that on the Decision of the CFI of Misamis
Occidental, Branch II, dated March 18, 1969 under Civil Case No. OZ(159), the
said Ordinance was declared null and void for failure to comply with the
provisions of Section 59[b] of R. A. 4136, regarding the required "approval by the
President of the Philippines upon recommendation of the Secretary of Public
Works and Communications."

(Sgd.) ROMEO F. EDU

Commissioner

The rule is well-settled that municipal corporations, being mere creatures of the law, have only
such powers as are expressly granted to them and those which are necessarily implied or
incidental to the exercise thereof, and the power to tax is inherent upon the State and it can
only be exercised by Congress, unless delegated or conferred by it to a municipal corporation.
As such, said corporation has only such powers as the legislative department may have deemed
fit to grant. By reason of the limited powers of local governments and the nature thereof, said
powers are to be construed strictissimi juris and any doubt or ambiguity arising out of the terms
used in granting said powers must be construed against the municipality. 11

The implied powers which a municipal corporation possesses and can exercise are only those
necessarily incident to the powers expressly conferred. Inasmuch as a city has no power, except
by delegation from Congress, in order to enable it to impose a tax or license fee, the power
must be expressly granted or be necessarily implied in, or incident to, the powers expressly
conferred upon the city.

Under Sec. 15[Y] of the Ozamiz City Charter (Rep. Act No. 321), the municipal board has the
power "... to regulate the use of streets, avenues, alleys, sidewalks, wharves, piers, parks,
cemeteries and other public places; ...", and in subsection [nn] of the same section 15, the
authority "To enact all ordinances it may deem necessary and proper for the sanitation and
safety, the furtherance of prosperity and the promotion of the morality, peace, good order,
comfort, convenience, and general welfare of the city and its inhabitants, and such others as
may be necessary to carry into effect and discharge the powers and duties conferred by this
Charter ..." By this express legislative grant of authority, police power is delegated to the
municipal corporation to be exercised as a governmental function for municipal purposes.

It is, therefore, patent that the City of Ozamiz has been clothed with full power to control and
regulate its streets for the purpose of promoting the public health, safety and welfare. Indeed,
municipal power to regulate the use of streets is a delegation of the police power of the
national government, and in the exercise of such power, a municipal corporation can make all
necessary and desirable regulations which are reasonable and manifestly in the interest of
public safety and convenience.

By virtue of the aforecited statutory grant of authority, the City of Ozamiz can regulate the
time, place, manner of parking in the streets and public places. It is, however, insisted that the
ordinance did not charge a parking fee but a toll fee for the use of the street. It is true that the
term " parking" ordinarily implies "something more than a mere temporary and momentary
stoppage at a curb for the purpose of loading or unloading passengers or merchandize; it
involves the idea of using a portion of the street as storage space for an automobile." 12

In the case at bar, the TPU buses of respondent-appellee Sergio S. Lumapas stopped on the
extended portion of Zulueta Street beside the public market (Exhibit "X-1" of Exhibit "X",
Development Plan for Ozamiz Market Site),and that as soon as the buses were loaded, they
proceeded to the station, about one hundred (100) feet away from the parking area, where a
toll clerk of the City collected the "Parking" fee of P1.00 per bus once a day, before said buses
were allowed to proceed to their destination.

Section 3 of the questioned Ordinance No. 466 defines the word "'parking' to mean
the stoppage of a motor vehicle of whatever kind on any portion of the existing parking
areas for the purpose of loading and unloading passengers or cargoes." 13 (Emphasis supplied.)

The word "toll" when used in connection with highways has been defined as a duty imposed on
goods and passengers travelling public roads. 14 The toll for use of a toll road is for its use in
travelling thereon, not for its use as a parking place for vehicles. 15

It is not pretended, however, that the public utility vehicles are subject to the payment, if they
pass without stopping thru the aforesaid sections of Zulueta Street. Considering that the public
utility vehicles are only charged the fee when said vehicles stop on "any portion of the
existing parking areas for the purpose of loading or unloading passengers or cargoes", the fees
collected are actually in the nature of parking fees and not toll fees for the use of Zulueta
Street. This is clear from the Stipulation of Facts which shows that fees were not exacted for
mere passage thru the street but for stopping in the designated parking areas therein to unload
or load passengers or cargoes. It was not, therefore a toll fee for the use of public roads, within
the context of Section 59[b] of Republic Act No. 4136, which requires the authorization of the
President of the Philippines.
As adverted to above, the Municipal Board of Ozamiz City is expressly granted by its Charter the
power to regulate the use of its streets. The ordinance in question appears to have been
enacted in pursuance of this grant. The parking fee imposed is minimal in amount, the
maximum being only P1.00 a day for each passenger bus and P1.00 for each cargo truck, the
rates being lower for smaller types of vehicles. This indicates that its purpose is not for revenue
but for regulation. Moreover, it is undeniable that by designating a specific place wherein
passenger and freight vehicles may load and unload passengers and cargoes, benefits are
accorded to the city's residents in the form of increased safety and convenience arising from
the decongestion of traffic.

Undoubtedly the city may impose a fee sufficient in amount to include the expense of issuing
the license and the cost of necessary inspection or police surveillance connected with the
business or calling licensed.

The fees charged in the case at bar are undeniably to cover the expenses for supervision,
inspection and control, to ensure the smooth flow of traffic in the environs of the public
market, and for the safety and convenience of the public.

WHEREFORE, the appealed decision is hereby reversed and Ordinance No. 466, series of 1964
declared valid. No pronouncement as to costs.

Apostolic Prefect vs. Treasurer of Baguio, G.R. No. 47252. April 18, 1941
FACTS:
The Apostolic Prefect is a corporation sole, of religious character, organized under the
Philippine laws, and with residence
in Baguio. The City imposed a special assessment against properties within its territorial
jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and
sewerage system. The Apostolic Prefect contends that its properties should be free from tax.

ISSUE:
Is the Apostolic Prefect exempt from paying?

RULING:
No, it is liable.
In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there
is a recognized distinction between them in that assessment is confined to local impositions
upon property for the payment of the cost of public improvements in its immediate vicinity and
levied with reference to special benefits to the property assessed.
A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution
exempt the Apostolic Prefect from payment of said special assessment.
Furthermore, arguendo that exemption may encompass such assessment, the Apostolic Prefect
cannot claim exemption as it has not proven the property in question is used exclusively for
religious purposes; but that it appears that the same is being used to other non-religious
purposes.
Thus, the Apostolic Prefect is required to pay the special assessment.

Victorias Milling vs. PPA, G.R. No. 73705 August 27, 1987

This is a petition for review on certiorari of the July 27, 1984 Decision of the Office of the
Presidential Assistant For Legal Affairs dismissing the appeal from the adverse ruling of the
Philippine Ports Authority on the sole ground that the same was filed beyond the reglementary
period.

On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for
short) wrote petitioner Victorias Milling Co., requiring it to have its tugboats and barges
undergo harbor formalities and pay entrance/clearance fees as well as berthing fees effective
May 1, 1981. PPA, likewise, requiring petitioner to secure a permit for cargo handling
operations at its Da-an Banua wharf and remit 10% of its gross income for said operations as
the government's share.

To these demands, petitioner sent two (2) letters, both dated June 2, 1981, wherein it
maintained that it is exempt from paying PPA any fee or charge because: (1) the wharf and an
its facilities were built and installed in its land; (2) repair and maintenance thereof were and
solely paid by it; (3) even the dredging and maintenance of the Malijao River Channel from
Guimaras Strait up to said private wharf are being done by petitioner's equipment and
personnel; and (4) at no time has the government ever spent a single centavo for such
activities. Petitioner further added that the wharf was being used mainly to handle sugar
purchased from district planters pursuant to existing milling agreements.

In reply, on November 3, 1981, PPA Iloilo sent petitioner a memorandum of PPA's Executive
Officer, Maximo Dumlao, which justified the PPA's demands. Further request for
reconsideration was denied on January 14, 1982.

On March 29, 1982, petitioner served notice to PPA that it is appealing the case to the Court of
Tax Appeals; and accordingly, on March 31, 1982, petitioner filed a Petition for Review with the
said Court, entitled "Victorias Milling Co., Inc. v. Philippine Ports Authority," and docketed
therein as CTA Case No. 3466.
On January 10, 1984, the Court of Tax Appeals dismissed petitioner's action on the ground that
it has no jurisdiction. It recommended that the appeal be addressed to the Office of the
President.

On January 23, 1984, petitioner filed a Petition for Review with this Court, docketed as G.R. No.
66381, but the same was denied in a Resolution dated February 29, 1984.

On April 2, 1984, petitioner filed an appeal with the Office of the President, but in a Decision
dated July 27, 1984 (Record, p. 22), the same was denied on the sole ground that it was filed
beyond the reglementary period. A motion for Reconsideration was filed, but in an Order dated
December 16, 1985, the same was denied (ibid., pp. 3-21): Hence, the instant petition.

The Second Division of this Court, in a Resolution dated June 2, 1986, resolved to require the
respondents to comment (ibid., p. 45); and in compliance therewith, the Solicitor General filed
his Comment on June 4, 1986 (Ibid., pp. 50-59).

In a Resolution of July 2, 1986, petitioner was required to file a reply (Ibid., p. 61) but before
receipt of said resolution, the latter filed a motion on July 1, 1986 praying that it be granted
leave to file a reply to respondents' Comment, and an extension of time up to June 30, 1986
within which to file the same. (Ibid., p. 62).

On July 18, 1986, petitioner filed its reply to respondents' Comment (Ibid., pp. 68-76).

The Second Division of this Court, in a Resolution dated August 25, 1986, resolved to give due
course to the petition and to require the parties to file their respective simultaneous
memoranda (Ibid., p. 78).

On October 8, 1986, the Solicitor General filed a Manifestation and Rejoinder, stating, among
others, that respondents are adopting in toto their Comment of June 3, 1986 as their
memorandum; with the clarification that the assailed PPA Administrative Order No. 13-77 was
duly published in full in the nationwide circulated newspaper, "The Times Journal", on
November 9,1977 (ibid., pp. 79-81).

The sole legal issue raised by the petitioner is —

WHETHER OR NOT THE 30-DAY PERIOD FOR APPEAL UNIDER SECTION 131 OF PPA
ADMINISTRATIVE ORDER NO. 13-77 WAS TOLLED BY THE PENDENCY OF THE PETITIONS FILED
FIRST WITH THE COURT OF TAX APPEALS, AND THEN WITH THIS HONORABLE TRIBUNAL.

The instant petition is devoid of merit.

Petitioner, in holding that the recourse first to the Court of Tax Appeals and then to this Court
tolled the period to appeal, submits that it was guided, in good faith, by considerations which
lead to the assumption that procedural rules of appeal then enforced still hold true. It contends
that when Republic Act No. 1125 (creating the Court of Tax Appeals) was passed in 1955, PPA
was not yet in existence; and under the said law, the Court of Tax Appeals had exclusive
appellate jurisdiction over appeals from decisions of the Commissioner of Customs regarding,
among others, customs duties, fees and other money charges imposed by the Bureau under the
Tariff and Customs Code. On the other hand, neither in Presidential Decree No. 505, creating
the PPA on July 11, 1974 nor in Presidential Decree No. 857, revising its charter (said decrees,
among others, merely transferred to the PPA the powers of the Bureau of Customs to impose
and collect customs duties, fees and other money charges concerning the use of ports and
facilities thereat) is there any provision governing appeals from decisions of the PPA on such
matters, so that it is but reasonable to seek recourse with the Court of Tax Appeals. Petitioner,
likewise, contends that an analysis of Presidential Decree No. 857, shows that the PPA is vested
merely with corporate powers and duties (Sec. 6), which do not and can not include the power
to legislate on procedural matters, much less to effectively take away from the Court of Tax
Appeals the latter's appellate jurisdiction.

These contentions are untenable for while it is true that neither Presidential Decree No. 505
nor Presidential Decree No. 857 provides for the remedy of appeal to the Office of the
President, nevertheless, Presidential Decree No. 857 empowers the PPA to promulgate such
rules as would aid it in accomplishing its purpose. Section 6 of the said Decree provides —

Sec. 6. Corporate Powers and Duties —

a. The corporate duties of the Authority shall be:

xxx xxx xxx

(III) To prescribe rules and regulations, procedures, and guidelines

governing the establishment, construction, maintenance, and
operation of all other ports, including private ports in the country.

xxx xxx xxx

Pursuant to the aforequoted provision, PPA enacted Administrative Order No. 13-77 precisely
to govern, among others, appeals from PPA decisions. It is now finally settled that
administrative rules and regulations issued in accordance with law, like PPA Administrative
Order No. 13-77, have the force and effect of law (Valerio vs. Secretary of Agriculture and
Natural Resources, 7 SCRA 719; Antique Sawmills, Inc. vs. Zayco, et al., 17 SCRA 316; and
Macailing vs. Andrada, 31 SCRA 126), and are binding on all persons dealing with that body.

As to petitioner's contention that Administrative Order No. 13-77, specifically its Section 131,
only provides for appeal when the decision is adverse to the government, worth mentioning is
the observation of the Solicitor General that petitioner misleads the Court. Said Section 131
provides —
 Sec. 131. Supervisory Authority of General Manager and PPA Board. — If in any
case involving assessment of port charges, the Port Manager/OIC renders a
decision adverse to the government, such decision shall automatically be
elevated to, and reviewed by, the General Manager of the authority; and if the
Port Manager's decision would be affirmed by the General Manager, such
decision shall be subject to further affirmation by the PPA Board before it shall
become effective; Provided, however, that if within thirty (30) days from receipt
of the record of the case by the General Manager, no decision is rendered, the
decision under review shall become final and executory; Provided further, that
any party aggrieved by the decision of the General Manager as affirmed by the
PPA Board may appeal said decision to the Office of the President within thirty
(30) days from receipt of a copy thereof. (Emphasis supplied).

From a cursory reading of the aforequoted provision, it is evident that the above contention has
no basis.

As to petitioner's allegation that to its recollection there had been no prior publication of said
PPA Administrative Order No. 13-77, the Solicitor General correctly pointed out that said
Administrative Order was duly published in full in the nationwide newspaper, "The Times
Journal", on November 9,1977.

Moreover, it must be stated that as correctly observed by the Solicitor General, the facts of this
case show that petitioner's failure to appeal to the Office of the President on time stems
entirely from its own negligence and not from a purported ignorance of the proper procedural
steps to take. Petitioner had been aware of the rules governing PPA procedures. In fact, as
embodied in the December 16, 1985 Order of the Office of the President, petitioner even
assailed the PPA's rule making powers at the hearing before the Court of Tax Appeals.

It is axiomatic that the right to appeal is merely a statutory privilege and may be exercised only
in the manner and in accordance with the provision of law (United CMC Textile Workers Union
vs. Clave, 137 SCRA 346, citing the cases of Bello vs. Fernando, 4 SCRA 138; Aguila vs. Navarro,
55 Phil. 898; and Santiago vs. Valenzuela, 78 Phil. 397).

Furthermore, even if petitioner's appeal were to be given due course, the result would still be
the same as it does not present a substantially meritorious case against the PPA.

Petitioner maintains and submits that there is no basis for the PPA to assess and impose the
dues and charges it is collecting since the wharf is private, constructed and maintained at no
expense to the government, and that it exists primarily so that its tugboats and barges may
ferry the sugarcane of its Panay planters.

As correctly stated by the Solicitor General, the fees and charges PPA collects are not for the
use of the wharf that petitioner owns but for the privilege of navigating in public waters, of
entering and leaving public harbors and berthing on public streams or waters. (Rollo, pp. 056-
057).

In Compañia General de Tabacos de Filipinas vs. Actg. Commissioner of Customs (23 SCRA 600),
this Court laid down the rule that berthing charges against a vessel are collectible regardless of
the fact that mooring or berthing is made from a private pier or wharf. This is because the
government maintains bodies of water in navigable condition and it is to support its operations
in this regard that dues and charges are imposed for the use of piers and wharves regardless of
their ownership.

As to the requirement to remit 10% of the handling charges, Section 6B-(ix) of the Presidential
Decree No. 857 authorized the PPA "To levy dues, rates, or charges for the use of the premises,
works, appliances, facilities, or for services provided by or belonging to the Authority, or any
organization concerned with port operations." This 10% government share of earnings of
arrastre and stevedoring operators is in the nature of contractual compensation to which a
person desiring to operate arrastre service must agree as a condition to the grant of the permit
to operate.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

SO ORDERED.

Caltex vs. COA, G.R. No. 92585 May 8, 1992

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the
authority of the Commission on Audit (COA) in disallowing petitioner's claims for
reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said
Commission's decision denying its claims for recovery of financing charges from the Fund and
reimbursement of underrecovery arising from sales to the National Power Corporation, Atlas
Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining
Corporation (MAR-COPPER), preventing it from exercising the right to offset its remittances
against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending
resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).

Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty
(30) days from receipt of a copy thereof. The certiorari referred to is the special civil action
for certiorari under Rule 65 of the Rules of Court. 4

Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the
findings and rulings of the administrator of the fund itself and in disallowing a claim which is
still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely
without jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount
that it may be required under the law to remit to the OPSF against any amount that it may
receive by way of reimbursement therefrom are sufficient to bring this petition within Rule 65
of the Rules of Court, and, considering further the importance of the issues raised, the error in
the designation of the remedy pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.)
No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as
follows:

Sec. 8 . There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization Fund may be sourced from any of
the following:

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 by persons or companies engaged in the business of
importing, manufacturing and/or marketing petroleum products;

d) Any resulting peso cost 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.

The Fund herein created shall be used for the following:

 1) 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 under-

recovery incurred as a result of the reduction of domestic prices
of petroleum products. The magnitude of the underrecovery, if
any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:

i. Reduction in oil company take as directed by the

Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time of
the price change;

ii. Reduction in internal ad valorem taxes as a result

of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the

Ministry of Finance to result in cost underrecovery.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of
Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not
disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred
to as Petitioner, directing the latter to remit to the OPSF its collection, excluding that
unremitted for the years 1986 and 1988, of the additional tax on petroleum products
authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987,
amounted to P335,037,649.00 and informing it that, pending such remittance, all of its claims
for reimbursement from the OPSF shall be held in abeyance. 6

On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification
with the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:

1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;
directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from
receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from further offsetting the taxes
collected against outstanding claims in 1989 and subsequent periods. 7

In its letter of 3 May 1989, petitioner requested the COA for an early release of its
reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs
since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the
lifting of pre-audit of government transactions of national government agencies and
government-owned or controlled corporations. 8

In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the
reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to
forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit
action on the reimbursement claims. 9

By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal
for the payment of the collections and the recovery of claims, since the outright payment of the
sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the
OPSF will cause a very serious impairment of its cash position. 10 The proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate

monitoring of payments and reimbursements will be administered
by the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.

(2) For the retroactive period, Caltex will deliver to OEA, P1.287
billion as payment to OPSF, similarly OEA will deliver to Caltex the
same amount in cash reimbursement from OPSF.

(3) The COA audit will commence immediately and will be

conducted expeditiously.

(4) The review of current claims (1989) will be conducted

expeditiously to preclude further accumulation of reimbursement
from OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921
accepting the above-stated proposal but prohibiting petitioner from further offsetting
remittances and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:
 This pertains to the within separate requests of Mr. Manuel A. Estrella,
President, Petron Corporation, and Mr. Francis Ablan, President and Managing
Director, Caltex (Philippines) Inc., for reconsideration of this Commission's
adverse action embodied in its letters dated February 2, 1989 and March 9,
1989, the former directing immediate remittance to the Oil Price Stabilization
Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O.
No. 137, S. 1987, and the latter reiterating the same directive but further
advising the firms to desist from offsetting collections against their claims with
the notice that "this Commission will hold in abeyance the audit of all . . . claims
for reimbursement from the OPSF."

It appears that under letters of authority issued by the Chairman, Energy

Regulatory Board, the aforenamed oil companies were allowed to offset the
amounts due to the Oil Price Stabilization Fund against their outstanding claims
from the said Fund for the calendar years 1987 and 1988, pending with the then
Ministry of Energy, the government entity charged with administering the OPSF.
This Commission, however, expressing serious doubts as to the propriety of the
offsetting of all types of reimbursements from the OPSF against all categories of
remittances, advised these oil companies that such offsetting was bereft of legal
basis. Aggrieved thereby, these companies now seek reconsideration and in
support thereof clearly manifest their intent to make arrangements for the
remittance to the Office of Energy Affairs of the amount of collections equivalent
to what has been previously offset, provided that this Commission authorizes the
Office of Energy Affairs to prepare the corresponding checks representing
reimbursement from the OPSF. It is alleged that the implementation of such an
arrangement, whereby the remittance of collections due to the OPSF and the
reimbursement of claims from the Fund shall be made within a period of not
more than one week from each other, will benefit the Fund and not unduly
jeopardize the continuing daily cash requirements of these firms.

Upon a circumspect evaluation of the circumstances herein obtaining, this

Commission perceives no further objectionable feature in the proposed
arrangement, provided that 15% of whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same to be answerable for
suspensions or disallowances, errors or discrepancies which may be noted in the
course of audit and surcharges for late remittances without prejudice to similar
future retentions to answer for any deficiency in such surcharges, and provided
further that no offsetting of remittances and reimbursements for the current
and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive
Director Wenceslao R. De la Paz of the Office of Energy Affairs: 12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and
based on our initial verification of documents submitted to us by your Office in
support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31,
1989, as well as its outstanding claims against the Oil Price Stabilization Fund
(OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex
(Philippines), Inc. shall be required to remit to OPSF an amount of
P1,505,668,906, representing remittances to the OPSF which were offset against
its claims reimbursements (net of unsubmitted claims). In addition, the
Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to cause
payment of P1,959,182,612 to Caltex, representing claims initially allowed in
audit, the details of which are presented hereunder: . . .

As presented in the foregoing computation the disallowances totalled

P387,683,535, which included P130,420,235 representing those claims
disallowed by OEA, details of which is (sic) shown in Schedule 1 as summarized
as follows:

Disallowance of COA
Particulars Amount

Recovery of financing charges P162,728,475 /a

Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300

Disallowances of OEA 130,420,235

————————— ——————
Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate
that recovery of financing charges by oil companies is not among the items for
which the OPSF may be utilized. Therefore, it is our view that recovery of
financing charges has no legal basis. The mechanism for such claims is provided
in DOF Circular 1-87.

b. Product Sales –– Sales to International Vessels/Airlines

 BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order
No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that
(sic) oil companies should pay OPSF impost on export sales of petroleum
products. Effective February 7, 1987 sales to international vessels/airlines should
not be included as part of its domestic sales. Changing the effectivity date of the
resolution from February 7, 1987 to October 20, 1987 as covered by subsequent
ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to
include in their domestic sales volumes to international vessels/airlines and
claim the corresponding reimbursements from OPSF during the period. It is our
opinion that the effectivity of the said resolution should be February 7, 1987.

c. Inventory losses –– Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions

including the related BLA agreement, as they affect the claims for
reimbursements of ad valorem taxes. We observed that oil companies
immediately settle ad valorem taxes for BLA transaction (sic). Loan balances
therefore are not tax paid inventories of Caltex subject to reimbursements but
those of the borrower. Hence, we recommend reduction of the claim for July,
August, and November, 1987 amounting to P14,034,786.

d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges
whether direct or indirect due and payable by the copper mining companies in
distress to the national and local governments." It is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected by
OEA has no legal basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the

amount as herein authorized shall be subject to availability of funds of OPSF as
of May 31, 1989 and applicable auditing rules and regulations. With regard to
the disallowances, it is further informed that the aggrieved party has 30 days
within which to appeal the decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the
decision based on the following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,

ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE
AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO.
137.
 xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF

EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY
BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED
NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY

THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.

xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14

On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171
reads as follows:

Anent the recovery of financing charges you contend that Caltex Phil. Inc. has
the .authority to recover financing charges from the OPSF on the basis of
Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which
allowed oil companies to "recover cost of financing working capital associated
with crude oil shipments," and provided a schedule of reimbursement in terms
of peso per barrel. It appears that on November 6, 1989, the DOF issued a
memorandum to the President of the Philippines explaining the nature of these
financing charges and justifying their reimbursement as follows:

As part of your program to promote economic recovery, . . . oil

companies (were authorized) to refinance their imports of crude
oil and petroleum products from the normal trade credit of 30
days up to 360 days from date of loading . . . Conformably . . ., the
oil companies deferred their foreign exchange remittances for
purchases by refinancing their import bills from the normal 30-
day payment term up to the desired 360 days. This refinancing of
importations carried additional costs (financing charges) which
then became, due to government mandate, an inherent part of
the cost of the purchases of our country's oil requirement.
 We beg to disagree with such contention. The justification that financing charges
increased oil costs and the schedule of reimbursement rate in peso per barrel
(Exhibit 1) used to support alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the same formula which
the DOF used in arriving at the reimbursement rate but using comparable
percentages instead of pesos, the ineluctable conclusion is that the oil
companies are actually gaining rather than losing from the extension of credit
because such extension enables them to invest the collections in marketable
securities which have much higher rates than those they incur due to the
extension. The Data we used were obtained from CPI (CALTEX) Management and
can easily be verified from our records.

With respect to product sales or those arising from sales to international vessels
or airlines, . . ., it is believed that export sales (product sales) are entitled to claim
refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the
considered view of this Commission that the OPSF is not liable to refund such
surtax on inventory losses because these are paid to BIR and not OPSF, in view of
which CPI (CALTEX) should seek refund from BIR. . . .

Finally, as regards the sales to Atlas and Marcopper, it is represented that you
are entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July
17, 1984, since these copper mining companies did not pay CPI (CALTEX) and
OPSF imposts which were added to the selling price.

Upon a circumspect evaluation, this Commission believes and so holds that the
CPI (CALTEX) has no authority to claim reimbursement for this uncollected OPSF
impost because LOI 1416 dated July 17, 1984, which exempts distressed mining
companies from "all taxes, duties, import fees and other charges" was issued
when OPSF was not yet in existence and could not have contemplated OPSF
imposts at the time of its formulation. Moreover, it is evident that OPSF was not
created to aid distressed mining companies but rather to help the domestic oil
industry by stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it
imputes to the COA the commission of the following errors: 16

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING

CHARGES FROM THE OPSF.

II
 RESPONDENT COMMISSION ERRED IN DISALLOWING
17
CPI's CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES
TO NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR

REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS

LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-
VIS THE OPSF.

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE

STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the
petition within ten (10) days from notice. 18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by
the Office of the Solicitor General, filed their Comment. 19

This Court resolved to give due course to this petition on 30 May 1991 and required the parties
to file their respective Memoranda within twenty (20) days from notice. 20

In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the
Comment filed on 6 September 1990 be considered as the Memorandum for respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.

I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:

(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added
a second purpose, to wit:

2) To reimburse the oil companies for possible cost underrecovery incurred as a

result of the reduction of domestic prices of petroleum products. The magnitude
of the underrecovery, if any, shall be determined by the Ministry of Finance.
"Cost underrecovery" shall include the following:
 i. Reduction in oil company take as directed by the Board of
Energy without the corresponding reduction in the landed cost of
oil inventories in the possession of the oil companies at the time
of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing

government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance

to result in cost underrecovery.

the "other factors" mentioned therein that may be determined by the Ministry (now
Department) of Finance may include financing charges for "in essence, financing charges
constitute unrecovered cost of acquisition of crude oil incurred by the oil companies," as
explained in the 6 November 1989 Memorandum to the President of the Department of
Finance; they "directly translate to cost underrecovery in cases where the money market
placement rates decline and at the same time the tax on interest income increases. The
relationship is such that the presence of underrecovery or overrecovery is directly dependent
on the amount and extent of financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on
the basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing working capital

associated with crude oil shipments, the following guidelines on the utilization of
the Oil Price Stabilization Fund pertaining to the payment of the foregoing (sic)
exchange risk premium and recovery of financing charges will be implemented:

1. The OPSF foreign exchange premium shall be reduced to a flat

rate of one (1) percent for the first (6) months and 1/32 of one
percent per month thereafter up to a maximum period of one
year, to be applied on crude oil' shipments from January 1, 1987.
Shipments with outstanding financing as of January 1, 1987 shall
be charged on the basis of the fee applicable to the remaining
period of financing.

2. In addition, for shipments loaded after January 1987, oil

companies shall be allowed to recover financing charges directly
from the OPSF per barrel of crude oil based on the following
schedule:

F
i
n
a
n
c
i
n
g

P
e
r
i
o
d

R
e
i
m
b
u
r
s
e
m
e
n
t

R
a
t
e

P
e
s
o
s

p
e
r
 B
a
r
r
e
l

Less than 180 days None

180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28

The above rates shall be subject to review every sixty

days. 22

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised
the Office of Energy Affairs as follows:

HON. VICENTE T. PATERNO

Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila

Dear Sir:

This refers to the letters of the Oil Industry dated December 4, 1986 and
February 5, 1987 and subsequent discussions held by the Price Review
committee on February 6, 1987.

On the basis of the representations made, the Department of Finance recognizes

the necessity to reduce the foreign exchange risk premium accruing to the Oil
Price Stabilization Fund (OPSF). Such a reduction would allow the industry to
recover partly associated financing charges on crude oil imports. Accordingly, the
OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for the
first six (6) months plus 1/32% of 1% per month thereafter up to a maximum
period of one year, effective January 1, 1987. In addition, since the prevailing
company take would still leave unrecovered financing charges, reimbursement
may be secured from the OPSF in accordance with the provisions of the attached
Department of Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the
guidelines for the computation of the foreign exchange risk fee and the recovery of financing
charges from the OPSF, to wit:

B. FINANCE CHARGES

1. Oil companies shall be allowed to recover financing charges

directly from the OPSF for both crude and product shipments
loaded after January 1, 1987 based on the following rates:

F
i
n
a
n
c
i
n
g

P
e
r
i
o
d

R
e
i
m
b
u
r
s
e
m
e
n
t

R
a
t
 e

(
P
B
b
l
.
)

Less than 180 days None

180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28

2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing
further guidelines on the recoverability of financing charges, to wit:

Following are the supplemental rules to Department of Finance Circular No. 1-87
dated February 18, 1987 which allowed the recovery of financing charges
directly from the Oil Price Stabilization Fund. (OPSF):

1. The Claim for reimbursement shall be on a per shipment basis.

2. The claim shall be filed with the Office of Energy Affairs

together with the claim on peso cost differential for a particular
shipment and duly certified supporting documents provided for
under Ministry of Finance No. 11-85.

3. The reimbursement shall be on the form of reimbursement

certificate (Annex A) to be issued by the Office of Energy Affairs.
The said certificate may be used to offset against amounts
payable to the OPSF. The oil companies may also redeem said
certificates in cash if not utilized, subject to availability of funds. 25

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-
017. 26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in
the light of the determination of executive agencies. The determination by the Department of
Finance and the OEA that financing charges are recoverable from the OPSF is entitled to great
weight and consideration. 27 The function of the COA, particularly in the matter of allowing or
disallowing certain expenditures, is limited to the promulgation of accounting and auditing
rules for, among others, the disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and properties. 28

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's
claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly
raised and not supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:

1. The Constitution gives the COA discretionary power to disapprove irregular or

unnecessary government expenditures and as the monetary claims of petitioner
are not allowed by law, the COA acted within its jurisdiction in denying them;

2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing
charges from the OPSF;

3. Under the principle of ejusdem generis, the "other factors" mentioned in the
second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors
which are of the same nature or analogous to those enumerated;"

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87

of the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and

5. Department of Finance rules and regulations implementing P.D. No. 1956 do

not likewise allow reimbursement of financing
29
charges.

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We find the
theory of petitioner –– that such does not extend to the disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable expenditures, or use of government funds and
properties, but only to the promulgation of accounting and auditing rules for, among others,
such disallowance –– to be untenable in the light of the provisions of the 1987 Constitution and
related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
 instrumentalities, including government-owned and controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or indirectly,
from or through the government, which are required by law or the granting
institution to submit to such audit as a condition of subsidy or equity. However,
where the internal control system of the audited agencies is inadequate, the
Commission may adopt such measures, including temporary or special pre-audit,
as are necessary and appropriate to correct the deficiencies. It shall keep the
general accounts, of the Government and, for such period as may be provided by
law, preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in
this Article, to define the scope of its audit and examination, establish the
techniques and methods required therefor, and promulgate accounting and
auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or,
unconscionable expenditures, or uses of government funds and properties.

These present powers, consistent with the declared independence of the Commission, 30 are
broader and more extensive than that conferred by the 1973 Constitution. Under the latter, the
Commission was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts
pertaining to the revenues, and receipts of, and expenditures or uses of funds
and property, owned or held in trust by, or pertaining to, the Government, or
any of its subdivisions, agencies, or instrumentalities including government-
owned or controlled corporations, keep the general accounts of the Government
and, for such period as may be provided by law, preserve the vouchers
pertaining thereto; and promulgate accounting and auditing rules and
regulations including those for the prevention of irregular, unnecessary,
excessive, or extravagant expenditures or uses of funds and property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's
precursor, the General Auditing Office, were, unfortunately, limited; its very role was markedly
passive. Section 2 of Article XI thereof provided:

Sec. 2. The Auditor General shall examine, audit, and settle all accounts
pertaining to the revenues and receipts from whatever source, including trust
funds derived from bond issues; and audit, in accordance with law and
administrative regulations, all expenditures of funds or property pertaining to or
held in trust by the Government or the provinces or municipalities thereof. He
 shall keep the general accounts of the Government and the preserve the
vouchers pertaining thereto. It shall be the duty of the Auditor General to bring
to the attention of the proper administrative officer expenditures of funds or
property which, in his opinion, are irregular, unnecessary, excessive, or
extravagant. He shall also perform such other functions as may be prescribed by
law.

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant

expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the
power to issue rules and regulations to prevent the same. His was merely to bring that matter
to the attention of the proper administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs. Aquino, 33 are no longer controlling as the two (2) were decided in
the light of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and property. Our present Constitution
retains that same power and authority, further strengthened by the definition of the COA's
general jurisdiction in Section 26 of the Government Auditing Code of the Philippines 34 and
Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing
rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 77-
55. Since the COA is responsible for the enforcement of the rules and regulations, it goes
without saying that failure to comply with them is a ground for disapproving the payment of
the proposed expenditure. As observed by one of the Commissioners of the 1986 Constitutional
Commission, Fr. Joaquin G. Bernas: 37

It should be noted, however, that whereas under Article XI, Section 2, of the
1935 Constitution the Auditor General could not correct "irregular, unnecessary,
excessive or extravagant" expenditures of public funds but could only "bring [the
matter] to the attention of the proper administrative officer," under the 1987
Constitution, as also under the 1973 Constitution, the Commission on Audit can
"promulgate accounting and auditing rules and regulations including those for
the prevention and disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures or uses of government funds and
properties." Hence, since the Commission on Audit must ultimately be
responsible for the enforcement of these rules and regulations, the failure to
comply with these regulations can be a ground for disapproving the payment of
a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more
active role and invested it with broader and more extensive powers, they did not intend merely
to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and
independent watchdog of the Government.

The issue of the financing charges boils down to the validity of Department of Finance Circular
No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA,
issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to
determine "other factors" which may result in cost underrecovery and a consequent
reimbursement from the OPSF.

The Solicitor General maintains that, following the doctrine of ejusdem generis, financing
charges are not included in "cost underrecovery" and, therefore, cannot be considered as one
of the "other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not
explicitly define what "cost underrecovery" is. It merely states what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of
the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government

mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in

cost underrecovery.

These "other factors" can include only those which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that
they are in the nature of government mandated price reductions. Hence, any other factor
which seeks to be a part of the enumeration, or which could qualify as a cost underrecovery,
must be of the same class or nature as those specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance
broad and unrestricted authority to determine or define "other factors."

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words are not to
be construed in their widest extent, but are held to be as applying only to persons or things of
the same kind or class as those specifically mentioned. 38 A reading of subparagraphs (i) and (ii)
easily discloses that they do not have a common characteristic. The first relates to price
reduction as directed by the Board of Energy while the second refers to reduction in internal ad
valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these
subparagraphs. What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows
cost underrecovery only if such were incurred as a result of the reduction of domestic prices of
petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in
the sense that such were incurred as a result of the inability to fully offset financing expenses
from yields in money market placements, they do not, however, fall under the foregoing
provision of P.D. No. 1956, as amended, because the same did not result from the reduction of
the domestic price of petroleum products. Until paragraph (2), Section 8 of the decree, as
amended, is further amended by Congress, this Court can do nothing. The duty of this Court is
not to legislate, but to apply or interpret the law. Be that as it may, this Court wishes to
emphasize that as the facts in this case have shown, it was at the behest of the Government
that petitioner refinanced its oil import payments from the normal 30-day trade credit to a
maximum of 360 days. Petitioner could be correct in its assertion that owing to the extended
period for payment, the financial institution which refinanced said payments charged a higher
interest, thereby resulting in higher financing expenses for the petitioner. It would appear then
that equity considerations dictate that petitioner should somehow be allowed to recover its
financing losses, if any, which may have been sustained because it accommodated the request
of the Government. Although under Section 29 of the National Internal Revenue Code such
losses may be deducted from gross income, the effect of that loss would be merely to reduce
its taxable income, but not to actually wipe out such losses. The Government then may consider
some positive measures to help petitioner and others similarly situated to obtain substantial
relief. An amendment, as aforestated, may then be in order.

Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of
the Department of Finance to determine or define "other factors" is to uphold an undue
delegation of legislative power, it clearly appearing that the subject provision does not provide
any standard for the exercise of the authority. It is a fundamental rule that delegation of
legislative power may be sustained only upon the ground that some standard for its exercise
is provided and that the legislature, in making the delegation, has prescribed the manner of the
exercise of the delegated authority. 39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered
irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that petitioner
failed to disprove COA's claim that it had in fact gained in the process. Otherwise stated,
petitioner failed to sufficiently show that it incurred a loss. Such being the case, how can
petitioner claim for reimbursement? It cannot have its cake and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for the
petitioner. The respondents themselves admit in their Comment that underrecovery arising
from sales to NPC are reimbursable because NPC was granted full exemption from the payment
of taxes; to prove this, respondents trace the laws providing for such exemption. 40 The last law
cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which
provides, in part, "that the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum
products . . . are restored effective March 10, 1987." In a Memorandum issued on 5 October
1987 by the Office of the President, NPC's tax exemption was confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum

products to the NPC is evident in the recently passed Republic Act No. 6952 establishing the
Petroleum Price Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic
Act No. 6952 provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for
(a) cost increases of imported crude oil and finished petroleum
products resulting from foreign exchange rate adjustments and/or
increases in world market prices of crude oil; (b) cost
underrecovery incurred as a result of fuel oil sales to the National
Power Corporation (NPC); and (c) other cost underrecoveries
incurred as may be finally decided by the Supreme
Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National
Power Corporation.

III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner
relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether direct or indirect, due and
payable by the copper mining companies in distress to the national government. Pursuant to
this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-
11-22 advising the oil companies that Atlas Consolidated Mining Corporation and Marcopper
Mining Corporation are among those declared to be in distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August
1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI
1416 which implements the exemption from payment of OPSF imposts as effected by OEA has
no legal basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no
authority to claim reimbursement for this uncollected impost because LOI 1416 dated July 17,
1984, . . . was issued when OPSF was not yet in existence and could not have contemplated
OPSF imposts at the time of its formulation." 43 It is further stated that: "Moreover, it is evident
that OPSF was not created to aid distressed mining companies but rather to help the domestic
oil industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have
intended to exempt said distressed mining companies from the payment of OPSF dues for the
following reasons:

a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D.
1956 creating the OPSF was promulgated on October 10, 1984, while E.O. 137,
amending P.D. 1956, was issued on February 25, 1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in
line with the government's effort to prevent the collapse of the copper industry.
P.D No. 1956, as amended, was issued for the purpose of minimizing frequent
price changes brought about by exchange rate adjustments and/or changes in
world market prices of crude oil and imported petroleum product's; and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other
charges, whether direct or indirect, due and payable by the copper mining
companies in distress to the Notional and Local Governments . . ." On the other
hand, OPSF dues are not payable by (sic) distressed copper companies but by oil
companies. It is to be noted that the copper mining companies do not pay OPSF
dues. Rather, such imposts are built in or already incorporated in the prices of oil
products. 44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed
mining companies, it does not accord petitioner the same privilege with respect to its obligation
to pay OPSF dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is
apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of
the Civil Code, which reads:

Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Tañada vs. Tuvera: 46

WHEREFORE, the Court hereby orders respondents to publish in the Official

Gazette all unpublished presidential issuances which are of general application,
and unless so published they shall have no binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution
promulgated on 29 December 1986, 47 ruled:

We hold therefore that all statutes, including those of local application and
private laws, shall be published as a condition for their effectivity, which shall
 begin fifteen days after publication unless a different effectivity date is fixed by
the legislature.

Covered by this rule are presidential decrees and executive orders promulgated
by the President in the exercise of legislative powers whenever the same are
validly delegated by the legislature or, at present, directly conferred by the
Constitution. Administrative rules and regulations must also be published if their
purpose is to enforce or implement existing laws pursuant also to a valid
delegation.

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall

immediately upon their approval, or as soon thereafter as possible, be published
in full in the Official Gazette, to become effective only after fifteen days from
their publication, or on another date specified by the legislature, in accordance
with Article 2 of the Civil Code.

LOI 1416 has, therefore, no binding force or effect as it was never published in the Official
Gazette after its issuance or at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on
18 June 1987. As amended, the said provision now reads:

Laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general circulation
in the Philippines, unless it is otherwise provided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation
pursuant to Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim
must still fail. Tax exemptions as a general rule are construed strictly against the grantee and
liberally in favor of the taxing authority. 48 The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so claimed. The party claiming
exemption must therefore be expressly mentioned in the exempting law or at least be within its
purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to
ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI
1416 may suspend the payment of taxes by copper mining companies, it does not give
petitioner the same privilege with respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its
jurisdiction. 49 Respondents, on the other hand, contend that said amount was already
disallowed by the OEA for failure to substantiate it. 50 In fact, when OEA submitted the claims of
petitioner for pre-audit, the abovementioned amount was already excluded.

An examination of the records of this case shows that petitioner failed to prove or substantiate
its contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has
already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said
claim must be upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner
contends that it should be allowed to offset its claims from the OPSF against its contributions to
the fund as this has been allowed in the past, particularly in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which
provides for "Retention of Money for Satisfaction of Indebtedness to
Government." 52 Petitioner also mentions communications from the Board of Energy and the
Department of Finance that supposedly authorize compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can
be no offsetting of taxes against the claims that a taxpayer may have against the government,
as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed
by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the
Revised Administrative Code, is misplaced because "while this provision empowers the COA to
withhold payment of a government indebtedness to a person who is also indebted to the
government and apply the government indebtedness to the satisfaction of the obligation of the
person to the government, like authority or right to make compensation is not given to the
private person." 54 The reason for this, as stated in Commissioner of Internal Revenue vs. Algue,
Inc., 55 is that money due the government, either in the form of taxes or other dues, is its
lifeblood and should be collected without hindrance. Thus, instead of giving petitioner a reason
for compensation or set-off, the Revised Administrative Code makes it the respondents' duty to
collect petitioner's indebtedness to the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise
as a result of taxation because "P.D. 1956, amended, did not create a source of taxation; it
instead established a special fund . . .," 56 and that the OPSF contributions do not go to the
general fund of the state and are not used for public purpose, i.e., not for the support of the
government, the administration of law, or the payment of public expenses. This alleged lack of
a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in
the Francia case is inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the
OPSF; the said law provides in part that:

Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx

(3) That no amount of the Petroleum Price Standby Fund shall be

used to pay any oil company which has an outstanding obligation
to the Government without said obligation being offset first,
subject to the requirements of compensation or offset under the
Civil Code.

We find no merit in petitioner's contention 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. 57 There can be no doubt that 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 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.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against
the government. 58 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. 59

We may even further state that technically, 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
petitioner, 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. 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. Under Article 1279 of the Civil Code, in order that compensation
may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;

(2) both debts consist in a sum of :money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been
stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced by

third persons and communicated in due time to the debtor.

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 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.

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.

RP vs. Ericta, G.R. No. L-35238 April 21, 1989

This case has to do with the so-called "back pay certificates" issued by the Philippine
Government in the aftermath of the Pacific War, pursuant to Republic Act No. 304, as amended
by Republic Act No. 800. These enactments generally recognized the right of persons who at
the outbreak of the war were employed in the classified and unclassified civil service as well as
in government-owned or controlled corporations, and those who had served in the free local
civil governments organized for purposes of resistance against the invaders, to salaries, wages,
emoluments, per diems, not received by them by reason of the war. The Treasurer of the
Philippines was empowered to receive applications for back pay and to issue in favor of the
applicants certificates of indebtedness redeemable by the Government within ten years for the
amounts determined to be justly due them.

It appears that in relation to its business of producing motion pictures, Sampaguita Pictures,
Inc., hereafter simply Sampaguita, came to incur an obligation for percentage, withholding and
amusement taxes in the amount of P10,268.41 in favor of the Republic of the Philippines. 1 In
satisfaction thereof, and of another obligation of the same nature due from Vera-Perez
Corporation, Sampaguita Pictures, Inc. tendered and delivered to the Office of the Municipal
Treasurer of Bocaue, Bulacan, on June 9, 1961, sixteen (16) back pay negotiable certificates of
indebtedness in the aggregate sum of P16,763.60, which had earlier been negotiated to them
by the original holders thereof, and official receipts therefor were duly issued. 2

Thirteen (13) days later, however, the Assistant Regional Director of the BIR wrote to Vera-
Perez Corporation (his letter is dated June 22, 1961) advising that the acceptance of the
Negotiable Certificates of Indebtedness in payment of amusement, percentage and withholding
taxes (in the total sum of P16,753.50) was erroneous and the payment was invalid, because
actually said certificates were "not acceptable as payments of internal revenue taxes in
accordance with the provisions of .. General Circular No. V-289 dated May 8, 1959." Request
was thus made for the payment of the tax liabilities in cash. 3 Evidently neither corporations
responded one way or the other to this letter. Anyway, the next letter adverted to by the
Government is that dated August 18, 1967, written by the Acting Deputy Commissioner of
Internal Revenue to both Sampaguita and Vera-Perez Corporation. 4 That letter gave the
corporations "a last 15-day period within which to pay the said amount of P16,763.50 in cash or
certified check." Again, no acceptable response seems to have been made by the corporations.
So on June 9, 1969, eight (8) years to the day when the negotiable certificates of indebtedness
were accepted in payment of taxes by the Municipal Treasurer at Bocaue, Bulacan, the Solicitor
General brought suit in behalf of the Republic of the Philippines in relation thereto. 5 The case
was docketed as Civil Case No. Q-13270 of the Court of First Instance at Quezon City, and
assigned to Branch XVIII thereof, then presided over by herein respondent, Hon. Vicente G.
Ericta. 6

The Solicitor General's complaint 7 impleaded only Sampaguita as defendant. Why he excluded
the other corporation is not disclosed by the record. In his complaint he alleged that
Sampaguita's essayed payment was void since it was "not the original holder of the ..
certificates .. but .. only a mere assignee thereof," and tinder the law," only original holders of
back pay certificates .. are allowed to use the same in payment of their own taxes," invoking
this Court's decision to that effect in de Borja v. Gella 8 promulgated on July 31, 1963.

Sampaguita's answer admitted the basic facts, but asserted that the plaintiffs cause of action
had already prescribed; that the tender of the certificates in 1961 had been "made in absolute
good faith," "prior to the promulgation of the decision .. (in) de Borja vs. Vicente Gella et al. on
July 31, 1963;" that the certificates "having duly matured .. in the year 1958, (and) plaintiff ..
(being then) already duty bound to redeem them and pay for their value," Sampaguita and the
Republic became "mutual creditors and debtors of each other for the amount of P10,268.41"
with the result that their obligations were extinguished by legal compensation." These
averments were inter alia reproduced and set up also as a counterclaim, with the additional
plea that "in the remote possibility that ..(it [Sampaguita 1) be still required .. to pay plaintiff
the amount of P10,268.41 for alleged unpaid taxes, the plaintiff be ordered to pay the
defendant the same amount of Pl 0,268.41 representing the face value of the negotiable
certificates of indebtedness."

On December 29, 1971, judgment was rendered by the Trial Judge "dismissing both the
complaint and the counterclaim without pronouncement as to costs." 9 His Honor held that
delivery of the back pay certificates by Sampaguita had not produced the effect of payment in
view of the doctrine in Borja v. Gella 10 that "the right to use backpay certificates of
indebtedness in the settlement of taxes is given only to original holders and not to mere
assignees thereof;" this notwithstanding, Sampaguita, as assignee of the certificates of
indebtedness, had "succeeded to the original rights of the holders thereof," and was therefore
authorized to demand payment by the Republic of the indebtedness thereby represented; and
while there was "opinion that (legal) compensation cannot take place against the Republic with
respect to taxes, fees, duties and similar forced contributions due to it (Civil Code, Volume IV, p.
349, Tolentino; Gasperi 204; 2 Von Tuhr Obligaciones, p. 165), there could be no gainsaying the
proposition that, under the facts, Sampaguita was entitled to judgment upon its
counterclaim for the payment by the Republic of its indebtedness in virtue of the back pay
certificates in question, with the "ultimate result .. that the claim and counter-claim of the
plaintiff and the defendant, respectively will offset each other."

The Solicitor General presented a motion of reconsideration. When this was denied, he
appealed to this Court by certiorari positing reversible legal error on the part of respondent
Judge in holding that (1) the Republic's claim is offset by Sampaguita's counterclaim, and (2) the
negotiable certificates of indebtedness in question were "long overdue and redeemable." The
petitioner's postulations are untenable.

1. The Trial Court ruled that the taxes sought to be collected by the Republic
from Sampaguita were still unpaid, its tender of the certificates of indebtedness
in question not constituting payment; hence, it ought properly to be sentenced
to pay the taxes. It also ruled that even assuming the contrary, legal
compensation as a mode of extinguishing an obligation to pay taxes was
nonetheless unavailing against the government, conformably with de Borja v.
Gella.

On the other hand, according to the Trial Court, at least as of date of judgment, more than 10
years from June 18, 1958, the date when, as expressly stated in the certificates of
indebtedness, the same were redeemable, the obligation thereby evidenced was
unquestionably already due and payable; hence, Sampaguita was entitled to a judgment against
the Republic for the payment of the face value of the certificates, the same having already been
presented and surrendered within the said period of ten years (on June 9, 1961) to the
Treasurer of the Philippines (thru the Municipal Treasurer of Bocaue, Bulacan ) 11 This is
correct. In other words, even if as the Solicitor General points out, "there is no certainty when
the certificates are actually redeemable" because the law say "that they are redeemable ..
within ten years from the date of issuance " 12 there can be no question that after the lapse of
ten (10) years from the declared date of redeemability, payment of the indebtedness was
already exigible The Trial Court was saying in effect that while judgment should be rendered in
favor of the Republic against Sampaguita for unpaid taxes in the amount of P10,268.41,
judgment ought at the same time to issue for Sampaguita commanding payment to it by the
Republic of the same sum, representing the face value of the certificates of indebtedness
assigned to it and for recovery of which it had specifically prayed in its counterclaim.

2. What has just been said confutes the petitioner's second argument that
redemption of the certificates of indebtedness was not yet demandable of it
because "there is no certainty when the certificates are actually redeemable,
within the meaning of the law." It is true that, as the Solicitor General contends,
"the law does not say that they are redeemable from its approval on June 18,
1958 but 'within ten years from the date of issuance' of the certificates, " 13 the
ineludible ineluctable fact is that more than ten (10) years have already elapsed
since their issuance and demand for payment had been made within said 10-
year period. It is useless to quibble about the precise time "within ten years"
when an obligation becomes demandable, when that period of ten years has
already expired. Whatever inexactitude might inhere in the phrase, "within ten
years," as fixing the time of exibility of the obligation in question, there can be
no debate about the proposition that the obligation became due and
demandable after ten years. It would be absurd and unfair to sanction the theory
subsumed in the Republic's petition that its obligation was not demandable
within ten years because of inexactitude yet became time-barred upon the lapse
of that self-same period.

WHEREFORE, the petition is DENIED, and the judgment subject thereof, being in accord with
the facts and the law, is AFFIRMED in toto. No costs.

SO ORDERED.